Click to read the original article for details Where there is Coca-Cola, there is Pepsi. Following Coca-Cola's announcement to launch its own energy drink in 2019, on the evening of July 9, at the 2019 second-quarter earnings call, PepsiCo CEO Ramon Laguarta stated that Pepsi would introduce a "Pepsi-branded energy drink." This plan once again extends the rivalry between the cola giants into the energy drink market. As carbonated soft drink production continues to decline, beverage companies generally see the growth potential of energy drinks. Industry insiders believe that Pepsi and Coca-Cola have always been in direct competition in the beverage sector. However, in the Chinese energy drink market, both Pepsi and Coca-Cola are latecomers. Pepsi's sports drink Gatorade has not performed well domestically, while Coca-Cola's dispute with Monster has also affected its promotion in the Chinese market. Although Pepsi and Coca-Cola have strong product development capabilities, how to capture market share from the Red Bull-dominated energy drink market will become a common challenge for both companies. Entering the Energy Drink Market In fact, Pepsi's move into the energy drink market is not impulsive. In response to a question from a Wall Street analyst, Laguarta said that the energy drink market is growing globally, and consumers prefer products that help them boost or replenish energy. Pepsi is positioning itself in this category from various angles, including coffee, sports drinks, and energy drinks. "When our related products hit the market, consumers will see them," Laguarta said. It is understood that in the functional beverage sector, Pepsi owns the Mountain Dew brand and has a long-term partnership with Rockstar, one of the top three energy drink brands in the United States. Laguarta believes that the needs of core energy drink consumers differ from the product value that Pepsi and Coca-Cola can offer, but that does not mean these consumers will not choose Pepsi or Coca-Cola's energy drink products. Red Bull, Monster, Rockstar, or other major brands in this category bring different brand value to consumers compared to what Pepsi offers. "Energy drinks are favored by consumers, and the market size is expanding. For Pepsi, a major global beverage company that is gradually reducing its reliance on carbonated drinks, further positioning in functional beverages can maintain corporate profitability," said Zhu Danpeng, a Chinese food industry analyst. It is understood that energy drinks have the function of refreshing and replenishing physical strength, similar to sports drinks, and both are functional beverage categories. Energy drinks are one of the fastest-growing segments among all beverage categories. In 2015, global energy drink sales increased by 10% to 8.8 billion liters. Regarding Pepsi's functional beverage market plans in China, a Beijing Business Today reporter interviewed PepsiCo China's relevant person in charge via email, but had not received a reply by press time. New Battlefield for Cola Giants The growth potential of the energy drink market has long attracted the attention of the cola giants. In April 2019, Coca-Cola took the lead in launching Coca-Cola Energy, marking the first time it entered this field with its own brand after acquiring a 19% stake in Monster Beverage. Data shows that by 2022, the U.S. energy drink market will reach $16.9 billion. In April, Coca-Cola first launched Coca-Cola Energy in Spain and Hungary. The product comes in regular and sugar-free versions, containing naturally extracted caffeine, guarana extract, and vitamin B. Each 250 ml contains 80 mg of caffeine, more than three times that of regular Coca-Cola, targeting young people aged 18-35. Notably, the latest news shows that Coca-Cola has won its dispute with Monster and can freely launch Coca-Cola Energy in new global markets. Previously, according to the cooperation agreement between the two parties, Coca-Cola could not launch functional beverages that directly compete with Monster to seize market share, unless they were products directly under the Coca-Cola product family. The resolution of the dispute between Coca-Cola and Monster also means that Coca-Cola can promote its own energy drink brand globally without pressure. "Pepsi will not give up this piece of the pie either. As both sides continue to invest, their competition will become hand-to-hand," said Xu Xiongjun, a strategic positioning expert and founder of Jiude Positioning Consulting. In fact, in recent years, the competition between Coca-Cola and Pepsi has been multifaceted and multi-level. In 2015, Coca-Cola proposed a "total beverage" development strategy to diversify risks from carbonated drinks. Pepsi has also begun to move away from its reliance on carbonated drinks and diversify into food. On January 4, 2019, Burger King China's official Weibo account stated that starting from January 1, 2019, Pepsi beverages sold at Burger King would gradually be replaced by Coca-Cola beverages. This incident shows that the competition between the two is fierce both on the C-end and B-end, and reveals their transformation anxiety. Where Are the Challenges? In Zhu Danpeng's view, in the process of de-carbonation, both companies are positioning themselves in the energy drink field, each with its own advantages. Pepsi has Gatorade, the world's number one sports drink brand, with obvious brand advantages. In the Chinese market, PepsiCo's cooperation with Master Kong has also improved channel layout and terminal penetration. It is understood that in the U.S. sports drink market, Gatorade holds more than 80% market share and has entered more than 80 countries and regions. Among them, it ranks first in market share in more than 10 countries, including Canada, Mexico, Italy, Argentina, and Brazil, with annual global revenue exceeding $6 billion (approximately 40.2 billion RMB). Coca-Cola's Powerade and BodyArmor brands lag far behind Gatorade. Data shows that Powerade's revenue is about $1.5 billion, while BodyArmor's revenue is about $300 million. However, globally, the energy drink markets in Europe and the United States are mainly controlled by Red Bull GmbH. In 2017, Red Bull GmbH sold 6.3 billion cans, with revenue exceeding 47 billion RMB. The Chinese market is dominated by Red Bull China, with sales revenue exceeding 20 billion RMB in 2018 and over 13.8 billion RMB in the first half of 2019. Regarding Pepsi and Coca-Cola's positioning in energy drinks, a relevant person from Red Bull China believes that in the Chinese market, energy drink sales are currently concentrated in southern China, with significant growth space in the northern market. The entry of major brands is conducive to expanding the overall scale of China's energy drink market. "Coca-Cola and Pepsi are unlikely to pose a threat to brands like Red Bull in the short term, but competition between the two will become more diversified with the increase in categories. Against the backdrop of Red Bull dominating the mainstream market, the survival space for both Coca-Cola and Pepsi may only be in some niche segments," Zhu Danpeng said. Source: Beijing Business Today (ID: BBT_JLHD)