Red Bull Australia has dumped strategic distribution partner Cadbury Schweppes. This major change leaves both companies in a sticky situation, Red Bull needing to take on hundreds of new employees and Schweppes losing their number 1 & 2 selling product, worth about 20% of their total sales. The big question is how are Red Bull going to adjust? Will Schweppes take on a new energy drink?
Up until now, there has been a happy union between the two parties, with each leveraging strengths off the other. Schweppes has been responsible for the lion share of sales reps and manages distribution. Red Bull provided the number 1 selling energy drink in a very quickly growing market (about 47% per year) worth around $151 Million.
What will Red Bull do?
Running your own distribution fleet is a specialized, expensive thing to do, it requires a high capital investment, constant maintainence, a very busy HR team, it is effectively running a business inside a business.
On the other hand, contracting out to a third party minimizes your control and can leave you at ransom when you become too dependant on them. Not too dissimilar to Schweppes who kept making new demands, like minimum orders of 6 cases (far too much for many small cafe's).
What will Schweppes do?
Schweppes have just been slugged in the guts with the loss of their two highest selling lines. They now have the option of forming alliances or buying out an existing energy drink competitor or starting their own.
After the enormous amount of capital Coke-Cola flushed down the toilet with their launch of Mother, it is safe to assume that they will not try going it alone, but they could purchase one of the fringe players like Rockstar, Spiderman or Grasshopper (to name a few). These products already have the set up, basic marketing and consumer trials out of the way. They have failed on the distribution side of things (Schweppes strength).
Josh Strawczynski's Opinion
From my information Red Bull are hiring like crazy trying to fill the void. They are taking on around 100 new sales reps & more HR personal. What they are going to do about logistics is still up in the air.
I would have thought they would sign with a 3rd party in the interim, but much like Coles, Red Bull can really own the market if they set up an effective self driven distribution fleet. It certainly seems like the logical answer for the energy drink giant.
Schweppes will definitely want to have an energy drink in their portfolio. I would have thought the easy option would be to buy out a competitor and run it themselves, for the same rational that 'home-brand' product have been flooding the market. It gives them control and adds extra profit margin in it for them. With their distribution strength, they should be able to get a tried and tested product into distribution wide and fast.
Sam Berringer's Opinion
I really think Schweppes have dropped the ball here. They were kicking goals and they got greedy. They need to act fast, starting their own drink will take too long and expose them to tooo much risk. Use Grasshopper, that was set up from a couple guys that worked for V, it is basically the same stuff and they could buy it cheap (like the budgie).
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