Good start. All right. Good morning, everyone, and welcome to the UBS Global Consumer Retail Conference here in New York City. My name is Peter Grom. I'm the UBS Beverages and Household Products analyst. We are very excited to have joining us from Celsius this morning, Jarrod Langhans, Chief Financial Officer, and Executive Vice President, Toby David. You know, over the last few years, the energy categories have seen a pretty meaningful fragmentation just, you know, since the emergence of Performance Energy. You know, a lot of brands have seen outsized growth, but it does seem as if Celsius is kind of leading the pack here. You know, it seems as if you're clearly becoming a competitive threat to kind of the incumbents of Red Bull and Monster.
More recently, you know, you transitioned your distribution to the Pepsi system, which should add fuel to the company's growth profile. You know, I have a lot of ground to cover here today. I have a number of questions that I plan to ask the team. If you do want to ask or want me to ask a question on your behalf, you can submit a question through the app. It will show up here on this iPad. You know, alternatively, if you wanna just raise your hand, and I'll call on you, and I can repeat the question to make it easier. Before we start, I'm required to read a legal disclaimer.
As a research analyst, I'm required to provide certain disclosures relating to the nature of my own relationship and that of UBS with any company in which I express a view on this call today. These disclosures are available at www.ubs.com/disclosures. Alternatively, please reach out to me, and I can provide them to you after this meeting. With that, why don't we just get started here? I think it would just be, you know, helpful to kind of, to start with kind of the background of Celsius, right? Clearly, Bang, you know, opened the door, if you will, for Performance Energy, you know, a few years back. Can you really? I guess maybe just before we get there, it's just you've seen a lot of new category entrants, right?
Maybe just, you know, for the, those in the audience, those on the line, can you just talk about what differentiates Celsius versus maybe some of these other up-and-coming brands? I guess just, you know, going back to kind of when Performance Energy started, you know, where did Celsius kind of really see the biggest opportunity to kind of go after, you know, a category that's largely been dominated by two players for so long?
Talk some of the history? Yeah. I've been with the company 11 years, I'll kind of talk about a little bit of the background. You know, what differentiates us, I think, from a lot of the other players in the category is the brand's been around since the mid 2005, 2006 timeframe. It was launched as the world's only negative calorie beverage, six clinical studies behind it, peer-reviewed, published in medical journals. It was created by folks from the supplement industry. It was a disruptive technology, you know, over the years, what came to fruition was that it just didn't resonate with consumers. New management team came in around 2011, 2012 timeframe, including John Fieldly, who's our current CEO. He came in as a CFO at the time.
You know, we repositioned the brand in 2016, 2017, based on the science still, but we figured out what was really resonating with consumers was the energy drink component. We looked at the Amazon reviews on our product at the time, and everybody was just saying, "Oh, man, this feels great, gives me energy, no crash." We repositioned the brand and, you know, to your point, Peter, you know, Bang clearly opened the door and showed retailers, the retail buyers that there was an opportunity for this new, you know, subset Energy 2.0, Performance Energy, whatever we wanna call it. Bang opened that door. You know, we've been very fortunate along the way that through a variety of reasons, every time maybe Bang had a misstep, we were able to capitalize on that.
That's kind of, you know, the short version of the history of the product. I would say what the biggest thing that differentiates us is the authenticity of the brand. People wanna claim their performance. That's our roots. I mean, that's how we grew up was in the gyms. We have that authenticity that gives us the credibility with the consumer. They see their trainer or their friend who works out a lot drinking the product. It creates like a healthy halo type effect where people just... It resonates with people, and they feel like, "Okay, I feel better drinking this. There's no sugar. It has all these healthy ingredients in here." I mean, that's the short. I could go on for probably an hour just on that question, but I know you have a lot more questions.
No, I mean, I guess maybe building on that a little bit, I think what really stood out to me when I started looking at the company was just kind of, you know, how it was built differently. I wanna touch on the channel dynamics a little bit, but, you know, more from the core consumer, right? I maybe just it'd be helpful to kind of walk through. Can you just talk about the demographics of your core consumer, male versus female? I think it, you know, it was largely kind of 50/50. You know, has that really evolved at all as you kind of expanded distribution here?
You know, it's interesting. I was having this conversation with our internal category manager just yesterday, just trying to understand if there's been a Yeah. We haven't seen it yet. You know, traditionally, we have been roughly a 50/50 split, and it's a little bit too early for us to understand if our expansion into convenience, which, I mean, we've seen a massive growth just in the last four-five months since the Pepsi transition, if that is gonna, you know, help lean in more to the males.
