How a re-energized PepsiCo stung Red Bull with Sting
“I look forward to having one bottle of this everyday now,” he says. “I have had to cut down on bidi to accommodate this but I feel less tired at the end of the day.”
Nearly 50km away, in the heart of Delhi, Arun Malik also has a similar routine. Before heading home from a premier school he works for near Connaught Place, he heads to a grocery store for a swig of Sting. It is one of his guilty pleasures. “It is not an addiction but I like the taste. It is better than the colas,” he says, flipping the empty bottle in a trash can before jumping on to his chauffeur-driven sports utility vehicle.
Das and Malik are at the opposite ends of India’s long socio-economic scale. But the duo underline the sort of popularity Sting has gained in India since its launch six years ago, in 2017.
At ₹20 for a 250ml bottle, it is the country’s first affordable energy drink. It is also low on sugar—6.8gm to Sprite’s 9.5gm and Red Bull’s 11gm per 100ml of serving. However, its relatively high caffeine—72mg—acts as a stimulant and makes it edgy. But that’s still less than a double shot of espresso. Starbucks’ doppio contains about 150mg of caffeine.
According to Euromonitor International, a market research company, the energy drinks segment has grown at a compound annual growth rate (CAGR) of over 110% in the last five years (see table). All of it is largely due to the success of Sting.
From less than 0.5% share before its launch in 2017, energy drinks now account for almost 5% share in the overall market in 2023. For PepsiCo, it has played an even more outsized role. Last year, the drink accounted for 15% of its local bottler Varun Beverages Ltd (VBL)’s overall volume portfolio. VBL accounts for 90% of PepsiCo’s production and sale of beverages in India.
“In a lot of markets and especially in the emerging markets, energy drinks are 14%-15% of the mix. Sting has reached around 14%-15% of our portfolio mix and there is still a lot of potential left for the energy drinks industry,” Ravi Jaipuria, chairman, VBL, said at an investor call on 6 February. “It is now a six-year-old brand and still doing extremely well. We think there is enough room for us to play.”
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While Sting has upset Red Bull’s apple cart in India—one of the world’s most sold energy drinks—it is also a rare win for PepsiCo over arch-rival Coca-Cola in India, particularly when it comes to beverages.
“Sting is a clear leader in its category and its success since its launch is the fastest of any soft drink brand in the history of the beverage category in India,” a PepsiCo spokesperson says in an emailed response to Mint.
What made the drink such a success story? Before we delve into this, here’s a short history of energy drinks.
A short history
Energy drinks, globally, are not a novel concept. Dietrich Mateschitz founded Red Bull in the mid-1980s. Inspired by functional drinks from East Asia, he launched the Red Bull Energy Drink in Austria on 1 April 1987.
Sting was born in Vietnam around 2002 after PepsiCo executives in the country recognized the need for an affordable energy brand. But the product was not the company’s first crack at opening up this segment in India. In 2008, it had introduced SoBe—abbreviation for South Beach—into the market. It was launched at ₹75 per 245ml can, targeting 24 years plus consumers in metro cities in India.
This had followed Coca-Cola’s own attempt with an energy drink, Shock, in 2001. Aimed more at diversification beyond the colas, both the brands did not find too many takers in India at that point. The products were discontinued within a few years.
Instead, the credit for creating the energy drinks category in India goes to Red Bull which entered the market in 2009. By 2017, there were a dozen energy drink brands in the market with Red Bull commanding the giant’s share but the category was niche—around eight million cases a year, according to industry estimates. Not surprisingly, there was uncertainty around Sting’s prospects.
“Currently, nobody has put energy drinks at the right pricing, which is what we are planning to do. This product will take market (share) from existing energy drinks as well as some of the regular products,” Ravi Jaipuria had said during an investor call in November 2017.
His prediction turned out to be accurate.
₹20 miracle
Launched at an aggressive price of ₹50 per 250ml can, Sting undercut Red Bull, the market leader back then, by nearly 50%.
But more than pricing, Sting got an initial lift from the void left in the market by the exit of many players following tighter regulations. In May 2015, the Food Safety and Standards Authority of India (Fssai), the country’s food safety regulator, banned a few variants of Monster energy drink sold by US-based Monster Beverage Corp., and ordered the recall of Restless Energy Drink sold by Pune-based Pushpam Foods and Beverages Pvt. Ltd. The regulator was concerned about the combination of ginseng and caffeine in energy drinks. Fssai also banned a few variants of Cloud 9 sold by Goldwin Healthcare Pvt. Ltd, and Tzinga, a product by Hector Beverages Pvt. Ltd, on compliance issues.
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Some of these brands subsequently adapted and re-entered the market but lost out on the first mover advantage in the process.
PepsiCo, over time, reduced prices even further. In 2020, it introduced Sting in PET bottles that cost ₹20. This opened the floodgates for the brand and caught rivals including Coca-Cola napping.
“The ₹20 price point was a game changer for the category as it lowered the entry barrier for the otherwise pricey energy drinks category,” Aditya Goel, co-founder, Love in Store, a store loyalty management firm that works with large consumer goods companies, says. “The second thing that worked for the brand is VBL’s distribution muscle,” he adds.
That distribution muscle ensured Sting’s availability across the board, from paan shops to modern trade stores.
Goel says that becoming widely available in general trade stores works well for on-the-spot consumption, a segment that contributes significantly to sales of beverages in India. “No other energy drink brand is as widely distributed as Sting. They also accompanied this with high level marketing,” he adds.
