Bloomberg Audio Studios, Podcasts, radio News.
Hello and welcome to another episode of The Odd Lots Podcast.
I'm Joe Wisenthal and I'm Tracy Allaway.
Tracy, I have to say I've been feeling a little lethargic this week, a little bit under the weather. No, no, yeah, you know, it's just you know, sometimes you wake up on the wrong side of the bed anyway. But uh, I'm feeling a little bit better because I've been consuming a lot of caffeine today.
Yes, I'm looking at you in the studio right now, and you have with you another Celsius. Yes, what's the flavor on your one?
I am drinking an Arctic Vibe, which is a sparkling frozen berry edition. I don't know, I have to I'm not, I'm sure like if in a blind taste test out go this is berry. But it's very flavorful and it's sugar free, and it's perked me up and I feel very keyed up and ready to go. You are also drinking as Celsius. What are you drinking?
I have Cosmic Vibe, a sparkling fruit punch and it does actually taste like carbonated kool Aid. It's sort of nostalgic in some way.
But the thing that.
Interests me is, you know, I'm looking at the branding and the ads on the can. And we've talked about this before. We did a whole episode about Celsius. But the interesting thing to me is how this is slightly different from other energy drinks. So it talks about obviously providing energy, but also accelerating metabolism and burning body fat. And I was going through the ingredients earlier and it has biotin in it, which is something that I take for like hair and skin and nails and stuff. So
I guess I don't need to take supplements anymore. I can just drink Celsius.
I supposedly you could just drink Celsius.
No.
I'm fascinating for this for all reasons, for all kinds of reasons. I mean, we've talked about energy drinks for a while. We did a story about the incredible rise of episode about Monster a few years ago. One of the stocks that's actually outperformed Amazon over the same time period. And if you go into any local deli or bodega or seven to eleven these days, you just see this wall, and the wall just keeps getting bigger of drinks, and
many of them highly caffeinated energy drinks. And it's sort of fascinating to me, like, there are all these energy drinks out there that exist, how is their room for more? It's like they all like right, like you like basically want to consume one and you get a jolt of
caffeine and you go about your day. It's amazing that despite this maturity and this size, and we had a red Bull and Monster and all there's that, yet somehow there could still be room for another competitor to seemingly I know it's never coming out of nowhere, but seemingly coming out of nowhere.
Yeah, this is the thing that fascinates me too. So we don't just have different brands of energy drinks, like within the brands themselves, there are so many different flames now and options. It's kind of amazing. And again, when you go into the store, you see this sort of rainbow of cans on display. The other thing that interests
me is the distribution question. Yes, so I'm always curious, like who makes the decisions of what ends up on the shelves in your local seven to eleven or Circle K or Dwayne Reid or whatever, like, how do those specific flavors get chosen much less even the brands, right, And I think this is something that's come up in a number of episodes now, just how important distribution can actually be to these particular types of products.
Well, I think we should just jump right into it. We really do have the perfect guest because today we're going to be speaking with John field Ley. He is the president and CEO of Celsia's holdings. He's been CEO since twenty seventeen, been with it's the company for twelve years. And we're going to ask all these questions about how how this all works, how you rise to the top, and what is clearly a very out of the field. So John, thank you so much for coming on outlots.
Glad to be here, Joe excited at Tracy. It's exciting. I like to tell you brought in our Cosmic five. We love the flavors on that fruit punch refreshing. That's what it's all about. Glad to be here, all right.
I have a question. So, like a year ago, I started noticing that all the fit and cool looking people at my gym were drinking Celsius, and then I was like, well, I want to be one of the fit and cool looking people at the gym. So I then bought as Celsius. What happened? Celsius has been around a long time, but suddenly over the last year, year and a half, maybe two years, I started seeing it somewhere. What happened a year and a half ago? That suddenly was that a
thing that you guys did? Was it word of mouth? What what suddenly happened? That's sort of really like I started seeing it everywhere?
Yeah, I mean when you found us at the gym. The brand's been around for over fifteen years. We built it in the gyms and health clubs, at Vitamin C GNC golds in twenty four hour, those are the likes. If you're going back only a year and a half ago and you were talking about your comments on the intro about distribution. We partner with Pepsi a year ago. As our distribution projects show that really expanded the availability of Celsius to where we are today, which they call
a ninety eight percent ACV. So there's reporting stores that report sales for consumer products into IRI Data or Nielsen they call it, and then looking at the total population of the stores reporting in Pepsi has been able to get us through about ninety eight percent ACV, So we still got a lot of work to do on the placements in each store, but in general, you should be able to find, you know, Celsius probably in almost every retailer in the United States ort least ninety eight percent
of them. So the data says, I.