One thing I do know is you're seeing that far more females consuming energy drinks than historically, and we feel like Celsius presents a nice pathway instead of like, you know, dirt bikes and, you know, WWE maybe that we've got Celsius that is a little bit easier to convert some females into, you know, energy. We meet people all the time that say, "Oh, I don't drink energy drinks," while they're sipping a Celsius. We feel like there's some different usage occasions.
Yeah.
The incrementality of Celsius is unlike any other energy drink out there. We're bringing more consumers to the category than anybody else, including the two big players. There is an opportunity to, I think, pick up more males, but also continue to pick up a lot more females who are entering the category.
Okay. I guess, you know, I alluded to this just before, but just kind of the channel mix was interesting, right? A lot of energy drinks kind of start in the C store channel and they grow from there, where it's always been the reverse for you, where C stores have kind of been one of your latest avenues of growth, right? You know, as you look out over the next two-three years, like kind of what's the optimal channel mix, if you will?
I'll get that one. I mean, we kind of had to back door the energy drink category because a lot of getting to C-stores is having the distribution, right? The biggest players in distribution were taken. We were using wholesalers, we were going direct. From that perspective, you can get into retail, you can get into club, but it's a lot harder to get into, you know, C&G. From that perspective, we really didn't get into a DSD system until early 2020, and that's when you started to see things take off for us when it came to your historical DSD, you know, channels. That's one of the reasons why historically we haven't been there, because it's been a wholesale and a direct model.
With the move of Bang Energy into Pepsi, that opened up the AB InBev network for us. You saw in 2020, we started growing like crazy because we were able to get product on the shelves in more places, started expanding the key accounts nationally. You saw 2021 continued growth, 2022, you know, record year for us. At the end of last year, we were able to move into the Pepsi system, and you saw our ACV go from, you know, mid-60s to 90. That's the biggest catalyst to getting us in the C&G. It's not that we didn't want to be there, it's just that it's hard to get there if you don't have the DSD network.
You know, getting in with Pepsi, we've seen it grow significantly already from a C&G perspective. We were probably, I don't know, something like 25% a year ago would be C&G from our channel mix, and it's probably double that already. The category is, what, 2/3. We still got a little bit more room to go when it comes to C&G. We see that as a huge opportunity for us. There's a number of other channels that Pepsi is getting us into that allow us to grow even more that we didn't have access to historically.
Okay. I guess, you know, going back to the Pepsi transition, I mean, I guess why was Pepsi, obviously one of the best distribution networks in the U.S., if not the world, but why was Pepsi the right partner? Then I guess just maybe building on that, why was the structure of the agreement the right structure?
Yeah, I mean, Pepsi is one of the probably top two distribution systems in the world, right? You got the red and the blue, and obviously the red one was taken, so it wasn't really on the table. You know, Pepsi is a top distributor across the world. It gives us international opportunities as well. You saw the power of their system. In a matter of, you know, six weeks, they took us from a 65 ACV to a 90 ACV. I mean, that alone just tells you how powerful that system is. You know, they're very data-driven. You know, historically, when it came to getting on the shelves and having kind of consistent planograms and those kind of things, so they're very meticulous when it comes to those kind of things.
It'll allow us to really have that kind of set of SKUs. It'll allow us to drive efficiencies. We'll have one distributor instead of 250 distributors. A ton of opportunity from an optimization and efficiency perspective, but also from an ACV perspective. I mean, they bring their own energy coolers to the table. They bring their regular Pepsi coolers to the table. They bring the opportunity to get into food service, colleges, hospitals, hotels, casinos. They just bring an opportunity that we didn't have access to, and we wouldn't have had access to. You know, colleges is a great example. They have 60% of the college population, right? If you're not on a red or a blue truck, you're not getting into colleges.
The white truck gets into some of them, but, you know, really it's either red or blue. Opened up huge doorways and huge opportunities to us. You know, the timing worked out great.
Yeah. I mean, clearly a lot of opportunity, but I mean, over the last few months, I mean, have there been any surprises as you kind of transition, you know, good or bad?
