redbull strategy analyzed

Mada Arslan, 200301986 2

Red Bull Dominating The Energy Drink Industry 08-Nov-12 BUS 349: Advanced Seminar in Strategic Management Mada Arslan

Mada Arslan 1

Red Bull

Gives you wings

Dietrich Mateschitz built Red Bull reflecting his own personality. Within its 20 years of

existence Red Bull has created and dominated and still dominates the whole new industry of

energy drinks. Selling to the consumer the feeling of limitlessness in sleek silver and blue cans,

Red Bull is still growing by penetrating new markets including the 3 emerging and fastest

growing ones: Brazil, India, and China. Red Bull is salvaging its marketing strength and has

extended it into a multimedia subsidiary. However, the recent space jump stunt and the massive

marketing campaign suggest that Red Bull has matured in some markets thus the expenditures to

reinforce its brand image. Still, Red Bull has great potential; being privately held and holding on

to the leading spot in the energy drinks industry in addition to diversification into fashion,

construction, and mobile technology makes Red Bull an attractive investment. Red Bull can

penetrate other industries through acquisitions: for instance it can-keeping in line with its image-

acquire a sports apparel company and create a network channel featuring extreme sports that Red

Bull sponsors and has exclusive rights to. Red Bull can raise capital for its investments by going

public; since the owners are taking all the risks and enjoying all the rewards, it is challenging to

secure creditors especially that Red Bull is a family owned business under the leadership of one

man controlling it. Therefore if Red Bull is setting its target on becoming Austria’s Coca Cola a

public offering can raise the required capital, spreading the risk, and insuring institutionalization

for Red Bull’s long-term existence.

Strategic intent and Implementation protocols

Entrepreneurs build companies reflecting their own personality. It is no surprise that Red Bull’s

positioning is a reflection of Dietrich Mateschitz’s ambitions, hobbies, and recluse. Even Red

Bull’s core competency is built on Mateschitz’s craft: marketing. In 1984, Austrian born

Mateschitz partnered with Chaleo Yoovidhya, a Thai business man, to sell a carbonated version

of Krating Daeng (Thai for "water buffalo") in the west (McDonald, 2011). The genius of this

partnership lied in the recognition of the existence of a market for functional drinks and the

formula of the beverage. Red Bull was going to sell you the illusion of being limitless by


vitalizing your body and mind (company website). Relying on "viral marketing" Red Bull

appealed to Generation Y (Bized, 2005) through series of hip events including students driving

around in "Minis and Beetles with a Red Bull can strapped on top", throwing "Red Bull parties

around weird and wonderful themes" (The Economist, 2002), sponsoring extreme sports like

BASE jumping and cliff diving, and even financing daring stunts- Felix Baumgartner’s space

jump where he broke the sound barrier is rumored to have cost Red Bull £100 million (Rowley,

2012). Thus, Red Bull positions "itself as a young, thrill seeking organization, that creates

extremely dangerous events" (Clancy, 2012) and differentiates itself from its competitors

through its strategy centered on its marketing genius: introducing the brand in "trendy on-

premise locations and reinforcing the brand through push media only when the market has

matured" (Johnson et al., 2005). As a result, Red Bull had not only created the energy drinks

market carving out 57.6% of the functional drinks industry (Datamonitor, 2011) but dominated

the industry with 70% market share in 2004 and still dominates the industry in 2012 with 40%

market share (Hoover, 2012). The decrease in market share is due to the intensifying competition

in this category and the maturity of the developed markets: it is expected that the functional

drinks industry that encompasses the energy drinks, sports drinks, and nutraceutical drinks

markets, to experience decelerating growth at a CAGR of 5.2% for the years 2010-2015

(Datamonitor, 2011).

