How Red Bull Makes Money

Summary

Red Bull's global success extends beyond its 7.5 billion cans sold in 2019. The brand's unique marketing, including sports sponsorships and media production, creates a powerful image. Founded by Dietrich Mateschitz after a Thai energy drink eased his jet lag, Red Bull's strategic outsourcing and high-profit margins fuel its diverse ventures. However, with health concerns growing, the company's heavy reliance on its energy drink faces risks, prompting investments in sports teams and media to diversify its brand.

Takeaways

• 🌍 Red Bull sold 7.5 billion cans in 2019, reaching nearly every person on the planet.
• 🏎️ Besides the energy drink, Red Bull operates in sports with two Formula One teams, five football clubs, and an ice hockey team.
• 🎭 They also organize events and sponsor thousands of athletes, showcasing a diversified business model beyond beverages.
• 💡 The company's origin story began with Dietrich Mateschitz's experience with Krating Daeng, leading to the creation of Red Bull.
• 💸 Red Bull's strategic business model focuses on downstream activities, outsourcing production and logistics to concentrate on sales and marketing.
• 💰 They achieve high profit margins by selling each can for significantly more than the production cost, leveraging brand power.
• 🎉 Red Bull's marketing strategy targets the club scene and uses 'student brand managers' to promote the drink among young adults.
• 🚀 The company is known for its 'story-performing' approach, creating and producing its own content, exemplified by Felix Baumgartner's space jump.
• 📉 Despite significant marketing investments, Red Bull's revenue growth has slowed since 2012, highlighting the risk of relying on a single product.
• 🏋️‍♂️ Health and nutrition trends could pose a threat to Red Bull's core business due to the energy drink's association with obesity, insomnia, and diabetes.
• 🔄 Red Bull's investments in sports teams and media production aim to diversify and create additional revenue streams beyond the beverage sales.

Q & A

How many cans of Red Bull were sold in 2019?

In 2019, Red Bull sold 7.5 billion cans.

What other businesses does Red Bull operate besides selling energy drinks?

Red Bull operates two Formula One teams, five professional football clubs, one ice hockey team, and also organizes events like the Crashed Ice Challenge and the Wings for Life Run.

What was the inspiration behind the creation of Red Bull as an energy drink?

The Austrian businessman Dietrich Mateschitz was inspired by a local Thai drink called Krating Daeng, which helped him with jet lag, leading him to create Red Bull.

What was the initial challenge Red Bull faced when entering the market?

Red Bull initially faced the challenge of Western investors not seeing a market for the product outside of Asia, which led Mateschitz to create the market himself.

How did Red Bull overcome the initial ban in Germany?

Red Bull profited from the ban in Germany by gaining a reputation as an outlaw brand, which attracted young Germans to cross the border to Austria to buy the banned drink.

What is Red Bull's strategy for outsourcing production and logistics?

Red Bull outsources operations such as production and logistics, allowing the company to focus solely on the downstream activities of the value chain and commit resources to selling the drink.

What is the approximate cost for Red Bull to make one can of their energy drink?

Red Bull makes each can for approximately 9 cents.

How does Red Bull's marketing strategy differ from traditional advertising?

Red Bull's marketing strategy involves creating and performing their own stories rather than traditional advertising. They engage customers through sponsorships, ownership of sports teams, and their own media production.

What was the cost and estimated media value of Felix Baumgartner's space jump sponsored by Red Bull?

The project cost Red Bull 50 million USD, but the global reporting about the event was estimated to be worth approximately 6 billion USD.

How does Red Bull use its multiple football clubs to its advantage?

Red Bull uses its multiple football clubs to develop talent synergistically, allowing players to progress through the clubs from smaller leagues to the Champions League and eventually to Major League Soccer.

What is the current revenue contribution of Red Bull's beverage sales to their total earnings?

Beverage sales represent approximately 97% of Red Bull's total earnings.

Outlines

00:00

🥤 The Multifaceted Business of Red Bull

Red Bull's business extends far beyond its iconic energy drink, with ventures in sports, media, and event management. The company's origin story begins with Dietrich Mateschitz's discovery of Krating Daeng in Thailand, leading to the creation of Red Bull as a new product category in 1987. Despite initial skepticism from investors, Mateschitz's strategic marketing, focusing on the club scene and innovative distribution methods, propelled Red Bull to global success. The company's unique business model involves outsourcing production and logistics, allowing it to concentrate on sales and marketing, which has resulted in a significant profit margin. Red Bull's high price point is justified by its strong brand power, achieved through a well-executed marketing strategy that includes sponsoring athletes and events, and creating a sense of excitement and adventure around its brand.

