The latest investment of PepsiCo, a multinational food and beverage giant, has brought the fast-growing energy beverage brand Celsius (Chinese Name: burning power) into the spotlight.
As introduced by snack representative, on August 1, PepsiCo and Celsius Holdings (hereinafter referred to as Celsius), the manufacturer of energy beverage Celsius, announced that they had reached a final agreement to establish a long-term strategic distribution arrangement. Josh fieldly, President, chairman and CEO of Celsius, said that the strategic partnership between the two companies is expected to accelerate the growth of the two companies globally.
Subsequently, on August 9, Celsius, listed on NASDAQ in the United States, held a performance meeting for the second quarter of 2022 for Wall Street analysts. Xiaoshidai learned that John fieldly talked about the latest cooperation relationship with Pepsi and disclosed the income contribution of Celsius from the Chinese market.
Will PepsiCo become a new “new ally” of Celsius in the Chinese market? In China’s energy beverage market, where red bull is far ahead, will Celsius become a “new force” to disrupt the situation? Next, let’s focus on it.
With the joining of Pepsi, Celsius obviously has greater ambition in accelerating global expansion.
“We have told you several times before that we will continue to have exploratory discussions with large international distribution partners to promote global expansion. I am glad to say that we have now found that partner.” Fieldly said at the performance meeting.
He said that as part of the distribution agreement with Pepsi, Celsius is now Pepsi’s global preferred energy drink partner, and Pepsi has also become Celsius’s global preferred distribution partner, “and Pepsi ranks second in the global beverage distribution field”.
First, fieldly pointed out that this transformative partnership will significantly accelerate the growth of Celsius in the United States in the near future; According to the agreement, the long-term US distribution agreement came into effect on August 1. Secondly, he said that after the alliance with Pepsi, Celsius also saw “huge opportunities” in the expansion of the international market.
“Although we have just started to establish a distribution partnership with PepsiCo, and the initial focus will be on us distribution to their network, we also see a major opportunity to expand our scale in the world. Behind this is the change in consumers’ preference for products’ better for you ‘.” Fieldly said.
“Now we can achieve our international expansion goals through the distribution partnership (with Pepsi). I think it will be a matter of time and order. When we enter new markets, we want to ensure that we take appropriate measures to establish loyal consumer groups and truly become a part of their daily life.” He also referred to the UK and Germany as “near-term opportunities”.
According to the public information, Qifeng Food Technology Co., Ltd. was established in 2015. It is a domestic consumer goods joint venture invested by Li Ka Shing’s Victoria Harbor. “It is a platform company dedicated to the development, production and marketing of high-quality food. It has strong competitiveness in the food field. At present, it has established a nationwide distribution network and sales team.”.
According to the above agreement, Qifeng obtained the exclusive license to produce, sell, promote and commercialize Celsius brand products in China; While Celsius provides continuous support in product development, brand promotion and technical expertise. “Continued support is an integral part of the exclusive license.” Celsius said.
According to the comprehensive information of xiaoshidai’s reading of several financial reports today, the term of this agreement is 50 years, and the annual royalty shall be paid by Qifeng after the end of each calendar year. The royalty is charged based on a certain percentage of the sales of Celsius brand products; However, the fees for the first five years of the agreement are fixed, totalling about US $6.9 million, and then subject to the annual minimum guarantee for the remaining term of the agreement.
“This creates a risk buffer to drive our business in China and expand our share in this important market.” Fieldly said at that time that the initial royalty was calculated based on 50% of the initial estimated sales volume.
In addition, he mentioned that in the initial five-year period, in addition to the fixed royalty, Qifeng will also repay Celsius about US $12.2 million of the invested funds. This means that in the first five years, lux will rely on Qifeng to recoup its previous net investment in the Chinese market, “thus releasing additional resources and funds”.
Let’s calculate a “general ledger”.
To put it simply, from 2019 to 2023, Celsius will receive a total of US $19 million, including US $12.25 million for investment reimbursement and US $6.9 million for royalties. Starting from 2024, the agreement will be converted into a 2% – 3% royalty based on the sales volume in addition to the minimum royalty of $2.2 million.
USD 1 million in the first half of the year
Since the franchise cooperation with Qifeng was reached in 2019, the Chinese market has become a stable source of income for Celsius to “maintain revenue in drought and flood”.
According to the latest semi annual report read by xiaoshidai today, Celsius has recognized the income from the above-mentioned agreement with Qifeng over time (Note: it includes the repayment of investment fees and royalties). In the second quarter of 2022 and the second quarter of 2021, the total revenue recognized was about US $500000 and US $500000 (about RMB 3392800).
In addition, in the first half of 2022 and the first half of 2021, Celsius confirmed that the total revenue contribution from China was about US $1 million (about RMB 6.7855 million) and US $800000 (about RMB 5.4284 million), respectively, which were reflected in the revenue from Asia.
Let’s take another look at Celsius
PepsiCo’s latest investment of 3.7 billion in energy drinks, fuel, can it “snatch food from the tiger’s mouth” from red bull?
小食代介绍过，今年上半年，红牛中国的销售额高达121.97亿元。而长期以来，红牛也牢牢占据了中国能量饮料市场的主要市场份额。根据欧睿国际发布的《Energy Drinks in China》数据显示，2019年中国能量饮料市场中，红牛以57%的份额独占鳌头，接近第二名的4倍。