What is driving Red Bull's huge profits?
What is driving Red Bull's huge profits?
All the adrenaline rush and a seemingly perfect strategy. What's going so right for the energy drink that it be popping its profits?
Red Bull was conceived in 1987 as an energy drink company. And now, we cannot even imagine a party or an extreme sports event without its raging bulls.
Well, the billion-dollar question really is - "How can an energy drink brand selling at around Rs. 125/can make such windfall gains, that it makes it possible for them to own and sponsor so many extreme sports? That too, without even owning a single manufacturing plant?"
Yes. Red Bull’s logo can often be spotted on the parachutes of base jumpers and wing-suiters. In 2012, Red Bull also sponsored the world-record shattering skydive event in which Felix Baumgartner (an Austrian sky-diver) broke the sound barrier in freefall.
Beyond sponsorship, Red Bull owns several extreme sporting events, including Flugtag (an acrobatic flight competition) and the Red Bull Air Races. In the sporting events that it doesn’t own, it owns teams, such as in F1, NASCAR, soccer, and ice hockey. You say adrenaline and Red Bull is already there.
Your finance hunch must be wondering "How!?" So, let's look at some figures:
In 2019, Red Bull sold 7.5 billion cans of their energy drink (that’s almost a can for every person in the world). Diving deeper,
Manufacturing cost of a single can – approximately US $0.09
The average wholesale price of a single can in Western countries – US $1.87
7.5 billion cans sold in 2019 helped generate US $6 billion in revenue – a third of which they reinvested into marketing.
Yes, marketing! Red Bull is really a marketing company.
Think about it. Would Red Bull be so cool if it weren’t so deeply associated with sports?
Felix Baumgartner’s space jump (the astronaut-like picture above) cost Red Bull US $50 million. However, they bagged a whopping US $6 billion as the return value on the event’s global reporting. That's almost the whole of revenue they had earned from selling cans in the entire year of 2019. Worth every penny, no?
Everything looks awesome. But we don’t see many variations when it comes to the Red Bull product. In the current age and time, when every company is trying to boost its sales with ever-expanding product catalogs, why is Red Bull left behind?
Red Bull offers a caffeinated energy drink that the consumers perceive as fun, active, and adventurous. Its strong focus is on framing an aura of "adrenaline-rush" around the brand rather than on product innovation. And as it seems, this aligns well with their target customers.
Through their sponsorship and ownership of extreme sports teams, Red Bull appeals in a very unconventional way. It allows customers to feel active and edgy by drinking from a can that bears the same logo as a Formula 1 car, a skateboard, and a record-breaking parachute. And the final act of making the “Red-Bull-feel” synonymous with the sport- by placing The Red Bull can at the crime (read: sport) scene.
Red Bull’s Origin Story
In 1987, it was an Austrian entrepreneur named Dietrich Mateschitz who created this entirely new beverage category and a global market for energy drinks. Mateschitz discovered this drink as a jetlag-antidote during his business trip to Bangkok. Motivated by the effectiveness of this elixir called Krating Daeng, which translates to Red Bull, Mateschitz licensed the product from its Thai manufacturer, Chaleo Yoovidhya.
Bonus facts:
Red Bull employees are reimbursed for taking flying lessons.
There is a limited Red Bull beverage edition. (I know, right!) Sadly, that is available only for Formula1 VIPs. It is grapefruit-flavored.
The logo on the Red Bull cans is not cattle, but a type of bovine called a “gaur”.
The 2012 jump was from the stratosphere. The total flight took around 10 minutes.
In 2017, the company employed more than 12,000 people around the world.
A big shoutout to Vinayak Chaudhary for writing this post.
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