Pepsico's Rockstar Buyout Likely To Step Up Energy Drinks Game

With the market buzzing with energy drink offerings, Pepsico, Inc. (NASDAQ:PEP) inked a deal to buy Rockstar Energy Beverages. Well, energy drinks have taken the whole beverage industry by storm, given consumers’ growing health concerns and shifting preferences for caffeine-infused, low-sugar and non-carbonated options. In fact, beverage giants, such as Coca-Cola (NYSE:KO) and Monster Beverage (NASDAQ:MNST) , have already debuted in this arena.

The Deal in Detail

Coming back to Pepsico, the latest deal is worth $3.85 billion and anticipated to be concluded by the first half of 2020. However, the transaction will not have any material impact on the company’s 2020 results.

Notably, Pepsico has had a long-standing partnership with Rockstar from 2009. Rockstar is involved in the production of beverages designed for athletes and rock stars with an active lifestyle. It offers products in more than 30 flavors, which are available in convenience and grocery stores in more than 30 countries.

Energy Drinks Market: A Big Opportunity

The addition of Rockstar to Pepsico’s portfolio is in sync with the latter’splans to expand its energy drinks category in response to customers’ growing demand for functional beverages. The company’s energy product portfolio already includes Mountain Dew's Kickstart, GameFuel and AMP.

Despite false claims of Pepsico discontinuing Mountain Dew, it is poised to getting it back on track. In doing so, the company is making efforts to move this product line to the energy drinks category by introducing variants, including Kickstart and GameFuel, along with non-sugar options and new flavors.

Per sources, the energy drinks market, which is currently being led by Red Bull, is estimated to be worth more than $80 billion in the next five years. Going ahead, Pepsico intends to strengthen its presence and gain market share in this space via increased partnerships. To this end, the company is rumored to collaborate with VPX-owned performance energy drink brand — Bang.

Pepsico Faces the Heat

Pepsico, which shares space with Nestle (OTC:NSRGY) , is currently in the middle of the ongoing war to grab a bigger share of the U.S. energy drinks market. Its rivals — Coca-Cola and Monster Beverage — have upped their game in this space. Notably, Monster Beverage is touted to have an upper hand, with robust growth in energy drinks internationally coupled with strength in its high-performance energy drink — Reign Total Body Fuel. Apart from this, the company offers a wide range of energy drink brands, such as Monster Energy, Java Monster, Cafe Monster and Espresso Monster, among others.

Keeping in these lines, Coco cola strengthened its foothold in this space by adding Powerade Ultra and Powerade Power Water to the Powerade sports drink brand in January. Prior to this, the company launched its first energy drink brand, namely Coca-Cola energy, in four flavors — Coca-Cola Energy, Coca-Cola Energy Zero Sugar, Coca-Cola Energy Cherry and Coca-Cola Energy Cherry Zero Sugar.

We note that shares of this Zacks Rank #3 (Hold) company have lost 5.9% in the past three months compared with the industry’s decline of 6.1%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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