Have a really straightforward question before we dig into some of the specifics of this particular business. But how much caffeine do you need to consume to be CEO of Celsius? How much do you drink on a daily They.
Drink Yeah, you know, I started the warning off. I have probably two cans a day. I have a can in the morning Celsius in the morning, and then usually have all of my lunch. So drinking a watermelon right now? So which is dynamite in a great flavor? All right?
So you mentioned distribution and the deal with Pepsi. My understanding from the previous episode we did with Mark ASTERCN is that a lot of this business is about distribution, and you struck that deal with Pepsi. Monster has a deal with Coke. From what I remember, how do those distribution deals actually come into being. What are the conversations actually.
Like, Yeah, well, you know, distribution for consumer product companies are extremely key and beverage Joe talking in the beginning about you know how competitive the beverage industry is, and there's about five thousand new brands in the beverage industry
that come to market each year. Well about ten percent of those will make it to one hundred million in sales, and then another ten percent of those will make it to like a million dollars and very rare why any of them make it to a billion dollars in sales. So it's a highly competitive market. And when you look
at the distribution, that's been a challenge. You know, it's definitely a tough conversation because if you have a product, you need to be able to have retailer's acceptance, So your distributor needs to have a place to put it right if they take the distribution, and then you also need to have consumers that are buying it. So it's like a chicken in the egg, which is very difficult
to do. So when we go to distribution prior to PEPSI, we're in a lot of ab abi and how's it Bush independent distributors, and we had a lot of conversation with them. You know, it was very difficult for them to take a product because they were saying, you know, I'll take your product on, but then I just can't have it sit in my warehouse. You know, I need a product, I need a consumer poll, I need retailers
that want it. So what we had to do is we had to really build a demand at the retailer prior to going and really getting these distributors to sign up. So we actually had to what they called sell direct, So we'd sold direct to a lot of the retailers are targeted retailers that we built scale and volume and consumers around to create that, you know, that sales channel.
So then we could go to the distributor and show the distributor we had there's a reason why we should be in their distribution network, and that's constantly reinforcing and then collaborating with them to build out the distribution, build a consumer awareness, and ultimately work to get a loyal consumer around the brand within that given market. Yeah.
No, I mean that makes a ton of sense, right, So that whether it's the independent anhyder Bush distributors, whether it's pepsi. They're not going to pick it up unless their own end retailers are going to actually devote shelf space. They're not going to devote shelf space unless they see that there is some evidence that if they devote shelf
space that someone's going to buy it. What did you do? Like, you know, different energy drinks seem to have different audiences or different so you know, like I think some like are probably more for the gamer space and some are more for like sort of like euro types who like go to clubs and listen to DJs do some want to be associated with extreme sports, and some are associated with construction sites and maybe more blue collar workers or truck drivers, et cetera. How do you pick a lane?
Well, that's the other thing you need to put. You really need to have a target audience. You need to have a retailer story, you need to have a distributor story, you need to have a consumer story. So that's one thing that we've been able to work on over the years. The same retailer story and your distributor story or sales pitch might you know needs to be different than potentially the consumer pitch. When you look at it, it's really
understanding your customer. You have to be customer centric. You have to understand why does your customer needs your product, what is the reason, what is the void and maybe their portfolio and at the end of the day, how can they make more money on your product. So as an example to your point, there's different segments. So Celsius is really essential energy. So Celsius is Celsius Live fits our mantra. We have over two point eight grams of vitamin you mentioned by it's in traces in the product,
and we have a variety. We have green tea and ginger chromium. We have vitamin C and your B complexes, so a lot of great vitamin's in there. It's almost
like a multi vitamin within a can. And that really positions us as this healthy, better for you energy segment, and that's really what we when we speaking with our distributors, they had a void because historically it's been sugary energy drinks that they've had within their portfolio, and we were offering this different offering for them to sell for this better for you consumer, which is especially coming out of
a post COVID world. Everyone's thinking about health and wellness and fitness, which is a key and a DNA component of who we are. We originally started off as a pre workout, but now we're aligned with today's health minded consumer with our attributes of accelerating metabolism and helping burn body fat so really help you achieve your health and wellness goals. So that allowed us to position ourselves within
the distributors as a unique offering within their portfolio. And that was our go to market strategy with our distributed and also with our retailers to be able to carve that space out within those precious resell volts or you know planograms that retailers have. So it's a multifaceted approach to gain planogram approval at your retailer and then get that distributor to actually get it on the shelf.
