PepsiCo, Inc. (NYSE:PEP), despite its extensive success in the soft drink world, has never been able to crack into the growing energy drink market. The company looks to be trying once again, this time with Mountain Dew Kickstart. The drink, which hit shelves Feb. 25, is an energy drink alternative. What does this mean for the industry?
PepsiCo, Inc. (NYSE:PEP)’s primary energy drink is called Amp, which was originally launched in 2001. Back then, the drink was labeled under Pepsi’s popular Mountain Dew brand (“Amp from Mountain Dew”). In 2009, Mountain Dew was dropped from the label, making Amp its own brand.
Although Amp is top-five-selling energy drink, it has always lagged far behind market leaders Red Bull and Monster Beverage Corp (NASDAQ:MNST). Late in 2012, Pepsi relaunched Amp with an updated flavor. Yet reviews of the updated Amp have been mixed, with BevReview claiming that Pepsi had “ruined” Amp’s flavor profile.
With Mountain Dew Kickstart, PepsiCo, Inc. (NYSE:PEP) looks to be trying a different strategy. Kickstart is clearly part of the Mountain Dew umbrella, a fact that should support sales (in 2009, Beverage Digest ranked Mountain Dew the number four soft drink brand).
At least from a marketing standpoint, PepsiCo, Inc. (NYSE:PEP) seems intent on going after the energy drink market with Kickstart. Browsing the official Kickstart website, one finds dozens of pictures of young people engaged in activities such as skateboarding, surfing and skiing — similar to the marketing campaigns from Monster and Red Bull. Both have made partnerships with “extreme” sports athletes a focal point of their advertising efforts (Red Bull has gone so far as to create a series of air racing competitions).
However, Kickstart isn’t wholly an energy drink. A 16 oz can of Kickstart packs “only” 92 milligrams of caffeine. That’s more than regular Mountain Dew, but far less than the 160 milligrams found in a can of Monster. Further, the marketing behind energy drinks has never tied them to a particular time of day; Kickstart has been hailed as a morning alternative to coffee.
Can Kickstart steal sales from Monster?
As major brands like Red Bull and Rockstar remain off U.S. exchanges, Monster is the only pure energy drink play available to investors. Should Monster shareholders fear Kickstart?
Kickstart is only a few weeks old, so it isn’t clear yet as to whether or not Kickstart could eat away at Monster’s sales. That said, it doesn’t appear to be a major threat for the time being.
Monster was one of the first brands to popularize the 16 oz can. The bigger size cans allowed it to compete against market leader Red Bull from a value standpoint. Thus, many of Monster’s fans likely won’t care for Kickstart’s reduced caffeine. Furthermore, Monster has embraced a sort of shotgun strategy when it comes to its varieties. At the time of this writing, Monster’s website lists over 30 different flavors.
Kickstart only comes in two flavors, both of which are a derivative of the original Mountain Dew. Someone thinking of purchasing a java-flavored Monster isn’t likely to opt for a fruit punch- or original-Mountain-Dew-flavored Kickstart.
However, Monster shareholders should be concerned about the general trend Kickstart represents. As I’ve written previously, Monster’s competition has been increasing. Kickstart is yet another competitor.
Will Coke respond?
As Pepsi continues to innovate, The Coca-Cola Company (NYSE:KO) might be getting left in the dust.
To be fair, Coke remains the dominant soft drink, and was rated the world’s most valuable brand in 2012 by Interbrand. But the company has made little headwind in the energy drink market. Its energy drink, Full Throttle, only sells half as well as Pepsi’s Amp according to energyfiend.
Coke was rumored to be working to acquire Monster in the first half of 2012. But after a Wall Street Journal report prompted a rally in shares of Monster, Coke publicly denied the acquisition.
Investors shouldn’t dump Coke shares simply because the company can’t compete in the energy drink market. Despite its failings, it remains a Warren Buffett favorite and pays a solid dividend.
But while Pepsi keeps trying, Coke seems to have given up. Investors in Coke shouldn’t expect much growth from the company.
Energy drinks remain a growth market
Ultimately, PepsiCo, Inc. (NYSE:PEP)’s willingness to launch a drink like Kickstart shows that the energy drink market remains an area of growth for the industry. That should actually help Monster, which continues to control a significant portion of the total market.
Yet at some point, the energy drink market will become saturated. When that day comes, Monster could be pressured from a growing host of competitors.
As for the beverage giants, PepsiCo, Inc. (NYSE:PEP) appears to offer more room for growth than Coke. Conservative investors can take solace in Coke’s brand power and dividend, but growth seekers might want to look to Pepsi instead.
The article Pepsi Challenges Energy Drinks with Mountain Dew Kickstart originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.
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