Red Bull’s sleek appear- slim silver & blue can reminding the consumer of the speed of a bullet-

coupled with its brand image enabled Red Bull to charge a premium price setting Red Bull in a

completely different category than soft drinks: "If we'd only had a 15 percent price premium,

we'd merely be a premium brand among soft drinks, and not a different category altogether" says

Mateschitz (McDonald, 2011). The premium Red Bull charges is estimated at 25% since Red

Bull "deliberately set prices at least 10 percent above competing energy drinks" (Johnson,

Mitchell, Farris, Shames, 2005). This premium enabled Red Bull to enjoy sales in the billions of

dollars throughout the noughties (years 2000s) reaching $5.25 billion in 2011 (Appendix 1) and a

sales cumulative average growth rate of 17.04% over the last eleven years with estimated net

income in 2011 averaging $0.81 billion (Appendix 1) sustaining its marketing expenditure at 30-

40% of sales (Euromonitor, 2012); in comparison Coca Cola spent 9% of its $20 billion sales on

marketing in 2004 (Dolan, 2005). In 2011, Red Bull is reported to have shifted focus to Brazil,


India, and China accessing markets of around 2.75 billion people (CIA factbook). Note that Red

Bull’s focus on emerging markets for expansion is the natural incremental step for Red Bull to

access larger markets and increasing sales exponentially; yet this move coupled with the

tremendous mass marketing media suggest that its markets in Europe and America have matured.

Red Bull was founded in 1984 as a family business where the principal owners Dietrich

Mateschitz and Chaleo Yoovidhya each own 49% of the company with Yoovidhya’s son

receiving the remaining 2%. However, Yoovidhya remained a silent partner which provided

Mateschitz with the flexibility to mold the company as he sees fit. Mateschitz was able to benefit

from the general socio-political environment of Austria during the 80s and 90s to start and grow

Red Bull. Austria never fell under the Iron Curtain and in 1955 it declared neutrality enabling it

to enjoy economic freedom and becoming the link between the West and the East. In 1995,

Austria became a member of the European Union. Red Bull was able to access a bigger market at

favorable tariff terms. In the noughties, Red Bull took advantage of the accelerated globalization

increasing its market presence from 70 counties in 2002 (Todd, 2003) to 164 by 2011 (Company

website) and increasing its employee base from 2,605 in 2004 (McDonald, 2011) to 8,294 in

2011 (Company website). One cannot but notice the ubiquity of Mateschitz’s personality

throughout Red Bull. A look into his hobbies and recluse explain Red Bull’s growth track. It

took Mateschitz 10 years to graduate with a commerce degree from the Vienna University of

Economics and Business while he worked as a ski instructor to pay the bills thus Red Bull

underwrites 500 athletes today in 97 sports; Red Bull owns 4 soccer teams in New York U.S.A.,

Salzbury Austria, Brazil, and Leipzig Germany (McDonald, 2011). Mateschitz enjoys flying and

holds a pilot’s license and owns a collection of historic aircrafts thus Red Bull’s Flying Bulls "a

performing fleet of vintage aircraft" (McDonald, 2011). With his enthusiasm for sports cars and

racing, Red Bull owns a Nascar team and two Formula 1 teams. In addition, Mateschitz is known

for his obsession with secrecy and controlling information which explains why Red Bull does not

publish its figures and is still privately owned. Mateschitz made his intentions clear that he does

not want to take the company public (McDonald, 2011).

Red Bull is an expert in generating media content around its events, has produced several TV

programs, and has successfully spun off its subsidiary Red Bull Media House in 2007. Red

Bulletin, a 98 page magazine distributed in the U.S.A. features athletes, musicians, extreme


sports coverage, and graffiti art (McDonald, 2011). Red Bull is extending its line and only

Mateschitz can successfully spin a media & sports conglomerate from a drink. This evolution,

invites several questions: Has Mateschitz been pursuing this strategy from Red Bull’s inception?

Or had he crafted his strategy incrementally? What is next?

SWOT Analysis

Red Bull’s brand equity is its biggest strength. Having created a blue ocean through its

innovative experiential or viral marketing enabled it to bring "people to the product" not the

other way around (The Economist, 2002) which makes marketing Red Bull’s comparative

advantage. Marketing expenses per year range between 30-35% of sales to sustain its brand

image and increase sales. Red Bull’s Formula one team costs $200 million per year, the space

jump stunt cost a rumored £100 million yet Red Bull does not cut back expenses that reinforce

its image. In addition the $5.25 billion in sales and the estimated average $0.81 billion in net

income in 2011 (Appendix 1) suggest that Red Bull can afford the price tag. Red Bull is a world-

wide brand. It is present all over the globe (except in some countries that have banned Red Bull

for health related concerns like France; this represents a threat to Red Bull). Red Bull enjoys

flexibility in its management since it is not encumbered by having to report to shareholders were

it publicly held. The Red Bull Media house is its most promising subsidiary with expertise in

content management and the objective of diffusing the "World of Red Bull" through television,

magazines (Red Bulletin), even through Red Bull’s record label (McDonald, 2011).

