Celsius. The New Disruptor! Equity Research! Part 1/3.
The Story of Celsius and Marketing Strategy
This energy drink company came seemingly out of nowhere and has caught the world by surprise. Massive sales growth has allowed the company to gain a cult following with a plethora of fitness enthusiasts and everyday people alike. Large commercial success has enabled the stock of Celsius to become a darling of capital markets. With a market cap of $21B, in just 5 years the stock is up 6,546%! Now that Celsius is no longer playing in the junior leagues, can the company continue its magnificent run, or is Celsius a boom-and-bust story?
Let us explore!
1. The Story of Celsius
2. Products
3. Manufacturing
4. Marketing Strategy
5. Parts 2 and 3
1. The Story of Celsius
Celsius is a beverage company based in Florida, USA. While the company is around 20 years old, the bulk of its success has come in the last 5 years. The energy drink industry is very competitive, with many brands fighting for customers.
There is a massive demand for caffeinated, uplifting, and refreshing drinks, while at the same time, people and governments are getting more concerned about the negative health effects of addictive, highly caloric sugary beverages. Energy drinks, being the primary culprit, have a reputation for not being the healthiest option. Celsius saw a gap in the market and tackled it head-on.
Celsius has chosen a specific sub-niche, the “better-for-you” fitness energy drink market!
This was a great market entry strategy. In the fast-moving consumer goods (FMCG) industry marketing determines one’s success. If we are being honest, a lot of the FMCG brands sell the same stuff, just packaged and marketed differently. Customers choose one product over another because of its message. The message Celsius wants its customers to know is:
Celsius is hip, healthy, and functional, while other energy drinks are unhealthy sugar bombs!
2. Products
One of the company’s main products is its flagship 12oz Celsius energy drink can.
Through the years as the company tried to become more mainstream, the packaging went through a complete redesign. In 2008 Celsius drinks were primarily sold in niche stores to fitness enthusiasts. As you can see in the left picture, the design was quite cluttered, emphasizing its calorie-burn-enhancing qualities. Such design and messaging would only appeal to a certain subset of the fitness community. It’s night and day to how the cans look today.
Understanding the importance of packaging in FMCG was one of the main drivers behind Celsius success!
People shop with their eyes. The redesigned can is not a cluttered ugly mess, rather it’s clean, bright, and inviting. Instead of telling its customers what their drink does, Celsius invites you to “feel” what it does. Clean white can, with bright pictures of fruits, small text with claimed health benefits, and 3 little icons.
A person running, cycling, and meditating!
There are 24 flavors on offer, with names such as Cosmic Vibe a strawberry, lemon, orange, mandarin, and blueberry flavored drink. Oasis Vibe, pear cactus, watermelon, kiwi, bubblegum, and citrus, a Green Apple Cherry drink, and so on. I believe with this naming and design strategy Celsius demonstrates its understanding of consumer preferences.
People crave unique products!
Most energy drinks taste and look the same. Celsius differentiates itself from the pack by offering more flavors, with more enticing names. I am emphasizing again, that people shop with their eyes. If the price was not a factor, most people would always buy Green Apple Cherry over a simple “Energy Drink with Apple”.
The company argues its drinks are healthier than others because of its unique scientifically tested formula!
All of their energy drinks contain green tea extract that the company claims boosts metabolism, thus helping one burn more calories. Guarana seed extract is used to infuse the drinks with caffeine. Ginger root supports the digestive system. Vitamins B and C are added to support overall health, help relieve fatigue, and support the immune system. Chromium mineral reportedly helps normalize blood sugar levels and enhances metabolism.
Essentially Celsius is similar to vitamin water but with caffeine!
Many gym goers and people with active lifestyles have been drinking vitamin water for its various added benefits. At the same time, they were drinking coffee or energy drinks when they needed a pick-me-up. Celsius offers a middle option, converging both together.
With this strategy, Celsius could steal market share not only from coffee and energy drinks but also from soda and vitamin water!
3. Manufacturing
In the beverage industry, there are lots of manufacturing strategies. Some brands handle their production independently, Coca-Cola famously sells the syrup to hundreds of regional bottling plants. Celsius doesn’t own any manufacturing facilities, the company outsources the manufacturing to co-packers.