Oh wait, what's a planogram? You've never heard that word before.
So you mentioned how how do your products get included on your retail shelf? So when you go to your retailer and you go to these chains, all those products are mainly orchestrated or designed based on planograms. So the products are pre selected by a buyer at the corporate office almost like think of them as portfolio managers. Or you know, like a mutual fund manager or so on, that's picking investments within their shared space to maximize their
retail maximize revenue for that retailer. So they're picking the right they're picking the particular products for their consumer base to drive the highest return for that retailer. And that's all driven based on planograms. That's what buyers set and then those those get provided to the store levels to be able to set the shelves for the right strategy. And those strategies get reviewed multiple times a year. There's big annual reviews that happen usually in October and November,
depending on the retailer. And then they we'll do retailers will do like a mini cut in or a reset or a review right around mid year historically, where they'll make some changes to their plantgrams to really kind of dial in to maximize the opportunity. So example, if a certain brand or certain flavors aren't working within the initial few months, they'll maybe get cut and they'll try new
opportunities that come in. So one thing in a retail space, especially in the energy category, you really only have in some cases up to forty five days to perform on shelf otherwise you're out so highly competitive, highly difficult, and it's really hard to compete in today's energy during category and in beaverage just because it's dominated by really strong
brands that are out there. And Celsius has been able to really rise to the top as we are the third largest energy drink brand right now in the United States, so we have over over a ten share in the energy category for the first time, and just getting one share is practically near impossible.
So from your perspective, how do you fight for that shelf space or that space in the planogram? And I'm looking at some images of this now.
They look like this.
They're like a visual representation of what a deli looks like.
Yeah, yeah, it's basically the rainbow wall that I mentioned before. I'm looking at one for Detergent and it's extremely colorful. But how do you convince companies that you deserve that space? And going back to the chicken and egg issue that you kind of described before and the idea that you only have forty five days or so to prove yourself, how do you actually go about demonstrating that there is demand, especially when you're unveiling something that's still relatively new in the market.
Yeah, that's the highly difficult, that difficult thing to do.
Now.
Usually it starts off certain retailers are able to make regionalize or localized buying decisions. So those planograms you're looking at for the clorox or the detergent set that you're looking at, those will be mandated down from corporate, but then on a localized level, let's say maybe ten percent, maybe fifteen percent of those plantograms can be adjusted for
local store manager level customization. So what we did is we were able to work locally with a few managers at some of these key retailers to really focus on building a story, so you know, gaining trial, working with the retailers, building a loyal consumer in that outlet, and then kind of scaling that to two to three stores, then eventually going to a region, so you start to build a sales story on why you need to be in that retailer and why you weren't maybe a larger
regional or national rollout within the retailer. So it's really starting those grassroots stories and then being able to get that buyer meeting, which is so difficult to do it corporate headquarters for their annual reviews, and then convincing the buyer why they need to bet on your product. I mean, ultimately, at the end of the day, you're trying to get the buyer at these retailers to invest in you as
a as a brand, as a company. So it's those type of strategies and you're going to have to convince a lot of it's emotion too, right, So in your early brand the argument is, well, the brand doesn't travel, maybe it's a certain community segment, certain income level demographics, so there's a lot of negativity, but you have to convince that buyer to believe. Once you convince that buyer to believe, you get the opportunity, then it's on you
to perform. And if you can perform, then you continue to build the brand based on data that shows results. It shows that you need to get better placement in that plantgram shows that you need to get additional flavors because you're offering a variety an opportunity, and the billboard effect is super critical. You need to get a billboard effects. So when we started, I'll take Target as an example.
When we first got listed nationally. In Target, we only had two flavors authorized that was on the warm shelf, and almost every year after that we were able to because of the increase in sales and working with local managers, we were able to build that and get authorized for an additional flavor to be added into the Target sets. Well. Once we got to about five flavors at Target, we were able to create this like a billboard or Celsia's brand on shelf, which started to be incremental. So when
we added another flavor, it didn't cannibalize our sales. It actually increased our sales because more consumers can see the product because you create the billboard. Just think of it last time, and just think last week, how many new brands you tried, and the last seven days, and the last fourteen days and thirty days. It's really difficult to
get a consumer to try a new product. You really only have about thirty seconds at best at retail, at that retail shelf to convince that consumer to try your product for the first time.