Red Bull’s biggest weakness is non-other than its products. The product portfolio is limited to

Red Bull Energy Drink, Red Bull Sugarfree, Red Bull Energy Shot, and Red Bull Cola

(Company website). All variants of the same product with no real added value. In addition, the

drink’s success is not its taste (describe in instances as cough syrup). Another weakness is the

aging of Red Bull’s key demographics. Red Bull appeals to the young thrill seekers. When it

launched its products it targeted Generation Y (born in the later 70s & early 80s). The biggest

markets for energy drinks are North America, Australia, and Europe (Exhibit 1) yet these

markets have ageing populations: the current average age of the more developed regions is 37.4

years while the less developed ones have an average age of 24.3 years and the least developed

regions have an average age of 18.2 years; by 2050 these averages will be 46.4, 35, and 26.5


years respectively (Exhibit 2). According to Mateschitz Red Bull needs to hook a generation of

16-year olds every year to sustain and grow its customer base (The Economist, 2002). Therefore

Red Bull needs to and already is penetrating these markets with primary focus on Brazil, India,

and China. In addition, Red Bull has so far survived on its marketing to sell a not so tasty drink.

How long could Red Bull continue to do that? Family business and companies that are built

without a well-defined succession plan or a degree of institutionalization may be faced with

chaos and may crumble if the founder leaves the company voluntarily or involuntarily. Red Bull

has been so far a one-man show with Mateschitz pulling the strings. His only son Marc, is poised

to join the company once he finishes his studies (McDonald, 2011).

Red Bull still has the opportunity to grow in virgin markets. It already started targeting Brazil,

India, and China. The next big market is going to be Africa. In addition, Red Bull that has only

one production facility in Austria where it cans and ships its drinks worldwide (this arrangement

increases transportation costs) began building a $111 million production facility in Brazil gearing

up for the 2014 FIFA world cup that will take place in Brazil and this facility will service the

Americas at a reduced transportation cost (Euromonitor, 2012). Another way to grow is

diversification and acquisition as stated by Mateschitz (The Economist, 2002). Red Bull could

buy out its smaller to mid-sized competitors or by branching out in a completely different

direction. So far, Red Bull has leveraged its core competency of marketing to create a blue ocean

in the functional drinks industry and spin off a multimedia subsidiary. Red bull could continue

with spin offs by acquiring sporting apparels or sound system equipments for example. Looking

at Richard Branson (founder and chairman of Virgin Group), it is not farfetched for Red Bull to

have its own airline fleet. Red Bull could also go public; although being privately owned Red

Bull could grow much faster if it went public due to its promising potential; currently the owners

enjoy all the benefits of the company yet they are bearing all the risk (since company financial

records are not publicly available it is hard to know the exact degree of leverage of Red Bull

and/or who its creditors are).

Red Bull’s biggest threat is a new entrant with an original outlook on the market or substitute

products from pharmaceutical companies such as pills for example. Other threats are health

concerns that have been raised especially with the latest scandal of a 14 year American girl dying


of "caffeine toxicity after drinking just two cans of Monster energy drink" (Haiken, 2012)- one

of the 3 leading brands in energy drinks (ZenithInternational, 2012)- prompting the FDA to

investigate. Results from such lawsuits can hurt the industry but as long as there are smokers

there will be energy drink consumers unless countries like France actually ban the product.

Strategic Competitive Advantage (SCA) and Major Problems for Red Bull

Red Bull’s strategic competitive advantage was its marketing genius; but with its markets

maturing that core competency became just a great strength and a weakness at the same time.