I mean, we've got a lot of people on the team that went through it when Rockstar transitioned into Pepsi, so they kind of had that experience to fall back on. Paul Storey, who heads up our operations, transitioned Rockstar into Pepsi when they went from the Coca-Cola to the Pepsi system. He had a lot of learnings to use-
Mm-hmm
...which helped drive efficiencies because he'd already done it once. We had our head of sales, Tony, had been a part of that transition as well. From a sales perspective, our head of DSD sales was in the Pepsi system. We had a lot of people that had done the transition before and knew the Pepsi system. I think that helped keep things more seamless because they knew each other, and, you know, you had a lot of relationships that were already built. If issues happen, you can get them cleared pretty quickly. I think probably the most surprising thing, and they would probably say it too, is it went very smooth. Like, there was very little kind of bumps along the way.
I think that's probably surprising because you'd expect more, you know, more disruption, you know, based on history. We saw with Bang going in their system and Rockstar going in their system, you saw a little bit of disruption, and I think the disruption was very limited. That's, you know, props to the Pepsi team and also our team on getting that transition done successfully with. You know, obviously, there was bumps in the road, but it was from an expectation perspective, it was pretty smooth.
I kind of want to pivot back to maybe, you know, some of the more recent results, you know, 4Q specifically, where sales were still exceptionally strong. You know, maybe they're, they've, you know, versus some expectations fell short of, you know, maybe some lofty expectations, if you will. You know, and I know, you know, there's a lot of kind of these one-time issues. There's a pull forward of, you know, Pepsi sales. There's, you know, inventory management. I think you also mentioned sales returns. Is there any way to kind of disaggregate how much of these, you know, quote-unquote "one-time items" really impacted 4Q performance? Then while we're kind of just talking about the fourth quarter, we can, we can really see that the performance and the track data is exceptionally strong, right?
You know, can you maybe talk about what's going on in Amazon and club, which also was very strong, I believe, as well. You know, fitness and I guess what I'm trying to understand is just, you know, the gap between what we see in kind of the scanner data versus kind of the reported results and kind of, you know, if there's any way we can kind of walk through that, the differences from a channel perspective.
I mean, you've seen it with Monster and Coca-Cola. There is some timing and lead and lag depending upon ordering. That's something for the last 20 years you've seen with those guys. It's just a part of the system. It's part of the process. As we continue to optimize and get to know each other a little better over the coming quarters, we'll be able to call those kind of things out like Monster has done historically. If there's a kind of a fill-in, you know, at the end of the quarter or right after the quarter, that'll help with that kind of understanding where the disconnect was. We also have, when you look at the non-track data, you've got fitness, you've got naturals, depending upon which data you look at.
You got military, if you're looking at Nielsen or IRI. We use IRI. IRI was a little closer than the Nielsen data based on what I've seen. From that perspective, if you look at some of the non-track stuff, that's where we were historically. We've been with Amazon since 2014, 2015. We've been in the fitness the whole time. If you're looking at some of those channels that, you know, are part of our DNA but might not be growing at the same rates that some of these other channels are because like we just talked about, we're just getting into C&G at a good clip relative to the market.
You know, we are strong in places like club and grocery, but there's a little bit of a disconnect if you look at some of the non-track stuff. We're just entering some non-track channels that might be a lower velocity type channels, right? You know, the Dollar General and the Aldi of the world. From that perspective, there is a little bit of a gap looking at that data. I look at the scan data more of, you know, from a consumer perspective, what is the consumer doing? That tells you is our business strong with the consumer? Is our business continuing to resonate with the consumer?
That's really where we look to the IRI and the Nielsen type data to really show that we continue to resonate with the consumer, we continue to grow with the consumer. Yeah, there's gonna be some timing, you know, differences there, but, you know, that's something that we'll just have to work through as we optimize the system with Pepsi and understand the cadence and the timing of orders and those kind of things so that we can get to a position where we can, you know, provide a little bit more information to the street. Right now, as we're just rolling into the system, we're getting used to each other. There's, you know, there's not a whole lot we can do for you because it's gonna be, you know, a little bit of lead and lag in terms of timing.
Yeah. Okay. I guess just, you know, you mentioned on the last call that 1Q's off to pretty strong start. I think you were referring to the scanner data. I guess, is it fair to say that we should expect kind of just, you know, building on that last point, that we should expect some of these differences to kind of continue moving forward?
