- PepsiCo will acquire Rockstar Energy for $3.85 billion, the beverage giant said in a press release. PepsiCo has had a distribution agreement with the energy drink producer in North America since 2009.
- PepsiCo CEO Ramon Laguarta said in a statement that the acquisition further accelerates the company's move into more "consumer-centric brands and [to] capitalize on rising demand in the functional beverage space."
- Under the existing agreement, PepsiCo is limited in what it can do in the energy drink space and who it can partner with, according to CNBC. The purchase, however, will allow PepsiCo to expand its innovation with Rockstar and some of the other brands in its portfolio such as Mountain Dew.
While PepsiCo's beverage offerings have long been tied to its namesake soda and sports drink Gatorade, the CPG giant has moved aggressively to expand its reach into better-for-you areas and faster-growing segments like energy drinks. PepsiCo and its archrival Coca-Cola have lagged behind other competitors such as Red Bull and Monster in the energy space. Coca-Cola, which owns a stake in Monster, started selling its Coke-branded energy drinks in the U.S. in January.
For PepsiCo, the nearly $4 billion it's spending for Rockstar immediately gives it a meaningful presence in a rapidly growing segment with a brand that is well known among many consumers. It's also one that PepsiCo has been working with for more than a decade through their distribution agreement, so it's no doubt familiar with the executive team at Rockstar and the company's product development pipeline.
In a note published by Seeking Alpha, Cowen analyst Vivien Azer said the deal should be complimentary to PepsiCo's small presence in energy drinks.
"Given the weakness that both (Pepsi's) energy offering and Rockstar have demonstrated recently, we will be watching scanner data for a reversal in trend, consistent with (PepsiCo's) recent commitments to increase marketing spend for its energy brands," Azer said.
In the past, PepsiCo has used its Mountain Dew platform to brand its energy drinks such as Kickstart, GameFuel and AMP. By acquiring Rockstar, PepsiCo will have more flexibility to bring the energy drink into Mountain Dew, Gatorade or other drinks in its portfolio. PepsiCo also can avoid the costly and highly risky decision of trying to create its own brand by going out and purchasing one.
Buying Rockstar "gives us the ability to play in energy from soup to nuts," Hugh Johnston, PepsiCo's chief financial officer, told The Wall Street Journal in an interview.
U.S. sales of energy drinks could total about $16.9 billion by 2022, according to Market Research Hub. Total energy drink and energy shot sales in the U.S. rose 29.8% from 2013 to 2018, CNBC reported, citing data from Mintel. Sales last year totaled about $13.5 billion. The segment has grown so popular that even Amazon last spring launched its own private-label energy drinks under its Solimo brand, called Solimo Red Energy Drink and Solimo Silver Energy Drink.
While soda still accounts for much of PepsiCo's revenue on the beverage side, it has been aggressively turning to M&A to purchase drinks that mirror consumer trends — a strategy it also has adopted on the snacks side of its business, too. In the last few years, PepsiCo's beverage unit purchased at-home water carbonator company SodaStream for $3.2 billion, and CytoSport — which makes protein powders, shakes and bars under the Muscle Milk and Evolve Protein brands — for $465 million.
Not all its efforts to expand into healthier categories have been a success. PepsiCo's Kevita, which it announced it would buy in 2016, recently unveiled a new look as it tries to stand out in a crowded and slower-growing kombucha category. Still, as PepsiCo and its competitors look to reposition their offerings — most notably among younger individuals whose buying power is rapidly increasing — they will continue to acquire brands that appease consumers watching what they put in their bodies or eager for a quick pick-me-up on the go.