The ₹20 price point was a game changer for the category as it lowered the entry barrier.
—Aditya Goel
“Sting has gained significant popularity, particularly among the 15-19 age group, comprising a substantial 126 million individuals. This demographic, mainly consisting of students prioritizing affordability, finds Red Bull often beyond their reach,” says Amulya Pandit, consultant at Euromonitor International. “Furthermore, Sting has received a positive reception in rural areas, where consumers may not distinguish between different soft drink categories,” he adds.
In four years, Sting completely monopolized the segment with 90% share, relegating even Red Bull to the margins. From an estimated sale of 23 million cases in 2021, volumes grew to 65 million cases in 2022 and a record 110 million cases in 2023.
The wind
PepsiCo or VBL may not have foreseen the kind of success Sting would receive but it came at a critical time for the company. By 2017, PepsiCo in India was not in the best of shape. It was losing market share in many beverage segments, struggling to compete not just with arch rival Coca-Cola but also with homegrown brands such as Dabur and ITC.
A Mint report from December 2017, which quoted Euromonitor data, had a rather ingenious headline: ‘PepsiCo’s midlife crisis in India’. In carbonated beverages, flagship product Pepsi lost share to touch 13.4% (retail value) in calendar year 2016 from 14.9% in 2013, the report stated. Fruit juice brand Tropicana’s market share dropped from 10.2% in 2013 to 8.8% in 2016 while Slice slipped marginally from 15.6% in 2013 to 15.4% in 2016, the report further added. Similarly, its packaged water brand Aquafina saw its share drop from 11.1% in 2013 to 9.9% in 2016.
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The company bled—in 2016-17, PepsiCo India posted a loss of ₹148 crore, its fourth consecutive year of losses. It needed a success story desperately and Sting provided that wind beneath its wings.
“While energy drink is certainly not a new category, it did receive a boost after Sting’s launch. New brands gaining rapid penetration and also expanding the category is a rarity and Sting is thriving at both,” says K. Ramakrishnan, managing director—South Asia, Kantar Worldpanel, a market research company.
“Inside homes, Sting is currently reaching 2.7% of the urban households annually. Nearly eight out of every 10 households that consume energy drinks purchased Sting in the last one year,” he adds. “Out-of-home, too, Sting has a similar hold,” he further informs.
Between 2018 and 2023, VBL’s top line has more than tripled to ₹16,042.6 crore and net profit zoomed seven times to ₹2,101.8 crore.
Sting’s success reflects in the success of VBL.
Between 2018 and 2023, VBL’s top line has more than tripled to ₹16,042.6 crore and net profit zoomed seven times to ₹2,101.8 crore. Last year, the company’s realization per case hit a record ₹175.7 from around ₹145 in 2019, resulting in an operating margin of 22.5% for the calendar year.
“As the mix of Sting improves in our overall sales, it leads to higher net realization as well, as it is slightly more profitable than the other brands,” Raj Gandhi, group CFO, VBL, told Mint.
PepsiCo India turned profitable in fiscal 2018. In 2022-23, it recorded sales of ₹8,031 crore and profit of ₹255.75 crore. However, this performance may have to do more with the growth of its food business.
Headroom for growth?
Having come this far, how much further can Sting go? VBL cites the examples of Vietnam and Pakistan where Sting accounts for 30% and 25% of PepsiCo’s overall portfolio, respectively.
In India, Sting has headroom for network expansion. “Our reach today is up to 3.5 million dealers out of the base of 12 million. We got a big runway after Sting, where we added 400,000 exclusive dealers. These dealers were never purchasing the goods from us earlier, and now after Sting, they have also started carrying our other products,” Gandhi said during an investor call on 9 November 2023.
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But there are challenges, too. For one, the entry of Coca-Cola in 2022 with Thums Up Charged Berry Bolt, now called Charged, is Sting’s new rival. Coca-Cola, too, has a wide dealer footprint and a marketing muscle that is at par with PepsiCo.
“Already, we are beginning to see that the growth of energy drinks is starting to slag. Coca-Cola’s entry will have an impact. It will stunt Sting’s potential growth,” says Pandit of Euromonitor.
PepsiCo, on its part, remains confident. “Sting will benefit from category growth with the entry of other ‘me-toos’ and its product superiority, engaging consumer activation, superior distribution will ensure it remains the most loved energy drink in the market,” the spokesperson quoted above says.
The other worry is any potential regulatory action by Fssai. Though the regulator did intervene in 2015 as mentioned before, the growing popularity of energy drinks among the youth, and increased scrutiny of health drinks in general, could trigger another round of regulation. That could present a curve ball for Sting.
“We are completely compliant with all the regulatory laws of the markets we operate in. Consumption of a bottle of Sting is comparable to having a cup of a hot beverage like coffee,” PepsiCo’s spokesperson says. “Further, as a responsible brand, Sting gives all mandatory specific cautionary declarations on our product label.”
Considering that there are no regulatory headwinds, we are all set for an engrossing battle ahead, one that would test Coca-Cola for a change.
Coca-Cola did not respond to clarifications sought by Mint. Red Bull said that globally, the company has “a no employee spokesperson philosophy”.
(With inputs from Suneera Tandon)
Ganesh
http://ganesh@finplay.inFinance enthusiast, Mutual fund expert.