Red Bull Posts Sales Decline As Competition In Energy Drinks Grows
Austria-based energy drink producer Red Bull has announced a drop in revenues for 2009 which it has attributed to the global economic slowdown. For the year the company's net sales came in at EUR3.27bn, down 1.5% on the previous 12 months. The drop in sales follows dynamic growth in previous years (see chart) and while BMI agrees that the global economic slowdown will have played a part, the firm is also likely to have been hit by an increase in competition, with a host of imitators now operating in the high growth energy drink segment.
Red Bull was established in 1987 with Austrian entrepreneur Dietrich Mateschitz basing the branding and recipe on a product sold by Thailand-based T.C. Pharmaceuticals.The Austrian-based firm entered its first foreign market in 1992 and entered the US in 1997. During this period of aggressive international expansion Red Bull often had to sell the concept of energy drinks before it could sell its own product. The firm almost single-handedly created the global market for energy drinks, and this first-mover advantage means that Red Bull now controls around 70% of the worldwide energy drink market.
However, while the firm still holds a dominant position in many important markets Red Bull is no longer the only player in town. PepsiCo and The Coca-Cola Company (TCCC) have both launched their own energy drinks, with brands such as Amp and Relentless having moderate success in some markets, while the sector has also been targeted by private label producers. Perhaps the most serious challenge to Red Bull's dominant position has come from US-based imitators Rockstar and Monster, owned by Rockstar Energy Drink and Hansen Natural respectively, which have forged ahead in North America and have been expanding distribution elsewhere through licensing deals with the major Pepsi and Coca-Cola bottlers. These new products have introduced price competition to the sector and this is likely to have become increasingly important during the downturn. For example Relentless sells for a similar price to Red Bull but is double the size, while private label versions can be up to 50% cheaper.
PepsiCo and TCCC's limited success in the energy drink sector, which has seen the companies' bottlers agree to act as distributors of brands owned by other firms, is perhaps surprising given their huge marketing and distributing muscle. BMI would attribute this to the 'antiestablishment' credentials required of an energy drink. As a drink primarily consumed by teenagers and young adults during a night out (summed up by Rockstar's strapline: 'Party Like A Rockstar') the success of an energy drink is primarily centred around its image and it is notable that the most successful brands have been owned by private companies that do not have the responsibility of explaining the latest risqué and/or expensive marketing scheme to shareholders. For example it is difficult to imagine TCCC's shareholders allowing the firm to fund a Formula One racing team as Red Bull has done for the last five years.
Despite this step-change in the amount of competition, BMI would not expect Red Bull to move into long-term decline. The energy drink segment was one of the fastest growing soft drink categories prior to the economic downturn and the sector is expected to continue expanding at a rapid rate in future years. However, the firm's market share will undoubtedly come under more pressure, with Monster and Rockstar, together with their multinational bottling partners, looking best-placed to loosen the firm's grip on the market.