Rockstar to Lead Energy Portfolio Strategy, CEO Says. Dew Not ‘Fully Exploited,’ CFO Adds.
Meanwhile, Court Confirms $175M Award Against Bang.
Some independent Pepsi bottlers in the US may be unable to distribute Bang Energy for Vital Pharmaceuticals (VPX) following PepsiCo’s and VPX’s decision to sever ties by the end of this year. Bottlers who signed a distribution agreement with PepsiCo for Rockstar since 2020 may be prohibited from distributing Bang when the PepsiCo-VPX split is completed, according to bottler sources. Late last month, PepsiCo and VPX announced that all issues between them had been resolved after more than two years of rancor in a relationship that was supposed to last at least a decade. PepsiCo executives have told bottlers that Bang’s transition out of the system will begin in August and roll through December. According to a bottling system source, Bang has begun to reach out to independent Pepsi bottlers who had Bang prior to the PepsiCo deal. Bang CEO Jack Owoc did not return an email seeking details. The Rockstar non-compete and the split creates uncertainty as to how long independent Pepsi bottlers can produce or order Bang, deplete existing inventories, and take new orders, according to bottlers. This complicates supply and promotional conversations with retail customers and could jeopardize shelf space,
one bottler said. In some markets, Bang and Rockstar together ensure additional energy category space for Pepsi at a time when Rockstar is rebuilding. Meanwhile, independent bottlers who don’t distribute Rockstar could be in line to pick up Bang once VPX sorts out its distribution network. PepsiCo declined to comment on discussions with bottlers.
‘SETTLED AND RESOLVED.’ On the evening of June 22, Bang Energy CEO Jack Owoc issued a press release saying all disputes with PepsiCo had been “fully settled and resolved,” adding, “Our primary objective is to effectuate a smooth transition that best serves both Bang Energy’s and PepsiCo’s highly valued retail customers.” The next day, PepsiCo confirmed to BD in an emailed statement that the dispute with Bang was settled. “The parties will work together in the transition of the distribution of the Bang-branded beverages on a rolling geographic basis from PepsiCo to new channel partners on or before the end of this year,” the PepsiCo statement read. Terms of the settlement are confidential, according to PepsiCo. In a July 12 regulatory filing, PepsiCo disclosed a $141 million impairment charge related to the terminated distribution deal. During a second-quarter earnings conference call the same day, Chairman and CEO Ramon Laguarta said the financial impact of the terminated contract was “minor,” adding, “It was never essential to the energy strategy.” The Bang “relationship didn’t start well from the beginning,” Laguarta also said. “Clearly it was better to stop it because it had no long-term value for both of us.”
NEW PARTNERS. CELSIUS? Laguarta said during the same earnings call that PepsiCo was open to new energy drink distribution partnerships that would allow the company to leverage its “very strong” direct store delivery system. In an interview, CFO Hugh Johnston said “it’s not urgent” to find a new energy drink brand to distribute, pointing out that systemwide “about 10% of our truck is allied brands.” Johnston declined to address speculation that PepsiCo could now acquire or distribute fast-growing Celsius, the fitness energy brand that moved into the beer distribution networks vacated by Bang when it teamed up with PepsiCo in 2020. “If something is attractive to us from a distribution standpoint we’ll do it,” Johnston said. “If it’s not we won’t. It’s really at the edge of the strategy.” Johnston added that PepsiCo “hasn’t fully exploited” the potential for the Mtn Dew brand in the energy category. “There is a lot of opportunity to continue to grow Mtn Dew Energy,” he said. As shown in the table above, Mtn Dew Energy held slightly less than a 1 share of the US energy drink market at the end of the first quarter of this year. Separately, Laguarta hinted at coming innovation combining the sports and energy categories. The combination is reminiscent of Gatorade’s discontinued caffeinated Bolt24 Energize, as well as BodyArmor’s caffeine-spiked Edge variant launched in early 2021.
‘OPTIMISTIC ON ROCKSTAR.’ During the call, Laguarta said PepsiCo’s “commitment to the energy category remains as solid as it was earlier,” adding, “We continue to see this category as one that is growing and evolving and where we can pay in multiple ways to capture sub-segments that are starting to develop.” He went on to say that the company’s energy portfolio in the US will continue to lead with Rockstar. Added Johnston in the interview with BD: “We’re optimistic on Rockstar. We didn’t buy it to not be optimistic about how to turn it around,” he said. “We knew it was going to take a while. The brand had been in some ways underinvested for a number of years and needed to be refreshed.” Johnston pointed to zero sugar and functional variants as promising growth avenues for the brand.
ORANGE BANG. In a separate development involving Bang, a federal judge on June 30 confirmed a $175 million arbitration ruling against Bang that was awarded in April. The arbitrator had determined that VPX violated the trademark rights of California-based Orange Bang stemming from a 2010 settlement between Orange Bang and VPX that limited VPX’s use of the name “Bang.” The arbitrator also awarded a 5% royalty on US sales of Bang Energy if VPX continues to distribute and market Bang Energy in its current form and geography. The arbitrator further awarded almost $9 million in attorney’s fees. Monster Energy, which teamed up with Orange Bang to challenge Bang, will share in the award. Monster joined Orange Bang’s claim after filing a 2018 lawsuit of its own accusing VPX of making false claims about the use of creatine in Bang Energy, also at issue in the Orange Bang action. The judge in the June 30 confirmation said there was no reason to vacate the arbitrator’s decision. “The Court sees no indication that the arbitrator’s chosen remedies are ‘completely irrational’ or that he understood the law and failed to apply it,” the judge said. The award could complicate Bang’s efforts to reconstruct its distribution system post-PepsiCo. As shown in the Green Sheet accompanying this story, Bang Energy lost more than a point of volume and dollar market share in the first quarter of this year, while Celsius added about two points by both measures.
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