“Our functional energy drinks, on-the-go powders, and supplements are produced by well-established third-party beverage co-packers. Utilizing these co-packers, strategically located across the country, enables us to efficiently produce and distribute our products. We procure most ingredients and all packaging materials, while our co-packers handle assembly and charge us a fee on a per-case basis.” Celsius 2023 10K
A co-packer is a company that specializes in manufacturing a particular product but doesn’t have a brand and distribution of its own. Large grocery chains use these companies to manufacture their store-brand goods such as Costco's “Kirkland” and Walmart’s “Good Value”. The advantage of this model is that each side can focus on their core competency, an activity they are an expert in. Co-packers focus on being the best at manufacturing, whilst the client can focus on branding and generating demand for the end product.
Celsius is not a beverage manufacturing company, rather it is a beverage marketing company!
Celsius benefits greatly from this arrangement. The company doesn’t need to incur large expenses connected to building its own manufacturing plants. Furthermore, it enables faster expansion. Manufacturing plants have maximum capacities, and they often take many years to build. However, there are plenty of co-packers who by just changing the packaging and pumping different ingredients through the pipes can manufacture a lot of Celsius drinks in a relatively short time.
Another benefit of this strategy is the ease of international expansion. International shipping is expensive, and costs are calculated based on weight. Beverages generally tend to have a low value per KG shipped, making it uneconomical to transport them for large distances. This is one of the main reasons, why Coca-Cola has hundreds of bottling plants. Celsius is utilizing a similar strategy in China, the company has signed an agreement with a local company to be an exclusive manufacturer and distributor of Celsius energy drinks. The company has signed similar agreements in other geographies.
4. Marketing Strategy
The FMCG industry is notoriously competitive. Especially nowadays, with the rise of co-packers, creating a product has become easier, quicker, and cheaper than ever. Furthermore, the rise of e-commerce and social media has spurred many direct-to-consumer brands. This has been great for consumers who get to purchase unique and exciting new products. However, as marketing is increasingly becoming a core competency, many legacy brands are struggling in this new era. The days of “build a great product and customers will come” are over. A large part of Celsius success is due to their great marketing strategy!
“We compete in an industry that is brand-conscious, so brand name recognition and acceptance of our products are critical to our success and significant marketing and advertising could be needed to achieve and sustain brand recognition.” Celsius 2023 10K
Functional Energy Drinks “Live Fit”
Specifically targeting the fitness community has been a great success. There wasn’t a large national energy drink brand targeting this group. Grand View Research estimates that the global sports nutrition market generated $45.24 billion in sales last year. This is a large market in which Celsius saw massive potential. Their motto “Live Fit” resonates with people and is jumping into the trend of increasingly health-conscious brands. Again, Celsius message to customers is clear.
Celsius is hip, healthy, and functional, while other energy drinks are unhealthy sugar bombs!
The genius of this strategy is that it attracts “normies” as well. Apple uses a similar strategy in selling its expensive Apple Watch Ultra.
In their marketing, Apple shows scuba divers and hikers using this $800 smartwatch in their adventures. Most people are never going to use the showcased features however, by appealing to the “pros”, Apple wants to create an allure of sophistication and performance. I guarantee you that most people who bought Ultra, are never going to scuba dive and hike. With this product design and marketing message Apple pulls in lots of “normies” who want to feel as if they are “pros”.
Celsius with their “Live Fit” fitness message is pulling in customers who are not necessarily living a healthy lifestyle but want to feel as if they are.
Market to “pros” to get “normies”!
Fitness Influencers
With the growth of social media, influencers have become increasingly important. According to Statista, the global market of influencer marketing reached $21 billion in 2023. Verified Market Research estimates this market will reach $50B by 2030. Any brands that don’t utilize this fast-growing avenue will be left in the dust. Luckily Celsius is well aware of this trend and heavily uses influencer marketing.
The company regularly partners with various influencers to create social media campaigns. The goal of these campaigns is to expose Celsius brand to fans of influencers and gain new customers. Furthermore, by attaching themselves to the influencer the company hopes to gain followers for their corporate accounts. The objective of any marketing effort is to be in the minds of the customers when they are provided with an opportunity to purchase. Corporate social media accounts are extremely useful as they enable brands to engage with their most devoted fans. The company has over 600 thousand followers on Instagram and 3.8M followers on TikTok.