Wait, you mentioned you started at Target on the warm shelf. I assume now you're in the refrigerated section of Target.
Yeah, today we're we have a warm availability and the energy set and a variety of stores around the country or in the front checkout coolers and additional cold placements throughout the store.
Yeah, I noticed it at my local deli. I think I said this last time we talked about you guys. I remember, like I was looking for the Celsius and I didn't see you, and then it was only because I realized that there wasn't. My local bodega now has an entire Celsius devoted refrigerator. That it's just Celsius so well done on that. Let's talk about the distribution relationship.
I have to imagine, like you know, Tracy and I were starting an energy drink, we would be desperate to get like on part of like Pepsi's distribution network early on. But then if we grew really big and with the odd Loot's Energy Drink were huge, then I imagined that power relationship between us and Pepsi might change, and maybe in a few years we say, hey, Pepsi, you know what, maybe we want to check the terms of our contract. I'm sure you have a great relationship with Pepsi, so
I don't want to say anything. You know, I'm not trying to close any trouble, but can you talk to us about how that relationship with the distributor changes or evolves as you grow bigger and have your own form of leverage.
Yeah, I think that's we're still in the early phases, so call it the honeymoon with Pepsi because really we're only one year in. So we gained distribution, we're gaining additional displays. We're working with them collaboratively for the first time this year because it's really our first time that we've had a full year of planning. You can imagine Pepsi, a company so large, is that they're planning cycles. You know, they're planning like two years in advance, versus you know,
at Celsius, we're very nimble and quick. We've had to adjust our planning cycles to really align with their planning cycle. On execution, innovation, and retailer marketing programs, those are the likes. But what we've been able to do this year, we're really excited for the first time to really be able to harness Pepsi's resources and planning so we can be included on like national priorities and national execution programs. So I would say we're still in the you know, the
early phase. We're really excited about the opportunities we're gaining cold placements. You mentioned the deli that you went to and saw Celsius dedicated coolers. We've placed over ten thousand coolers together, the the amount of displays together. So we're really excited at this partnership is just getting started. You know what we say in the beverage industry, especially in energy, you know, if it's cold, it's sold, and then snack
it high and watch it fly with displays. So we say that all the time internally and it's been great with our Pepsi partnership.
Do beverage brands, however, like dream of owning more of their distribution over time? Like I mean eventually again, I understand you're in the honeymoon phase. You're probably going to be working with Pepsi for a long time, but just conceptually, does a beverage company eventually try to own more as much of their own distribution capacity as they can?
Well, you know, that's an interesting question, and it's like when you go to think about that, you know, it's what type of business are you and what type of business do you want to become? So there has been a successful company that's did it on their own which is Red Bull. I mean Red Bull owns their own distribution. They're phenomenal, they do a great job, great executors, and it's worked extremely well. There's been other regional brands that have tried that, and it's just it's if you don't
have the right amount of scale. Until they get that scaling point, it could be an extreme, extremely costly strategy if you think about all the trucks and warehouses and people and resources you're going to need to manage that. So when you look at Monster as an example, they use the back end of coke and they're really focused on what they do best is portfolio management within sales
and marketing teams. So you know that's our strategy. Our strategy is to leverage the PepsiCo distribution network and their resources and team members to further bring our brand to more people and more consumers and do what we do best, which is the sales and marketing component really bringing great tasting,
innovative energy drinks to market. Tracy's drinking that Cosmic Vibe which is out of this world, and we're launching a trilogy and going intergalactic with Galaxy Vibe and Astro Vibe as two new flavors this year.
Oh man, I have a slightly different distribution question, which is, if I go on Amazon right now and I type in Celsius, the second result I get is a sponsored ad for Monster Energy. How annoyed does that make you?
I think we're flattered. I think you know, that's quite flattering that we've gotten to the point that monsters buying ads against our consumers and fans searching for Celsius, so we do not see our consumers really trading between brands. So Monster is a great brand, Rebels a great brand, But that's really flattering. It's a highly competitive environment. The
category continues to grow. Celsius is actually bringing new consumers into the category, so we're one of the true growth drivers, largest growth driver there's not only in dollars but units to the category. So highly competitive, highly competitive.
Yeah, that's right. First it's a Celsius and then it's that Swedish fish flavored energy drink. That's like the transition. But actually, on a more serious note, the thing I'm really getting at is like how much does the algorithm of something like an Amazon affect your sales? And how much how much control do you have over something like the results that actually show up.
