What comes to your mind when you think about the red bull? It is an energy drink consumed by people, especially the ones who do sports. When we view it as an ordinary person, we will just look at it as a famous brand and a drink. But if you are an entrepreneur or interested in doing business, you may have a curiosity to find out how does red bull make money?
In 2019, Red Bull sold 7.5 billion cans of energy drinks, which is almost a can for every person in the world, and generated US $ 6 billion in revenue. And from this, they reinvested a third into marketing. But how much is the real worth of Red Bull?
In 2020, the brand generated a revenue of 6.31 billion euros, and in 2021, the Red Bull drink brand had a value of 15.99 trillion euros, up from 15.11 billion a year earlier. So what makes the Red Bull so expensive?
From the start, the popularity of the drink is expanding swiftly. And this brand has the world’s largest market share of any energy drink at 40%. It owns jets, sports teams, automobiles, and so on. So in this section, let us see how does red bull make money?
What you should know about Red Bull?
An Austrian entrepreneur Dietrich Mateschitz, was influenced by the Krating Daeng energy drink, which was first launched and sold in Thailand. Dietrich Mateschitz took this concept and modified the ingredients to appeal to western palates. And this was started as Red Bull. The name Red Bull is based completely on the Thai energy drink that impressed the founder of Red Bull.
The vision of the brand was to uphold the standards of Red Bull while sustaining the leadership position and providing good customer service in a highly productive manner.
You would have seen the logo of Red Bull across many Sports. They have sponsored specific sports and so display their logos. Why does Red Bull, which sells energy drinks, bother with sports?
But the true fact is that it is one of the genius ways that helped the brand to grow into the successful business that they are today. They use strategies in promotions and marketing activities that help the brand to make a lot of money in the market.
It is actually considered more of a marketing company than an energy drink manufacturing brand. It will reinvest a large percentage of its annual earnings into the marketing campaigns to maintain its market share. It has a fantastic profit margin and keeps the company profitable with its strategic partner, Coca-Cola. It is known as a leading brand that captures nearly double the market share of its closest competitor.
Facts about Red bull
- It took some time for the brand to gain traction across the world. The energy drink was known only in Austria for the first 6 years of its existence. And it was in 1994, that it reached the UK and Germany. In 1997 you started to pop up on American Supermarket shelves and finally reached the Middle East in the year 2000.
- Red Bull was slightly modified from the original formula to better suit the tastes of the westerners. And today it produces and distributes both Red Bull and the original formula of Krating Daeng. Red Bull is positioned as the premium beverage and dominates both ends of the spectrum. The company is marketing the drinks separately to consumers in Eastern and Western countries.
- U.S. drinkers have been introduced to a wide variety of energy drinks, but still Red Bull remains the most popular choice and it continues to be the top-selling energy drink in America.
- The Red Bull brand is more than an energy drink. It has launched a media company named Red Bull media house that specializes in Sports, gaming, and music. The brand publishes lifestyle magazines and produces multi-platform streaming channels.
- This energy drink brand uses unique marketing strategies by creating a series of extreme sporting events. It is commercially linked to various professional sports like skiing, windsurfing, BMX, car racing, and more. It hosts worldwide events and provides sponsorship to dozens of athletes.
What makes Red Bull unique?
Red bull is branded as an energy drink with an image of youth because it is linked to the extreme sports done by youth. Usually, young people will be seen doing things that are not covered by sports programs. Because these individuals, who are extreme athletes, are not well known. So the Red Bull used extreme sports like formula One, Windsurfing, cliff diving, and the Air Racing series to make the brand more prominent. The brand taps a vast market and it aims at the 18 to 34 years old crowd by acting youthfully.
The development of Red Bull
In the summer of 1982, Dietrich Mateschitz, an Austrian businessman was suffering from jet lag during a business trip to Thailand. At that time, he tried a local drink called Krating Daeng and this improved his jet lag. He got inspired by the ingredients and the qualities of the product and so he decided to bring the product home as a form of a brand new product category.
He came up with his idea several times to Western investors, but he got turned down as they did not see a market for the product outside of Asia. and obviously, Mateschitz was well aware that there was no market for the product at that time. So he tried to create a new market.
He invested half a million himself in the product. And then teamed up with the boss of Kraitng Daeng manufacturer, who also invested half a million. Mateschitz adapted a formula and flavor for the European market and successfully launched the product in Austria in 1987.
It was initially banned in Germany but it profited from its reputation as an outlaw band.
