PepsiCo takes $550 million stake in energy drink maker Celsius

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Celsius energy drinks

Courtesy of Celsius Holdings

PepsiCo on Monday announced a $550 million investment in energy drink maker Celsius Holdings as part of a long-term distribution deal with the small company.

Shares of Celsius closed up 11% on the news, taking its market value to $7.45 billion.

Celsius expects to gain more shelf space at existing retailers and expand further into independent stores, such as gas stations. Pepsi will participate in the distribution starting Monday.

Pepsi’s investment in Celsius results in an approximately 8.5% minority stake in the company. The food and beverage giant will also appoint a director to sit on the Celsius board.

Celsius, which was founded in 2005, has seen explosive growth in its energy drinks during the pandemic. In the first quarter, its revenue in the United States jumped 217% to $123.5 million.

The company markets its drinks as “healthy” energy drinks, targeting young, active and exercising consumers. Celsius drinks contain ingredients such as ginger and green tea and no artificial preservatives or sugar. The company also claims that the drinks have thermogenic properties, which means consuming them can help increase metabolism and burn calories.

For Pepsi, the deal helps strengthen its ties with energy drinks. The category is one of the fastest growing beverage segments outside of alcohol, and Pepsi has doubled its power consumption in recent years as soda consumption declines. In early 2020, it bought former energy drink maker Rockstar for $3.85 billion in a bid to revitalize its sales. Celsius recently topped the mark as the fourth most popular energy drink in the United States.

Pepsi had previously bet on another fast-growing startup, Vital Pharmaceuticals’ Bang Energy, through an exclusive distribution deal. But the relationship quickly soured, resulting in a legal battle that ended in favor of Pepsi. In June, the two companies separated earlier than expected. The breakup fueled speculation that Pepsi would seek to acquire Monster Beverage or Celsius to increase its market share in the energy drink category.

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