I think the algorithm is based on the user preferences. But one thing, we're the number one selling energy drink on Amazon the most recent read, and we've been roughly around twenty share of the whole energy category on Amazon and perform extremely well. I think when you look at Amazon,
you know, that's a really really loyal consumer base. You know, it's someone that's spending you know, over twenty dollars to purchase a twelve pack of warm beverage, that's going to take it home, have it shipped to their house, put it in a refrigerator, chill it, and then drink it as
a daily routine or daily lifestyle. So I think that's a you know, a really loyal consumer base that's on there, and it's been a It really just shows you the loyalty that we have with the Celsia's portfolio that even with the distribution gains and the increased availability with our Pepsi partnership, we've been pretty much able to maintain our
share numbers and growth trajectory on the Amazon. So it's like all tides are rising as we're distribution gains, showing that Celsius is aligned with today's health minded consumer that continues to evolve, looking for better for you, wants more at their lives, and most importantly about Celsius, our DNA is all about it helping you accomplish your goals and objectives.
Let's talk about the branding element some more.
So.
Obviously you want to continue to grow and find new consumers of the beverage, but also like you have this lane, you have this sleek like sort of like pretty well defined. Can the fit people at the gym? How do you think about growing the brand? I looked in your recent quarterly call and you're talking about something with a Jake
poll Fight, something with the MLS F one partnership. Talk to us about like that process of deciding like what's in the brand and what would be sort of like growth that might be costly because perhaps it's outside of what people know celsiusas.
Yeah, I think when you mentioned Jake Paul and you mentioned MLS, we just also also partnered with Ferrari with that F one. I think you know, as we gain broader distribution and we're building out a broader consumer base, we're really important to us is keeping true to our DNA, which is fitness and we were just at the Arnold Classic. Familiar with that. It's the largest fitness show in the US, big supporters of that show. We had Arnold drinking a Galaxy Vibe at the event. It was a lot of fun.
A ton of athletes were all about the athletes and the inner athletes. And I think when you look at like Jake Paul, Yes, he's massive influencer on social media, but he's also an athlete. He's boxing, He's going to be involved with the Olympics, he wants to be the number one boxer world champion. So really, CELSUS is there supporting him achieve his health and wellness goals. And then MLS is a great partnership for US. You got the World Cup coming to North America, so the timing of
that could be great. You also have a young consumer base of fans and followers that are gen Z eighteen to twenty four and growing, and soccer you definitely need some essential energy. There are complete athletes that are always on the go, so we felt that was really aligning. We do align with health and wellness so that we will not run away from that or go in other areas.
But to your point, maintaining the brand's authenticity is extremely important to us in order to stay relevant with our consumers.
So I'm still on Amazon actually flipping through all the different Celsius offerings, and I see one thing that kind of catches my eye, which is a huge bulk pack of Celsius with fifteen flavors. And You've touched on this a number of times now, but you guys have an extraordinary array of flavors and different options nowadays, and you've managed to do that, it seems like, without cannibalizing existing sales.
And I'm genuinely curious how that works because in my mind, I'm buying one energy drink a day if that to be honest, And you know, I'll try new flavors, but like my volume of consumption just is isn't going to go up based on the availability of new types and flavors to me, So how does that exactly work? And I guess how do you weigh the opportunities at the benefits and the costs of launching and developing these new offerings.
Yeah, I think when you look at the fifteen pack you're talking about, it's a variety pack. What we're seeing is our Celsius consumer is increasing their consumption, so you know a can or to a day, and you know to your point. You know some consumers you know like the watermelon or like the Cosmic Vibe, and we'll be loyal to a single flavor. But we're also seeing, especially
with gen z As, they're looking for an experience. So we do have our Fruit Forward line with great, great fruit forward flavors, and then we have our Vibe line, which is an experience in every sip or a journey in every sip. We try to experience with the consumer. But when you look at flavors, I mean, flavor innovation is really exciting, so it's one thing we lean on. We do see our consumers stay within the portfolio, so
we try to harmonize the flavors. So we do have similiarity within the lines our Core and our Vibe as well as our Celsius Essential line. So when you look at the flavor profiles, some of them will be in and out gaining trial and bringing new consumers into the portfolio. We do have about a top five flavors. Actually orange is our number one flavor and when you go into the vibes, our Peach Vibe is one of our top flavors as well as tropical vibe.
What's your favorite flavor.
My flavorite flavor. I just had a lemon lime flavor. I had that with lunch. It was super refreshing. It's crisp, tastes like a starry or sprite. Really. That's one thing we see with Celsius which is interesting, is there's a usage occasion historically for energy drinks, right it's a specific need state. It's usually early in the morning or right in the afternoon after lunch. But what we're seeing with Celsius, especially with the Pepsi partnership, further opened up this opportunity.