Like I said, I mean, we just transitioned to Pepsi on 10/1. There's a part of the system that was on 11/1, part of the system was on 12/1. I mean, we're early days, right? You know, it's, they have a huge system. We went from a 65 ACV to a 90 ACV. It's not gonna be perfect out the gate. You know, we have instances where we're shipping out of Orbit, and things like that as we're launching innovation, we're launching new programs. I think there's gonna be a little bit of kind of volatility within that system along the way. Like I said, when we get to the quarter end and the results, we'll have to help everyone kind of work their way through it.
It's, you know, we look at the scanner data continues to be strong, and so if there's a little bit of a timing on when I have to record revenue, which is when I deliver it to Pepsi as opposed to when they deliver it.
Yeah.
to the retailer who then gets to record it when it goes into the scan data. You're talking three, you know, three steps along the way. You know, there might be a little bit of a disconnect. We'll continue to work on helping the street understand that.
Yeah. I guess maybe building on that last point, you know, I think we all can agree that the growth has been and continues to be incredibly impressive. You know, if I just look at consensus expectations for this year, it's a pretty wide band, right? I actually think it's almost like $200 million between the high and the low. You know, Jarrod, I know you and I used to talk quite a bit during your days at Primo Water, and we used to have a lot of discussions around guidance, right? You know, there's clearly a lot of positives. There's a lot of negatives around it.
I mean, I know, you know, your largest publicly traded competitor doesn't really give guidance besides kind of quarter-to-date sales trends. You know, how do you really think about approaching guidance? I guess, you know, do you think that your approach might change as the visibility improves, as that kind of, you know, partnership with Pepsi kind of grows?
Yeah, man, I think Monster is smart to not give guidance, to be honest with you. You know, there is a wide band, but it's with a company like us that have been growing as fast as we've been growing and getting into the Pepsi system with the huge opportunity, you know, I have some people that are a little bit more aggressive on their expectations than others. I know that doesn't help with consensus and things like that, but, you know, at least in the short term, as we look out over the next two, three years with the growth opportunities we have, you know, guidance kinda locks you into having to fight for the quarter, right? We really need to just drive this business for long-term success. We wanna capture market share.
We're actually incremental to the business back to an earlier conversation we were just having is, you know, if you look about 26% of our from Mintel, 26% of our growth was from new to the category. About 52%, 54%, something like that was increased consumption. I mean, we're about 75% + incremental, right? That's, you know, low twenties is actually kind of market shifting. From our perspective, you know, with the opportunities we have there, I look at guidance as actually just something that could hold us back. You know, we don't wanna do that. We'll see how, you know, a couple of years down the road, maybe we'll change our mind.
No, that makes a lot of sense. It's just a question that I get a lot just because I think You know, you look at the scanner data, right? You kind of look at street expectations, and sometimes there's a big gap.
Yeah.
It, it's just hard to kind of get that visibility, right? You just wanna make sure that people, you know, don't get too ahead of themselves, and then they get disappointed when growth is, you know, 75% and not 80%, which is kind of ridiculous.
Right.
When you say it out loud. Sometimes that's just how people look at it. You know, thinking about growth in 2023, you know, can you maybe just frame how you think about growth this year? I guess what I'm trying to understand is how much growth do you expect from distribution? You know, how do you think about velocity? I guess, you know, you mentioned earlier that, you know, the ACV has kind of jumped up to 90% following the Pepsi transition. You know, how much more room is there? I guess, you know... I guess, you know, maybe more shelf space at, you know, current retailers, you know, new doors. Just, you know, how much more room really do you have from a distribution perspective?
From the track channels is where we're getting the ACV data from, right? There's a big opportunity in the non-track channels. You know, the food service, our own cooler placement, John talked about wanting to place 15,000 more coolers. We only had 5,000 before this year. By the end of the year, if we get 20,000 coolers of our own placed, that's a huge driver of growth and velocity within where those units are placed. You know, we talked about colleges and universities and those types of opportunities. Within the track channels, if you go back to kind of when Bang moved into the system, they kind of peaked around 93. Can we do better than that? We would like to, but that's a data point out there.
If we're at 90, you know, there's a little bit more runway from an ACV perspective as we go through this year. We're going through resets right now, so that's kind of April, May. We'll have a good picture as to what the, you know, the SKU count is on the shelf once we get to kind of mid-June, which will kind of give us a perspective on where we're gonna go with the rest of the year, right? We'll have the ACV, we'll have the resets done, and we'll have the growth trends that you can kind of mirror. Kind of once we get to the middle of the year, we'll really have a good perspective on how we're gonna end the year.