The product is nothing but the end result of a unique experience. The consumer is valuing the

illusion of limitlessness even invincibility. A Red Bull is smartly packaged in a sleek palm fitting

silver and blue can that promises to revitalize body and mind by increasing performance,

concentration, and reaction speed, improving vigilance, stimulating metabolism, and improving

overall well-being (Company website). Since Red Bull relies on marketing to sell a not so tasty

product with its product portfolio being limited to variants of the energy drink. Marketing is no

longer considered a strategic advantage because a strategic advantage is supposed to sustain the

product for a long period of time; in the end the sales are the bottom line; if the marketing is

great yet the sales are declining, the company will not survive. On the other hand, Red Bull’s

marketing genius is efficiently utilized in diversifying the business and creating the Red Bull

Media House that has the potential to influence the multimedia landscape. It is still unclear if this

strength that was leveraged in the functional drinks industry carving out 57.6% of it to the energy

drinks market would do the same in the multimedia domain. True the multimedia division is in

line with the Red Bull image covering athletes and extreme sports, it is also venturing into music

with a record label. The biggest challenge for Red Bull is salvaging its strength into a

competitive advantage to grow and diversify. The product is not what Red Bull is selling;

according to Mateschitz Red Bull is selling efficiency rather than good taste (McDonals, 2011),

but how many innovative beverages can Red Bull come up with especially that the market has

matured and big players such as Coca Cola and PepsiCo are in the game? How many spin-offs

such as the multimedia division can Red Bull create?

Red Bull’s competitors are players in the energy drink as direct competitors: Monster, Burn, Full

Throttle from Coca Cola; substitute products like soft drinks, sports drinks such as Gatorade


from PepsiCo, coffee suck as Starbucks, and pharmaceutical companies. Red Bull’s multimedia

division has an even wider array of competitors from television to magazines to record labels.

Monster Beverage Corporation (MNST) is traded on NASDAQ, has a beta of 0.15 implying that

it is not much affected by swings in the market, a price to earnings ratio of 25.11 and EPS of

$1.79 are higher than the industry average of 22.47 and $0.44 respectively (Yahoo Finance);

compared to Coca Cola, Monster’s share price since it was launched in 2002 by Hansen Natural

has been higher. However, Monster follows the same model of Red Bull in sponsoring extreme

sports and party events; it differs in the size of the beverage offered. According to BevNet Red

Bull in 2008 captures 40% of the U.S. market share while Monster has been growing to capture

23% (compared to just 14.4% in 2006). The Coca-Cola Company (KO) is traded on the NYSE,

has a beta of 0.45 implying that it will be affected half as much by swings in the market, a price

to earnings ratio of 19.19 is less that the industry average of 22.47 but its EPS of $1.91 is higher

than the industry average of $0.52 (Yahoo Finance); in response to Red Bull, Coca Cola

launched Full Throttle energy drink but has only been able to capture 4% of the 2008 U.S.

market (Bevnet, 2012). However Coca Cola is still the biggest threat within these players since it

has massive capital and operations and ranks 3rd on most powerful brands in the world according

to Forbes with an estimated brand value of $50.2 billion (Forbes, 2012). Starbucks is another

competitor selling caffeine in a unique experience. It is traded on the NASDAQGS with a beta of

0.89 which means it almost moves in the same symmetry as the market. Its price to earnings ratio

of 28.94 is slightly above industry average of 28.89 (Yahoo Finance) suggesting that Starbucks

has matured as well and is looking for new ways to grow. Successful pharmaceutical are some of

the biggest tax payers (The Economist, 2002) with ample resources for R&D. Pharmaceutical

companies may come up with ground breaking vitamins that could become serious substitutes to

the energy drinks.

We obtained sales of Red Bull from various resources and have benchmarked basic numbers to

Red Bull’s direct competitors: Coca Cola and Monster. Based on average net income calculated

for Red Bull (Appendix A), we obtained a net profit of 16% compared to an average net profit of

20.74% and 11.8% for Coca Cola and Monster respectively. In addition, Coca Cola’s sales have

been fluctuation throughout the years 2000-2011 with a CAGR of 9.38% compared to Monster’s

sales CAGR of 33.37% and Red Bull’s sales CAGR of 17.4%. Both Red Bull and Monster have


a higher and more stable growth rate due to the fact that both companies are operating in the new

energy drinks industry and in which they both have a higher market share than Coca Cola’s Full

Throttle. In addition, Coca Cola’s beta of 0.42 is higher than Monster’s 0.15 which means that

Coca Cola is more sensitive to changes in the market. These conditions in addition to penetrating

new markets have allowed Red Bull to fare better during the global crisis where it has performed

better than expected.