05:02

🚀 Red Bull's Marketing and Diversification Strategies

Red Bull's marketing strategy is exemplified by its story-performing approach, most notably with Felix Baumgartner's space jump in 2012, which, despite its high cost, yielded immense global exposure worth billions. The company's revenue, primarily from beverage sales, reached over 6 billion USD in 2019, with a significant portion allocated to marketing. However, the reliance on a single product poses risks, especially with growing health consciousness. To mitigate this, Red Bull has diversified into sports teams and media production, aiming to create additional value chains. The company's integrated approach to sports includes talent development across its football clubs and leveraging the rising US soccer market, as seen with the significant increase in value of the New York Red Bulls. While beverage sales still dominate, Red Bull views its other activities as brand investments, which, though currently not profitable, have the potential to become significant revenue streams in the future.

Keywords

💡Red Bull

Red Bull is an Austrian energy drink company that has expanded into various fields beyond its core beverage business. In the video, it is highlighted as a brand that sells billions of cans of its energy drink annually and also owns sports teams, organizes events, and operates a media production house. The company's diverse ventures are used to create a strong brand image and engage with consumers on a deeper level.

💡Energy Drink

An energy drink is a type of beverage that contains stimulants, typically caffeine, and sometimes other ingredients like taurine and B-vitamins. Red Bull's energy drink is its primary product, which is marketed as a way to increase energy and alertness. The video discusses how Red Bull's energy drink is central to its business model and global sales.

💡Marketing Strategy

A marketing strategy refers to the methods and tactics used by a company to promote its products and reach its target audience. Red Bull's marketing strategy, as mentioned in the video, is unconventional and involves sponsoring extreme sports events, owning sports teams, and creating viral content, which helps in building brand power and consumer engagement.

💡Brand Power

Brand power is the influence a brand has over consumers, often leading to customer loyalty and a premium price for its products. In the context of the video, Red Bull's brand power is a result of its marketing efforts and is a key factor in its ability to charge a higher price for its energy drink compared to its production cost.

💡Outsourcing

Outsourcing is the practice of contracting out a company's operations or services to a third party. Red Bull outsources its production and logistics, allowing it to focus on marketing and selling its energy drink. This business model is highlighted in the video as a strategic decision that contributes to the company's success.

💡Formula One

Formula One is the highest class of single-seater auto racing for Formula One cars and is one of the most popular forms of car racing globally. Red Bull owns two Formula One teams, which are part of its marketing strategy to associate the brand with speed, excitement, and high performance.

💡Profit Margin

Profit margin is a measure of how much profit a company makes for every dollar of sales, indicating the company's efficiency and profitability. The video discusses Red Bull's profit margin, noting that the company can charge a much higher price for its energy drink than its production cost, resulting in a significant profit.

💡Viral Marketing

Viral marketing is a marketing technique that uses social media and other platforms to create content that is intended to be shared rapidly, thereby increasing brand awareness. Red Bull's marketing strategy, as described in the video, often involves creating viral content, such as the Felix Baumgartner space jump, to engage with consumers and enhance the brand's image.

💡Diversification

Diversification is a business strategy where a company expands into different markets or product lines to reduce risk and increase revenue. Red Bull's investments in sports teams, media production, and event organizing, as mentioned in the video, are part of its diversification strategy to create additional revenue streams and mitigate reliance on its energy drink sales.

💡Health Awareness

Health awareness refers to the public's growing concern about the health implications of certain products, such as sugary drinks. The video suggests that Red Bull's future growth could be at risk due to increasing health awareness and the potential negative perception of its energy drink contributing to obesity, insomnia, and diabetes.

💡Value Chain

A value chain is a sequence of activities a company performs to deliver a product or service. Red Bull's value chain, as discussed in the video, is focused on downstream activities like marketing and sales, while outsourcing production and logistics. This strategy allows the company to concentrate on enhancing its brand and selling its products.

Highlights

Red Bull sold 7.5 billion cans in 2019, almost one for every person on the planet.

Red Bull's business extends beyond energy drinks to include sports teams and media production.

Dietrich Mateschitz discovered the energy drink Krating Daeng in Thailand, which inspired Red Bull's creation.

Mateschitz faced initial rejection from Western investors who didn't see a market for the energy drink outside Asia.