Yeah, I would just piggyback off that. If you look at the real big growth opportunities, we're sitting, I mean, at our last earnings, we said 12.5 SKUs per retailer right now. Bang, Rockstar, just 12 months ago, they were sitting at 16 SKUs per retailer, so I mean, that's some big upside right there. Just traditionally, I mean, if you go into a lot of stores nationally just 12 months ago, especially convenience stores, you might only find three, four, five SKUs of Celsius. It's not sitting there broad, you know, right on Broadway. It's sitting there, like, in the gutter or up in the top crack. You're only...
You know, the people that are grabbing that are really going in looking for Celsius versus what we're hoping for is, you know, coming through these resets, getting better positioning on the shelf, getting more SKUs so we can create a billboard effect. When somebody goes in there maybe to grab a Monster, Red Bull, or whatever they're going to grab, but they see the Celsius sitting out right in their face because of the better positioning, that you're gonna get more trial, bring in new consumers because we know we're gonna win on taste. That's a big opportunity. Then, you know, something we haven't even mentioned very much today is the food service component, which is a massive opportunity. We feel like the usage occasion of Celsius is quite a bit different than all the other energy drinks.
You actually see people consuming it with their food at lunch. You just don't see that typically with other energy drinks, which are more appetite suppressants. You know, from whether it's restaurants and, you know, food service, for Pepsi is, you know, college and university falls under that umbrella. Hotel chains, like Marriott, big opportunities there, hospitals. We are really comfortable that we're gonna have some strong position within food service, so that's a massive opportunity for us as well.
Do you have visibility on the shelf resets at this point, just in terms of better placement?
We do.
I guess, like, is there any opportunity, like, because the brand kind of sits in this unique position where I some people don't always view it as, you know, specifically an energy drink, right? Is there any opportunity to kind of expand Celsius to maybe outside the energy drink cooler?
I would say we don't wanna be outside the energy drink cooler. That's where the consumers are going to shop. That's the category's continuing to grow. We don't wanna get pigeonholed into, you know, this functional energy. We don't really like, you know, leading with functional energy. We're an energy, you know, better for you energy brand that's bringing in new consumers. We wanna be in that door, but we want incremental placements within the door. If we can get, you know, another cooler, you know, a Celsius cooler, if we're in a Pepsi cooler, if we can get, you know, displays set up, that's ultimately what we want.
If we're in, you know, a healthy food bowl type place, you know, yeah, put us wherever you can find us because they don't have an energy door in there. We consider ourselves, you know, energy drink. We want to be sitting on the shelf right below or above Red Bull, Monster.
Okay. You know, going back to the competition, we touched on this a little bit earlier, but I would love to get your perspective on some of the innovation that maybe Monster's bringing to the category, and they've had Performance Energy Reign for a while. It does seem like Reign Storm, Clean Energy is pretty targeted in my view. Messaging, the labeling, packaging. I don't know. There seems to... You know, I've gotten a few questions from investors, you know, on whether or not that's, you know, that could maybe alter the momentum of the portfolio. Just, you know, any thoughts on, you know, kind of Reign Storm, and how that might impact or not your growth trajectory?
I mean, it's good for the category, right? The if you look at Red Bull and Monster, you know, over the last five years, the category's grown 8%-10%, right? I mean, if you take 9% growth for just those two companies, they've had huge sales growth, right, with those businesses. The shelf space has actually gotten bigger, so there's more shelf space dedicated to energy than historically. Energy's usually the first set of coolers when you walk into C&G or when you walk into a lot of places. They've done a lot for the category.
If they wanna expand kind of the sugar-free, the good-for-you concept and help take that to more consumers and bring more consumers into the category, you know, there's plenty of room in that pie because the pie is getting bigger and bigger every day. If you go back to Bang back in 2019 when they kinda hit their peak, if you look at what that market share, which was eight, nine market share, would be today, it's 50%, 60% bigger today if you're at that market share. I think there's opportunity to continue to expand the category. Like we said, we've been incremental to the category, so we've helped grow that category. I think we're at 22% of the growth of the category last year.
We see that as, if they wanna help from an innovation perspective, from an expansion perspective to continue to help grow the category like we've been doing, we see that as a plus. Even the sugar-free, I look at that as, if they wanna call out on their super SKU that sugar-free is the way to go, right? Encourage the consumer to start turning the can around and looking what's on the back and looking what the ingredients are, we look at that as a positive for us, right? Increasing the sugar-free category within energy and pushing more consumers to that category is actually a benefit for us. If you look overseas from, especially in places like Europe, sugar-free is a much bigger component of the category.