The second source of data was limited and was obtained from Privco (Appendix 2). As deduced

in Appendix 2, Privco’s numbers are not 100% reliable but they may be indicative of the

company’s operations. Red Bull’s profit margin is very low at 6.6%. Gross profit margin of 42%

in 2009 is lower than Coca Cola’s 64% and Monster’s 54%; this is in line with the fact that Red

Bull has only one production facility is Austria which increases its transportation costs and

explaining the lower gross profit. Coca Cola’s cash and cash equivalent at $8.52 billion in 2009

is significantly higher than both companies’ which makes Coca Cola the biggest threat to both

companies. Red Bull’s current ratio at 2.75 is higher than Coca Cola’s 1.17 and less than

Monster’s 4.97; both Red Bull and Coca Cola should make better use of their assets since

ensuring the company’s current liabilities will be met when the ratio is between 1 & 2, there’s no

need for a higher ratio and this increase in the current ratio for Red Bull & Monster is not due to

holding more inventories since quick ratio does not decrease significantly (RB’s 2.59, Monster’s

4.18). Red Bull manages its inventory better than both companies as shown by the quick ratio, in

addition its inventory is a mere 5.82% of current assets while Coca Cola’s is 12.28% and

Monster’s is 15.91%. This efficient inventory management is due to Red Bull only having one

production facility which allows it to better control its inventory levels. Coca Cola is highly

leveraged at a debt-to-equity ratio of 133% in 2010 against Red Bull’s 52% and Monster’s 38%.

Red Bull has the highest return on assets and return on equity which is in line with its balanced

leverage level (52%) and its high sales. Dissecting ROE with Dupont’s equation (ROE = Net

profit * Asset turnover * Equity multiplier) we can conclude that the high ROE is driven by the

high sales.


Strategic Recommendations

Red Bull is already addressing some of its key weaknesses and threats. In realizing that its

demographics are ageing and western markets have matured, Red Bull is focusing on the

emerging markets Brazil, India, and China; and has already started building a second production

in Brazil that will be used to supply the Americas which will decrease transportation costs and

increase Red Bull’s 42% gross profit margin (Appendix 2). Tapping China and India, Red Bull

should consider building a third plant in the either of these countries or any far-east or south-east

country that will serve that geographical area.

Red Bull has recognized the need to diversify given its limited product portfolio. Coming up

with new drinks extending the product line is hard especially that the creator of Red Bull’s

formula Chaleo Yoovidhya is dead. In addition, addressing the health issues raised over Red Bull

will be difficult as well since a slight change in the formula affecting taste may shift consumers’

preferences and decrease demand. Therefore, Red Bull has chosen to diversify its business by

going into multimedia with Red Bull Media House, fashion with its online store1, construction

with Bull Bau and mobile in South Africa with Red Bull Mobile (Euromonitor, 2012).

Furthermore, Red Bull can penetrate other industries through acquisitions: for instance it can-

keeping in line with its image- acquire a sports apparel company. In addition, Red Bull can

create a network channel featuring extreme sports that Red Bull sponsors and has exclusive

rights to. Red Bull’s Media House subsidiary already produces series for TV programs and has

launched its Red Bulletin magazine in the U.S.A. and has a record label. Therefore Red Bull is

competing with sports networks such as ESPN. There is an opportunity in having its own cable

channel given its craft of content generation.

Red Bull is staying true to its value proposition of limitlessness: there’s nothing it cannot

accomplish and it sure has the resources to implement its ideas with Sales of $5.84 billion and

estimated average net income of $0.81 billion in 2011 (Appendix 1) and its growing employee

base of 8,294 in 2011. Red Bull’s sales and net income have been growing steadily thoughout the

noughties in comparison to Coca Cola’s sales and net income which have fluctuated as a result of

Coca Cola’s beta of 0.42 making it sensitive to market swings. Coca Cola’s net income growth

1 www.redbullshop.com


fluctuated heavily from 17.75% in 2007 to -2.89% in 2008 to 31% in 2009 to 69% in 2010 to a

negative growth of 28% in 2011 showing the difficulties of Coca Cola to navigate through the

financial crisis (Appendix 1). However, Red Bull has navigated well the crisis mainly due to the

penetration of new markets of Brazil, India, and China; Turkey witnessed in 2010 a surge of 86%

in sales (Maierbrugger, 2011).