Because the brand was banned in Germany, many young Germans crossed the border to Austria to buy energy drinks. And in the first year, Red Bull sold over a million cans. It quickly spread across Europe from Austria. First, it spread to Slovakia and hungry and then to Germany and the UK. They entered the US market after three years. Soft drinks like Pepsi and Coca-Cola did not know about the strategic intent of Mateschitz and the brand.
How does red bull make money?
For Red Bull, the cost of producing a single can is about USD 0.09. And the average wholesale price of a single can in the western countries is the US $1.87, while the recommended retail price for a single can is US$3.59.
In 2019, they sold 7.5 billion cans and generated $6 billion in income, and they reinvested a third in marketing. In 2020, 7.9 billion cans were sold. They actually produce and sell enough Red Bull cans to cover one beverage for every person on earth per year. So how does Red Bull make money? What is the strategy and techniques they use?
He created a new species that focuses only on the downstream activities while outsourcing operations like productions and Logistics. So Red Bull is not actually producing the drink itself; part of the cans was completely outsourced, while Red Bull was fully committed to the resources to sell the drink.
One of the successes of Red Bull is that they charge a higher price than the competitors which each can make approximately 9 cents. And the retail price for a can is $3.59 USD. Customers like Walmart and big grocery stores used to pay between 44 and 48 USD per case of 24 cans, which is 1.87 USD per can. This is 20 times more than the cost of production.
The reason people are willing to buy this sugar water of Red Bull is because of the power of the brand. Mteschitz focuses on the club scene to create a market for this product. And now it is hard to imagine a party of students without several packs of Red Bull. This was made by the company which actively made use of a student brand manager. The brand managers were popular University students who were encouraged to promote Red Bull on University Campus and used to throw parties at different locations.
They quickly learned that this drink was a money machine. Red Bull tasted at least once mixed with vodka or Jager. The mixes became two of the most popular drinks in bars. And so it was soon sold at nightclubs and festivals around the world. Through sponsorship and ownership of the sports team, Red Bull started to engage with the customer in a deeper way. This made the customers feel active and intense.
The activities it got engaged
When you think about the energy drink market, one of the things that come into your mind is Red Bull, as it has established a strong position in the market. It has come a long way from 1984 and involves many things more than just selling energy drinks.
It makes money by selling the energy drinks at a big margin while it never fails to reinvest a bulk of the massive profits it gets into the marketing campaigns. Moreover, to boost sales, it maintains the consumer awareness of the brand. They own and promote several sports teams like New York Red Bulls, RB Leipzig in Germany, Red Bull Bragantino FC in Brazil, and RB Salzburg in Austria.
The company founded RB Leipzig, a new soccer club in Germany that plays top-flight German soccer and Champions League Soccer. They shortened the name to RB because the German Bundesliga league will not allow such open sponsorship of a team. But they made the club logo similar to the logo of Red bull.
They own two F1 racing teams and sponsor athletes while promoting the products through events. Considering the marketing budget, they employ each year and the company will look as if it is not profitable. But it has a huge markup and remains profitable.
It produces extreme sports content through its website, Tv, and YouTube Channel. The YouTube channel of Red Bull has more than 10 million subscribers and it earns between $3,000 to $7,000 for every video. But this amount is just a tiny fraction of its earnings but still an extra amount of income.
Strategies of Red Bull
The brand does not do any conventional marketing and tries to look for stories to associate with. Instead, they will create their own stories and produce content using the media house. Through social media, they were able to do viral communication and improve the return on marketing.
The company is at risk because it is depending almost completely on one product and that is the energy drink. This will limit the growth and will become a risk especially if the health and nutrition awareness grows. The product can cause obesity, diabetes, and insomnia, and so it can one day backfire.
To handle this problem, the companies are investing in sports teams in an attempt to diversify and create additional value for the Can business. Red Bull takes advantage of a fully integrated entertainment and media value chain.
When owning more than one club, they get the opportunity to use synergies like for example, developing talent. Here a player can start his career in Brazil and then move to Europe to play in a small Austrian League for Salzburg. And when he is ready to play in the champions league, he will eventually join red bull, Leipzig.
At the end of their career, he might move to New York Bulls to spend the last years in Major League soccer. Private equity in sports can generate value for Red Bull. The New York team was purchased for an estimated 25M USD in 2006, and now the team is worth 290M USD, according to Forbes. With the US soccer market rising, the price for a franchise in New York City will heighten in the future.
However, the overwhelming revenue is from the sales of beverages which represents approximately 97% of total earnings.
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