We look at all those things, factors as more pros than cons for us. We gotta keep doing what we're doing. We gotta stay authentic to our brand, and we gotta keep driving brand awareness. From that perspective, if they wanna help grow the category, help encourage consumers to go into that, you know, health halo, then we look at that more as a positive than a negative.
Okay. No, that's really helpful. I guess I do wanna ask about international. It's a really good point. You know, maybe before we go there, you know, pricing has been a, you know, a key topic of discussion, not just for energy drinks, but also, you know, CPG, you know, more broadly. You know, obviously some of your larger competitors took a nice price increase this past fall. You know, the volume impact seemed to be pretty limited, right? Can you maybe just talk about pricing from here? What should we expect from Celsius? What do you really expect from the competition?
Yes. I mean, we took pricing. I think we were really actually first in line to start talking to our customers with pricing back in April. Then we took it across the year based on a tiered structure, depending upon the timing of when we got into the doors, right? Because we can't get into a door in March and then a price increase in April. We took pricing last year consistent with what Monster did. Then both Monster and Red Bull eventually took pricing. You're seeing some of that pricing come through more with Monster and Red Bull, because when you take it, you don't just throw the price increase in there and call it a day. You kinda work your way into the pricing. We've seen some of that pricing resonate.
The consumer, from our perspective, hasn't really pulled back. You know, you do look at some of the data with the top two that the quantity slowed, but the sales dollars have continued to increase. You know, looks like at least it's not causing consumers to stop buying. You know, while we're on our growth trajectory, we look at pricing, there's a lever there. You know, when we were coming out of 2021, there was a lot of aluminum costs, freight costs, those kind of things that we wanted to offset with the pricing, and the consumers weren't having an issue because there was inflation everywhere. We do think pricing's there this year. You know, there's probably an opportunity if we wanna take it.
Right now, we're really focused on the growth, and growth is more important. At the percentage of growth we can get this year, pricing would be nominal in terms of what it could add. We understand it could help with margins and those kind of things, right now we don't wanna stop the momentum. We do know if we need to pull the lever or pull the trigger, we can.
You know, that's a really good point. I guess, you know, energy's been a category just because Red Bull doesn't take consistent pricing that, you know, it's been harder to take price over time. I guess, do you think what we've seen over the last few months kinda changes that in terms of just the energy category more broadly, right? Do you think, you know, instead of every several years, you know, someone implementing a price increase when it's warranted, you see more of a steady cadence of pricing longer term?
Yeah, I mean, I think the consumer showed that they'll accept it. You know, we live in strange times with the amount of inflation we've seen, right? I don't think we've seen this kind of inflation for 40 years, 30 years. I think from that perspective, it's a unique time we live in. I think eventually the consumer is gonna get tired of pricing, right? You can only take so much pricing, and then-
Yeah
they're gonna, you know, they're gonna go find something else. I think from that perspective, there's probably room for it. You know, if you get back to more of the historical cadence where the CPG company might take a couple percent every year, I mean, if you look at some of the CPG companies, what they took last year was in the high teens, right? I mean, good for them to be able to push it through. You know, if you talk to Johnny, he'd be like, "See, we should have taken more pricing." I'm the finance guy, right? I think there's opportunity.
I think we gotta, we gotta manage it carefully because again, we wanna continue to take market share, to continue to grow the brand and the business, and don't wanna be a turn-off. We're still bringing new users into the category. We still wanna have that trial period, so we can get the loyal customer in. We don't want pricing to be a deterrent as we build the brand and as we grow.
Okay. Just kinda maybe rounding out the top line questions here, and you kind of alluded to this. You know, international seems, you know, it's obviously been, you know, a big driver of growth for the energy drink category. You know, I think the Pepsi, you know, agreement certainly opens doors for you know, internationally and creates, you know, a pretty big opportunity. Can you maybe just discuss that opportunity? Have you done a lot of work? I know you have some international business today, but are you doing more work in terms of, you know, how the brand would resonate with the consumer? You mentioned, you know, zero sugar is actually bigger. I think that would be beneficial to you.
I guess, you know, What are kind of the guideposts that really inform when is the time to really make that push?