As Red Bull is growing into a conglomerate of different businesses, it is important to have a

succession plan and to be institutionalized. Taking the company public will enforce

institutionalization as well as secure funds for the company to grow without having to satisfy

debt covenant were it to finance its growth with debt. So far Red Bull has been financing its

investments from its cash flows (Euromonitor, 2012) which only add to Red Bull attractiveness

as a company to invest in.

Embedded in Red Bull’s strategy should be flexibility to change and realization when its

strategic advantage is no longer enough. A great example is IBM, the company has changed

throughout its 100 years of existence (founded in 1911) to produce completely different products

and service completely different customers. Siemens in the last 10 years has change 55% of its

product lines to cope with the different trends and requirement of the market. Google is not just

your search engine anymore; it is developing the driverless car which adds to its competitors the

automotive companies. However, given Red Bull’s diversification into other businesses, it seems

that Red Bull is changing its strategy previously based on marketing as a strategic competitive

advantage and delving into new businesses to diversify its risk.

Summary of Learnings

Red Bull is a case in point of the ability to sell an idea, a feeling, regardless of how good the

product is (taste). The people are brought to the product which is nothing but the end result of the

company’s strategic intent. It is always important to envision growth as strategy is crafted and by

growth we do not mean just organic growth but strategic growth. Red Bull cannot survive in the

long run on one product yet it is proving it is not just a FAD. It has been around for almost 20

years and it is showing no signs of slowing down. It is capitalizing on its brand image to extend

its lines into multimedia. Red Bull’s unique positioning and biggest strength enable it to spin a


multimedia company off a beverage. Again, this is due to the fact that the product was built

around the marketing strengths of the founder Dietrich Mateschitz, not the conventional way of

marketing to sell the product.

Companies need to leverage their core competencies to bring the customers to them. Apple is

another example of bringing people to its product by offering a perceived superior design of

computer hardware and software. In addition, in the dynamics of today’s global market

companies should use their core competencies to spinning off products or subsidiaries. However,

once companies matured they need to be flexible and realize that what got them to where they

are may ultimately contribute to their demise.


Exhibit 1: Energy Drinks Total Volume Consumption 2010

Source: Energy Drinks Entering a New Phase of Growth (2012). Retrieved from: http://www.portal.euromonitor.com.ezproxy.aub.edu.lb/Portal/Pages/Statistics/Statistics.aspx

Exhibit 2: Changing Balance Between Age Groups

Source: United Nations Department of Economic and Social Affairs: Population Division. World Population Ageing: 1950-2050. Retrieved from http://www.un.org/esa/population/publications/worldageing19502050/pdf/81chapteriii.pdf


Appendix 1

‐

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000$ billions

Sales

Red BullSales in$ millions

Coca ColaSales in$ millions

MonsterSales in$ millions

‐

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

$ billions

Net Income

Red Bullaverage estimated NI

Coca ColaNI in$ millions

MonsterNI in$ millions


Appendix 1- continued

Red Bull GmbH Coca Cola (KO) Monster (MNST)