They've expanded us into food service, so we launched into Jersey mics just went into actual dun Dunkin Donuts as well, almost three thousand stores at Dunkin Donuts. But what we're seeing is the Celsius consumer is consuming Celsius with a meal as well during lunchtime, so that could be a
sandwich of salad and so on. And what we also see especially at retailers, and retailers love to hear that you know, you're not an appetite suppressant, and what you historically have seen with energy drinks traditional is that it's more like an appetite suppressant. They're not buying other items with your food items traditionally with their energy product. But what we see with Celsius, we are also seeing it
paired with foods and snacks. So we're really incremental to the retailers offering additional dollar ring and items per basket.
Wait, wasn't there a rumor that Celsius contains like a weight loss chemical that you also find in nozepic. Didn't that like start like there is a perception that this is in fact an appetite suppressing beverage.
Yeah, I'm not sure where that came from. There was some chatter on TikTok or something around that line, but I will say on exempit when you're on that way loss product, you really you know, you're not taking in as much calories, so you really need some energy and there's probably no other better energy drink to consume than Celsius. Because of the zero sugar, we're low in the glycemic index. We also there's an additional vitamin sup.
There's a form of commodities that we never talk about on the show, and that is like the commodity market for all these vitamins, vitamin getting, vitamin B twelve or vitamin C or touring or whatever it else. Can you talk about pricing on the input side right now and at the same time that all the other industrial commodities surge, What has been the trajectory of like inquiring these ingreded acquiring these ingredients for the drink And where do things stand right now from your perspective?
You know, now it's much better than it was during COVID, that was for sure. But when you look at our Vitamin pact, you know we're gaining more scale and volume, so we're gaining more leverage. So although pricing has gone up because of the increase in volume, we're able to offset some of that based on scale. The biggest challenge we had prior was actually the cans because of the aluminum.
As an example, during COVID, there was basically a can shortage because everyone moved away I guess from fountain drinks and just started buying more cans. I guess, you know, no more I guess draft beer and you know whatever else we were buying at restaurants. Now we had to buy can products and have it at our house, so that put a major constraint on the can manufacturing to the point that can manufacturers were basically over sold and
couldn't produce our cans. We actually had to work with some of our partners in Europe and around the world to source cans and actually wound up having to import cans United States, which is a something that we weren't
ready for. When you start to deal with importing charges and de merge charges, which I didn't even know what that is, but that's when your product has to sit at port and if you if for some reason it was shipped with a non union worker, then the barge or container you had couldn't get loaded on a truck. It was we learned so much or so I feel
really bad for our supply chain. They went through a lot of all the dues and don'ts, and we mainly learned a lot of don'ts on what you do when you're importing product, which is materials, which is extremely difficult. So a lot of key learnings there, but that was probably the most difficult time we did source cans. We were in a position where we could that kept us to have that allowed us to have product on shelf when many of our competitors were wrapping cans. I don't
know if you saw even some some cans today. If you're out and about and you look, you'll see some cans have like a plastic wrap around them. Number One, there you can't recycle them, so that's not good for the environment. But number too as well is they're really expensive to produce. So that was a really difficult challenge in time for a lot of companies, and pretty strategically with our partners, were able to find cans so we didn't have to deal with the wrap cans that were
out there during COVID. You still see like smaller brands do it today just because they don't have to scale for the large runs.
Since you brought up packaging and the cans themselves, I did notice in your most recent results you talked about profit margins being up primarily because packaging costs have gone down since the crisis. So supply chains starting to normalize, maybe some commodity prices are starting to normalize as well. When do you decide to pass those savings on to consumers and more generally, I'm always just very very interested in how these pricing decisions get made, like, what are
the factors going into them? Is price something that you have to negotiate with distributors as well. I imagine they take some sort of cut, so if they want more, maybe you're tempted to raise price, says, But how does that all work?
Well, you know, it's really difficult environment because costs are going up, but then we're trying to offset them strategically as well, so it's a constant battle. You have gas prices, aluminum prices, labor costs as we all know, have gone up as well, and then also you know a lot of times inefficiencies within our supply chain is difficult as well. We have a model that we are building out as we further scale, and we're calling it an orbit model.