Yes, it's all about timing and sequencing, right? The biggest focus is let's get into the U.S. system of Pepsi. Let's optimize that system. Let's make sure that the Orbit model we have is functioning and working as efficient as it can be, and really develop a good cadence from an ordering perspective with the Pepsi system. Behind the scenes, we'll work on some opportunities, you know, whether it be in Europe or APAC or places like that. You know, the initial push would be into, you know, markets that already have energy, right?
That already where you can go in and you understand the energy, you can model things out and you can have a perspective on how we would do when we went in there as opposed to kind of up and coming, you know, countries. We'd look for the big energy countries to be the first areas that we'd roll into. And that's kind of where we'd start. Start with a handful, and then as you roll out, learn, understand, and then, you know, there's about 100... John keeps saying 126. There's somewhere between 126 and 129 countries that Pepsi either has assets on the ground or partnerships. It's a big opportunity. But again, it's timing and sequencing.
The size of the prize right now is so big in the U.S. that we don't wanna lose focus. You know, we'll work on opportunities and distribution agreements and partnerships that will roll out in the next few years with the Pepsi system. It's the focus, but it's not the core focus right now.
Okay. I just wanna remind everyone, you know, I have a few more questions to run through, but, if you do have any questions, please submit them through the app and I'm happy to ask. I guess maybe shifting gears to margins, I guess you kind of talked on the last conference call around, you know, mid 40% gross margin kind of being the appropriate range, really looking out to 2023. Can you maybe just provide a bit more context around that? It just seems like, you know, a lot of the headwinds that you alluded to earlier are beginning to abate. Just, you know, any thoughts on why gross margin wouldn't build more substantially as those kind of, you know, cost pressures lessen?
Yeah. I mean, we say mid-40s so that we're not like pigeonholing ourselves into, you know, like we talked about guidance earlier. It's really, it gives us the ability if we need to, you know, spend in, so from a freight lane perspective, from our Orbit model perspective, you know, our growth is huge, right? We're just getting to know each other with Pepsi. There have been instances where, you know, we might have production run over in Walla Walla up in Oregon, and we're shipping it across the country, right? That's not efficient. Right now it's really important to make sure we got product on the shelf.
You know, that gives us a little leeway in terms of are we a little towards the lower end of the mid forties or, you know, can we get to the higher end. As we continue to optimize the system, that gives us that ability. We think we can kind of operate within that range, but that gives us a little bit on the margins in terms of being able to focus more on getting that growth through. Still profitable growth, but allows us to, you know, if we need to move things around that we don't have to worry again for the, for the quarters. 'Cause we really need the company to really focus on managing the business for the long term and driving market share and driving that growth. That's kind of with that.
I mean, when you're looking at commodities, we've talked about it, raw materials have kind of flattened relative to the inflation we'd seen coming out of 2021. The fuel costs have kind of tapered off as well. There's opportunities that we can lever that, the margin, but we're kind of sticking with the mid-40s to give us a little bit of leeway as we optimize the system and as we really kind of build that cadence with the Pepsi network.
I guess maybe, you know, thinking beyond the next 12 months, you know, what's kind of the appropriate target for Celsius from a gross margin perspective? I know you benchmark, you know, sometimes, you know, versus Monster. I think if we were to think about the next three-five years, like what would you know, what would be reasonable from your perspective?
Yeah, I mean, right now, since we're in the high growth, if you looked at Monster during their growth period, they weren't growing at kind of 100+% per year. It was a little different as to the timing of when they started to really leverage their system. They've got their own flavor house, so they do have some optimization they're able to do. Obviously, their scale, they're able to, from a pricing perspective. As we continue to scale, we'll get better pricing, whether it comes to raw materials or working with our partners. You know, we see that as a goal, is really they set the precedent and they set kind of where we can get to. They set the model to get there.
you know, again, we're gonna focus on profitable growth over the next couple years. We'll be opportunistic. We'll give a little bit on margin if we can get more growth. Eventually as things taper off for us and as the growth trajectory kind of scales down a bit, we'll look to start levering things and obviously the, you know, they kind of set the precedent as to what the goal should be.
Okay. To finish up from my prepared questions, I guess I wanna get your perspective on the market share opportunity, right? I guess, you know, the most recent four week period is the high single digits, I guess, on whatever data you're looking at in the track data. How do you think about the share opportunity given the distribution ramp, you know, for 2023? I guess maybe following up on that, and this might be a bit more difficult to answer, but I guess if you were to look out over the next two-three years, I mean, what would success really look like from a share perspective?