Year

Red Bull Sales A

$ millions

RB Estimated NI

based on Price

Premium B $ millions

RB Estimated NI based on11% Profit

margin C $ millions

Red Bullaverage

estimated NI D, z

$ millions

Coca Cola

Sales E$

millions

Coca Cola NI E

$ millions Profit

margin

MonsterSales F

$ millions

MonsterNI F

$ millions Profit

margin

2000

929

186

102

144 17,354 2,177 13%

72

4 5%

2001

1,225

245

135

190 17,545 3,969 23%

81

3 4%

2002

1,502

300

165

233 19,564 3,050 16%

92

3 3%

2003

1,614

323

178

250 21,044 4,347 21%

110

6 5%

2004

2,300

460

253

356 21,742 4,847 22%

180

20 11%

2005

2,765

553

304

429 23,104 4,872 21%

349

63 18%

2006

3,618

724

398

561 24,088 5,080 21%

606

98 16%

2007

4,219

844

464

654 28,857 5,981 21%

904

149 17%

2008

4,280

856

471

663 31,944 5,807 18%

1,034

108 10%

2009

4,032

806

443

625 30,990 6,824 22%

1,143

209 18%

2010

4,670

934

514

724 35,119 11,809 34%

1,304

212 16%

2011

5,249

1,050

577

814 46,542 8,572 18%

1,703

286 17% CAGR 17.04% 17.04% 17.04% 17.04% 9.38% 13.27% x 33.37% 47.72% y

x Average Profit Margin of Coca Cola = 20.74%

y Average Profit Margin of Monster = 11.8%


Appendix 1 - continued

z Average Profit Margin of Red Bull = 16%

A: Sales for the years 2000-2010 were obtained from Gale Business Insights (http://bi.galegroup.com/essentials/search#q=red%20bull%20owner); Sales for the year 2008 was obtained from TopNews.in (http://www.topnews.in/red-bulls-growth-rate-halved-2008-2120124) ; Sales for the year 2011 was computed based on sales 2010*(1+12.4%) obtained from the company website.

B: Net income was first estimated based on a price premium of 25%. Which is the cost + 15% that soft drinks charge (McDonald, 2011) and the 10% premium that Red Bull charges (Johnson et al., 2005).

C: Net income was next estimated based on a profit margin of 11% obtained from Hoover.

D: Average net income was next calculated as average of B & C.

E: Figures for the Coca Cola company were obtained from the 10-K filed reports (http://www.sec.gov/edgar.shtml).

F: Figures for the Monster Beverage Corp company were obtained from the 10-K filed reports (http://www.sec.gov/edgar.shtml).


Appendix 2

Red Bull GmbH Coca Cola (KO) Monster (MNST) 2011

$ billions

2010$

billions

2009$

billions

2011$

billions

2010$

billions

2009$

billions

2011 $

billions

2010$

billions

2009$

billions Sales 5.5 5.19 4.5 46.542 35.119 30.99 1.70 1.30 1.14 Net Income 0.363 0.343 0.297 8.572 11.809 6.824 0.29 0.21 0.21 Profit margin 6.6% 6.6% 6.6% 18% 34% 22% 17% 16% 18% Gross profit margin 42% 61% 64% 64% 53% 52% 54%

Gross profit 1.89 28.33 22.43 19.90 0.89 0.68 0.61 Cash & Cash equivalents 0.89 12.80 8.52 7.02 0.36 0.35 0.33 Current ratio 2.75 1.05 1.17 1.28 4.44 4.97 6.99

Current assets 0.88 25.50 21.58 17.55 1.18 0.96 0.59 Current liabilities 0.32 24.28 18.51 13.72 0.27 0.19 0.08

Quick ratio 2.59 0.92 1.02 1.11 3.86 4.18 5.70 Inventories 0.05 3.09 2.65 2.35 0.16 0.15 0.11

Debt/Equity ratio 52% 151% 133% 92% 39% 38% 37% Debt/Equity ratio_2 37%

Total debt x 0.34 48.05 41.60 23.33 0.38 0.32 0.22 Total debt_2 y 0.48

L-T Debt/Equity ratio 2.33% 30% 32% 20% 9% 11% 16% L-T Debt 0.02 23.77 23.10 9.60 0.12 0.12 0.13

ROA 27% 11% 16% 14% 21% 18% 26% Total assets 1.27 79.97 72.92 48.67 1.36 1.15 0.80

ROE 37% 27% 38% 27% 29% 26% 36% Total equity 0.927 31.92 31.32 25.35 0.98 0.83 58%

We used the financial ratios to deduce the numbers for Red Bull. However we found a discrepancy. Using ROE & ROA we deduced total equity and total assets. But total debt calculated as a deduction of the obtained equity from liabilities is $0.48 billion (y) which is different than the obtained debt amount of $0.34 billion (x) obtained by multiplying the 52% debt-to-equity ratio obtained from Privco by the obtained equity amount of $0.927 billion. Thus, Privco’s numbers are not 100% reliable but they may help benchmark the company in some areas.


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