And what that orbit model means is that we'll produce the product in a region, we'll source the product materials in a region, we'll build the product in a region, and then we'll sell the product within the region. And what that does that allows you to be more efficient
in your freight rates. That's probably the biggest area we have in savings is really being able to be more strategic with our freight and trucks and shipping versus as an example, when you're smaller you're shipping from say North Carolina all the way to la right just because you just you can't produce the product in multiple market just due to the limited run sizes that require that you know that are just you can't run. You need to have a certain size run of product in order for
it to be advantageous for co packers. So those are things we're working on in regardless to pricing. You know, that's a a channel strategy, it's pricing promotional strategies. The categories is are very promotional, so it's twenty six weeks on a year on average, is you're on deal or
on promo. So it's really trying to work strategically to be able to be at the right price to maintain your your distributors' margins, your retailer's margins, and still be attractive for the overall consumer based on the pricing architecture within the category and space and channel you're operating in.
So you mentioned copacking, so right now, do you have your own canning facilities or do you Well, how does that work?
No, we don't. We use some of the best can manufacturers in the US, which is some of the largest brands in the US are producing at those same facilities.
At what point do does it make sense for a beverage company to own its own canning operation? Like when does does Red Bull do they do their own can Like at what point does that kick in?
Each brand's somewhat different on manufacturing, so, you know, I think that needs to be made up by each brand individually based on where your volume is. Also, you know, running a plan is a totally different animal as well, right, I mean that's there's a lot more involved. You know, they run three shifts, twenty four hours a day, seven days a week. It's a different margin profile as well.
So I think you need to really look at who you want to be, what are the margin requirements of your investors with the margin requirements of your business, and and really make those strategic decisions accordingly. So when we look at our model, our model is an asset light model, so we don't currently own, you know, any manufacturing facilities or really truly a sales and marketing machine.
So one other thing that's happened recently is you've been expanding in to international markets and specifically Canada in recent months. But how do you decide what markets to enter and what are the considerations that you think about there.
Well, you know, we operate in the energy category, so number one, we're going to look at markets on size a price, so you know, how big is the category, what is the opportunity, what is the strategic path to distribution and to the retailer? What is the you know, the right margin profiles? Is there is there an opportunity to make the required margins we need as an overall business.
So you're looking at, you know, market data understanding what type of market it is, how much share can you potentially source in the category, how many new consumers potentially with our Celsius position can we bring in a more size of prize, What is the route to market? How is you know, the retailers acceptance of the product, Do you have the right distribution partner and the acceptance there? So that's kind of that We constantly go through those
processes internally on identifying markets. And you look at the energy drink markets, you know, you're really it's the US, it's the U, it's UK, it's going to be Australia, it's going to be Japan, Germany. So those are some of the biggest energy drink markets in the world.
John Fieldley, CEO and President of Celsius, thank you so much for coming on and helping us continue our journey of understanding this market. Really appreciate you taking your time to break things down.
Excellent. Thank you very much. Guys, glad to be here.
No, I'm not gonna have to I had my I had my Celsia today. I'm not having a second one.
I'm already on a cosmic journey, so i only need one today.
Tracey, I really, I really enjoyed that conversation. It's interesting to think, you know, there's actually a lot in there that speaks to the things we care about. It's interesting to think about, like the idea of like freight and scale, right, and so if you and I started an energy drink company, we probably would just be working with like one copacker right somewhere in the Carolina is. We would be paying a lot in freight if we wanted to sell to the Los Angeles market.
Yeah.
Absolutely.
The other thing I think about is just the importance of the distribution channel, especially in something as competitive as this. And I'm sure if we did start our own energy drink we would be begging Pepsi or Coke to be
our distributors. And I'm still I still wonder how those conversations go, because, as John described it, you know, there is that chicken and egg problem where you want to be able to prove that you can sell a lot of volume, but then in order to do that you do need the distribution channel, it sounds like, and it was interesting also to hear him kind of describe that they go about it in an almost grassroots way, where you start out kind of local in order to prove yourselves,
then you build up. I hadn't realized just how I guess specific some of those decisions and relationships.
Are everyone listening, You should just google the word planning. Oh yeah, because as soon as you see it, it's like, oh it suddenly it clicks that these huge walls of whatever product, whether it's beverages, whether it's detergent, whether it's toothpaste, whether it's chewing gum, et cetera. It's like, that's not
thereby accident. And I guess that's obvious because nothing is by accident in business or the corporate world or what's on the But still it's like a reminder, like all of those things like down to down to like the
height at where it is and decide. I think you use that term like billboarding with in target, it's one thing like if you have two types of Celsius flavors in the target, you just walk right by it, right, But if you have five, and if you have five in a road, that's like, oh oh, there's something here that actually catches my eye within the wall of colors.