Feminine vs Masculine Marketing
Historically energy drinks were primarily marketed to men. Red Bull, the energy drink pioneer is famous for its sponsorship of extreme sports. Apart from sponsorships, the company owns football clubs such as RB Leipzig and New York Red Bulls, not only does Red Bull manage an F1 team, but the company has two teams. The marketing message of Red Bull is “Look at all these cool people and their crazy adventures, Red Bull “gives them Wings”, strength, and willpower to be their best, if you want to be cool like them, buy our product”.
Likewise, Monster sponsors such sports as skateboarding, BMX, UFC, motorcycle racing, and NASCAR. Moreover, Monster is quite popular with video gamers, the company even has a partnership with Call of Duty, one of the most popular games in the world.
These marketing activities of Monster and Red Bull are heavily skewed towards male-dominated avenues!
These are clear examples of “Masculine” marketing. For Monster, even the name and the design of the cans are undoubtedly targeting men. Celsius selected another approach. The company has taken a page from the playbook of successful athleisure brands such as Lululemon, Gymshark, and Nike.
Women are generally more concerned about their well-being than men. These brands saw the spike in popularity of various gym classes, Yoga, Peloton, etc., and realized that there was massive money to be made. By making a product that not only emphasized performance but was also very visually appealing they combined fashion and sports. Many women desire to be beautiful and feel great spiritually. These brands tapped into that desire and sold it to women. The message was “If you wear our leggings you are beautiful, fit, athletic, and healthy spiritually” and women loved it.
Celsius better-for-you message resonates with women!
Furthermore, the more feminine targeting can also be seen in product design. As discussed in the product section, Celsius most popular product is the smaller 12 oz drink. Sold in a clean white can, with bright color prints and exotic-sounding product names such as Cosmic Vibe and Galaxy Vibe. In a similar manner to athleisure brands, Celsius mingled the practical characteristics of a product (stretchy sports clothing and caffeinated drink) with a resonating message (yoga, athletics, and better-for-you) and packaged it beautifully (shapewear leggings and colorful cans) to sell a feeling, not a product!
Celsius more feminine strategy is also visible in its marketing efforts. The company regularly partners with various female fitness influencers and sponsors figure skating. While a significant part of Celsius product design and marketing is designed to appeal to women, I don’t want to give the impression that Celsius is just a “girl brand”. Such product messaging doesn’t only appeal to women, it attracts men who are put off by the uber-masculine extreme sports-themed marketing of established brands.
Celsius CEO in a recent interview stated that the gender split of its customers is around 50/50!
This is in stark contrast to most established energy drink brands. I couldn’t find a reputable source for the gender split of their customers, but I would imagine that it is heavily skewed towards men, especially for Monster.
Ferrari F1 Sponsorship
Celsius has sponsored various brands, events, and influencers and I don’t think it would provide any value to discuss all of them. However, one partnership that I would like to emphasize is the Ferrari F1 sponsorship. I believe this deal provides a look into Celsius expansion strategy.
Ferrari is an Italian Luxury brand and an automobile icon, known for its exotic, fast, and luxurious sports cars. The company is famous for its car racing history, especially its Scuderia Ferrari F1 team. A few months ago I wrote a full Deep-Dive on Ferrari in this very newsletter, it’s a unique and interesting company and I would recommend a read.
Ferrari is a very well-known brand internationally, and F1 is an extremely popular global sporting event, with millions of viewers following each race. With this sponsorship Celsius hopes to build their brand image in Europe and Asia, regions where Celsius is not a popular brand, but F1 and Ferrari are popular brands. As 95% of their sales are in the US, Celsius has a huge international opportunity. I expect that as the company grows internationally Celsius will sign more deals with large established brands.
Parts 2 and 3
Celsius is certainly a massive success story. But doesn’t mean the company is a great investment today.
In Part 2 of this 3-part Deep Dive, I will explore Celsius distribution strategy (Amazon, Costco, and Pepsi) and look at their competitors in more detail (Monster and Red Bull).
Celsius. Path to Major League! Deep Dive Part 2/3.
I will conclude this Celsius Deep Dive with Part 3, a look at Celsius opportunities, is there still growth left in the tank? Furthermore, an analysis of its financials and valuation will be conducted!
Celsius. Time for World Domination? Deep Dive Part 3/3.
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Love your deep dive!
Thsnkyou for this excellent insight. O enjoyed reading it and learnt from it.