I guess, you know, do you think we're kind of, you know, if, you know, Monster and Red Bull have kind of been at this 80% share for kind of ever, and so do you think, you know, the opportunity is really around that remaining 20%, or do you kind of see that, you know, that share from Monster and Red Bull kind of moving lower over time?
Yeah, it kind of goes back to the comment I made where, you know, they've been growing at 9% a year, Monster and Red Bull. The pie's gotten bigger every year, right? From a gross perspective. We look really internally at sales targets more than we look at kind of market share targets. 'Cause again, if you went back to 2019 and you looked at what's a 10 share mean, it means a lot less than what it means today, right? I think our goal right now is we wanna have good growth, we wanna continue to grow, we wanna continue to be incremental to the category and really go after full beverage.
'Cause obviously if 75% of our growth is incremental to energy, some of that's probably coming from other places, right? Is it coming from coffee, tea, sodas, those kind of places? We think that it's a bigger play for us, is really we wanna continue to get our fair share of the pie, continue to nibble at gaining market share, but also, you know, we're comfortable taking market share just from the beverage category in general, and not really being stuck to that energy pie. We see a lot of opportunity for everybody. If we can keep that market growth at 9% a year, that's huge growth that'll continue to come and we'll get our fair share.
I would just add, you know, we're sitting at 18% market share on Amazon, where it's really apples to apples comparison with the big players. When you go into a convenience store, you get four shelves of Red Bull or four shelves of Monster. Amazon's more of an equal playing field for us to be, you know, situated at 18% market share. We don't have the brand awareness they have either. We view that as, you know, an opportunity or if you're looking at a true apples to apples comparison where, you know, Celsius maybe can get to in a, you know, midterm type of period of time.
you know, and we don't have the brand awareness in certain pockets of the country just because, you know, we've been trying to grow profitably over this journey, so we focused on certain markets around the country. Just at the beginning of 2022 is when we expanded from really focusing on five markets around the country to moving to 19 markets, and then this year it's 22 of the, you know, highest consuming energy drink markets in the country. you know, if you're sitting in, you know, Portland, Oregon or Chicago, you know, Celsius doesn't have the share up there as it does in Fort Lauderdale. you know, if it gets to that share because we're putting the resources into it now, then you're looking at something special, and we think that we have that opportunity.
Yeah, that's really helpful. I guess just one question that had just come in, is just innovation. You know, just can you maybe talk about the innovation pipeline? You know, do you have plans to bring the Celsius brand into adjacent categories? Or are you actually prohibited from doing so because of the Pepsi agreement in any way?
Yeah, I'll let Toby talk about innovation. From the Pepsi agreement, the innovation that we're looking at and working through, we're not restricted on that. Now, obviously with Pepsi there are certain restrictions they have in general like alcohol, which is why they had to have the relationship they created for their Mountain Dew alcoholic beverage. We don't have any intentions of alcohol at the moment, so that's not a problem. I'll let Toby kind of speak to some of the innovation.
Yeah. I mean, at the moment, you know, we're looking to, I guess, the fancy word is bifurcate our line right now. We have our core, you know, traditional fruit on the package can, you know, get a row of that in the store and then get a row of our VIBE line. That's the bifurcation we're going through now. We're continuing to innovate on flavors. We are looking at other opportunities. I mean, we're highly caffeinated at the office going through the samplings. Whether it's pack size or some other, you know, opportunities within energy, you know, maybe, you know, you look at hydration, you look at. I mean, there's a whole lot, you know, a vast world out there.
Having, you know, a partner like Pepsi, where if we can get their buy-in on innovation, then there's opportunities to scale quickly if it's the right product. We're always looking at innovation, but we have our eye on the prize right now. We've got to keep, you know, stay focused with the current line. I mean, we have so much upside, so much room for growth. We don't wanna get too distracted, but we're always looking at innovation.
With the Pepsi system, it gives us the opportunity to test things, so we can test stuff regionally, so we don't have to do full launches. We have their support, and if we can find holes in their portfolio, it's a win-win for both of us.
Okay. Well, we only have a couple minutes left, so why don't we stop it there? Thank you both for joining us today, and also thank you to Celsius for keeping all the attendees highly caffeinated as well. We wish you nothing but the best of luck moving forward.
Great. Thanks.
Thank you.