And so the fact that like you like fight that that each one of those actually like expand your ability as well as like is really fascinating and not something I had thought about. But I guess I'm not surprised that there are people that are like, this is their job to think about exactly this question.
Well that's also I guess why the market keeps growing and not self cannibalizing, because you see these massive displays, or you have one fridge that's full of just Celsius, and while I do not personally decide to pick up like three different cans or flavors, maybe someone else does. So you grab one and another one looks interesting, whether it's cosmic vibe or something else, so you just grab a bunch.
Tracy, if we launch an energy drink. I volunteer to be that person and just like with like give out free Dixie cups or you know, like stand there at the grocery store with like a little like wearing a little like odd Lots apron. I thought you were going to say, I want to try it. I thought you could do that.
I thought you were going to say that you volunteer to try all the different flavors and be the guinea pig. No, I was gonna say, I don't do that.
I just want to be the person standing there's like, oh, would you like to try this new odd Lot flavored y because you gotta figure like it's got to start somewhere, right, And I was like, oh, it's pretty good, and then you smile and move on, and maybe one out of twenty people actually buys one.
Amanda, you know the other thing I was thinking about. You asked about the sort of relatively lesser known commodity prices and specifically vitamins, And that's something I have thought about ever since I read this book way back in the day. And the reason I remember is because it was the first book I ever read on Kindle, and
it was called Twinkie deconstructed that sounds good. And it was so interesting because it basically went through all the ingredients in a twinkie and did like a whole chapter on specific chemicals or minerals or obviously more generic ingredients like wheat or whatever goes into it. And it was so interesting because like you kind of just assume vitamins like appear in pill form, but of course there's this
whole industry attached to it. There's a lot of debate about where they come from, whether or not the absorption process actually works, and that's something that I kind of wonder about as I'm drinking the celsius, like how much of these vitamins am I actually absorbing? But that would be a whole other episode. I think the vitamin industry.
Absolutely and we've never done a vitamin episode as far as I know. I just think, like, you know, there's just a lot of market power questions in this whole conversation, and so, for example, like I am interested in it's like okay, like you sign a deal with Pepsi and then they're one term under some set of terms, and then ten years later or whatever it is, you're a much bigger company and you're much bigger brand, and maybe you can like play like you know, Pepsi and coke
off of each other or Pepsian whoever else. And so it's interesting to think about like these sort of market power questions. And then there's the power of like who has the co packing facility to actually make cans and fill beverages. It's sort of interesting to think about, like, Okay, like I don't know how much I paid for this Celsius. If I pay like a dollar forty nine or a dollar ninety nine for a can of Celsius, like how much is Pepsi's cut, and how much which is the
copackers cut? And how much is the pure marketing And it's interesting that like, you know, for now, Celsia is like they really just want to be a marketing company, but presumably at some point or assuming at some point there is value in like owning your distribution and charging
others rent on your distribution network and so forth. And so I think there's just a lot of very interesting, uh sort of market concentration and market power questions that arise of thinking of like of that you can examine through on specific category totally.
And we touched on this in the previous episode with Mark aster Can where we asked, well, why don't Pepsi and Coke just start their own energy drip?
Yeah?
Right, right, because they have lots of money, presumably they have entire departments devoted to developing new products. It seems like they could theoretically do it. But I believe his answer was that while a lot of these products are extremely specialized, and it's easier just to strike a deal and then take a cut. But again it goes to those sort of like concentration and power points that you just brought up. All right, well, we have had a lot of caffeine. Should we leave it there?
Yeah, let's leave it there, because I made it through this whole episode so far without spilling on my keyboard, so let's leave it there.
Congratulations, Thank you. All right, this has been another episode of the Audlots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
And I'm Joe wysnant Thal. You could follow me at the Stalwart. Follow our producers Carmen Rodriguez at Carmen Erman, dash O Bennett at Dashbot and Kilbrooks at Kilbrooks. Thank you to our producer Moses On. For more Oddlots content, go to Bloomberg dot com slash odd Lots, where you have transcripts, a blog, and a newsletter and you can chat about these topics twenty four to seven in the discord, one of my favorite places to hang out on the Internet.
Chat with fellow the listeners Discord dot gg slash.
Odd Lots And if you enjoy odd Lots, if you like it when we do deep dives into the energy drink market, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is connect your Bloomberg account to Apple Podcast. Thanks for listening.