This report was generated using published research from our Consumer Staples team led by Sector Head Daniel Biolsi. If you want to access more Consumer Staples research, CLICK HERE.
Energy drinks have been one of the best secular growth sectors in consumer for the past 30 years. Celsius Holdings (CELH) is growing the energy drink market by widening the customer base by targeting a wider demographic and health-conscious consumers. Known for its "better-for-you" marketed energy drinks, Celsius Holdings is a lifestyle brand that's been capitalizing on the growing demand for healthier, functional beverages.
Market Position and Growth Strategy
Celsius Holdings is ranked third in its category and on a fast track to expand its footprint globally. Predominantly sold in the U.S., the company has just entered Canada and has laid out plans to expand into the U.K., Ireland, Australia, New Zealand, and France later in 2024. Its strategy revolves around targeting a broad consumer base, extending beyond the gym enthusiasts, and differentiated from its larger competitors’ focus on extreme sports marketing.
The partnership with PepsiCo in 2023 marked a turning point for Celsius, providing it with an extensive distribution network that spans nearly 100% of the retail channel. This collaboration has boosted its presence in conventional grocery stores, e-commerce platforms, and convenience stores, among others. The growth in 2023 was driven by distribution points while in 2024 it is driven by gaining additional space on existing shelves and coolers. The scanner data pointing to strong trends continuing into 2024 reaffirms the effectiveness of this strategy, signaling sustained sales growth driven by innovation, increased shelf space, and enhanced brand recognition.
Financial Health and Performance
Celsius has explosive growth rates and an attractive margin profile. In 2022, the company reported a staggering 148% growth in point-of-sale (POS) volumes, with a 4.6% increase in prices. This growth trajectory continued into the subsequent quarters, demonstrating Celsius's ability to not only expand its market share but also to do so profitably. The energy drink's high margin profile relative to the consumer-packaged goods (CPG) industry and attractive cash returns, even at this early stage, underscore the company's solid financial footing.
Competitive Advantage and Brand Equity
Celsius has successfully carved out a niche in the energy drink market by positioning itself as a healthier alternative to conventional options. The substantial caffeine content (200 mg per can) caters to those seeking a significant energy boost, setting Celsius apart in a crowded market. The company’s brand equity is bolstered by scientific endorsements of its thermogenic properties, aligning with consumer preferences for evidence-based health benefits.
Conclusion
Celsius Holdings stands at the forefront of the "better-for-you" energy drink revolution, with a compelling value proposition that resonates with a broad consumer base seeking healthier alternatives. Its strategic partnership with PepsiCo, aggressive expansion plans, and robust financial performance underscore the company's growth potential. As Celsius continues to innovate and penetrate new markets, it is poised for sustained growth, making CELH a bullish proposition for investors looking to capitalize on the burgeoning demand for functional beverages.