Red Bull was launched in Austria in 1987 after Mateschitz adapted the formula for the European market.

The initial ban of Red Bull in Germany helped create an 'outlaw' reputation, boosting sales.

Red Bull's strategic focus on downstream activities allows for outsourcing of production and logistics.

Red Bull charges a significantly higher price than the cost of production, leveraging brand power.

The company's marketing strategy includes sponsoring and owning sports teams for deeper customer engagement.

Red Bull creates its own stories and produces content with their media house, enhancing marketing returns.

Felix Baumgartner's space jump in 2012 was a marketing success, estimated to be worth around 6 billion USD in global reporting.

Red Bull's revenue in 2019 was over 6 billion USD, with nearly a third spent on marketing.

The company's growth is limited by its reliance on a single product, the energy drink.

Investments in sports teams and media production are part of Red Bull's strategy to diversify and create additional value chains.

Red Bull's football teams utilize synergies in talent development across different leagues.

The New York Red Bulls' value increased significantly since their purchase, reflecting smart private equity in sports.

Beverage sales still represent approximately 97% of Red Bull's total earnings, with other activities seen as 'ongoing brand investment'.

Transcripts

In 2019, Red Bull sold one can for almost every person on the planet.

But besides selling 7.5 billion cans of a very sweet drink, they also run two Formula

One Teams, five professional football clubs and one ice hockey team.

Not mentioning events like the crashed ice challenge or the Wings for Life Run.

The thousands of athletes that Red Bull sponsors and the media production they run.

Obviously, Red Bull does much more than selling an energy drink.

But is all that just marketing?

We take a closer look at how Red Bull makes money.

In the summer of 1982, the Austrian businessman Dietrich Mateschitz found himself suffering

from jet lag during a business trip to Thailand.

He tried a local drink called Krating Daeng, which improved his jet lag substantially.

Krating Daeng can be translated to Red Gaur, a Gaur being a huge bison from Southeast Asia.

So it basically means Red Bull.

Inspired by the magical qualities of the product, Mateschitz decided to bring the product home

in the format of a brand new product category – the energy drink.

He pitched his idea several times to Western investors but got turned down because they

didn’t see a market for the product outside of Asia.

Mateschitz was well aware that there was no market at the time.

So he decided to create one.

He was so convinced of his product, that he invested half a million himself.

He then teamed up with the boss of the Krating Daeng manufacturer, who also invested half

a million for the other half of the company.

Next, Mateschitz adapted the formula and flavor for the European market and successfully launched

the product in Austria in 1987.

Because the drink was initially banned in Germany, Red Bull profited from the reputation

as an outlaw brand.

Many Young Germans would cross the border to Austria to buy the banned energy drink,

and Red Bull sold over a million cans in their first year.

From Austria, it quickly spread across Europe, first to Slovakia and Hungary in 1992 and

then to Germany and the UK in ‘94.

When they entered the US market three years later, Red Bull was selling over a million

cans every day.

Soft drink giants like Coke and Pepsi could benefit from deeper pockets, but they underestimated

the strategic intent of Mateschitz and the upcoming brand.

He created a new species of corporation that focuses only on the downstream activities

of the value chain while outsourcing operations such as production and logistics.

That means that Red Bull itself is actually not producing the drink - production and filling

of the cans is completely outsourced, so Red Bull can fully commit its resources to selling

the drink.

Looking at the profit margin, that pays off.

One of Red Bull’s secrets to success is that they can charge a much higher price than

their competitors.

Red Bull makes each can for approx.

9 cents.

The suggested retail price for a can is 3.59 USD.

The biggest customers like walmart and big grocery stores pay between 44 and 48 USD per

case of 24 cans.

That means 1.87 USD per can, which is more than 20 times the cost of production.

The reason people are willing to pay so much for sugar water with taurine is Red Bull’s

brand power.

A result of a well thought-out marketing strategy.

To create a market for his product, Mateschitz first focused on the club scene.

It’s really hard to imagine a student party without several packs of Red Bull on hand,

since the company actively made use of “student brand managers”.

Brand managers were popular university students encouraged to promote Red Bull on university

campuses and to throw parties at different locations, supplied entirely by Red Bull.

Volkswagen Beetles with larger-than-life Red Bull cans strapped to their backs showed up

at beaches, at colleges, gyms, and even office buildings with free samples.

Bartenders quickly learned that this new drink was a money machine.

It is likely that you have at least once tasted a Red Bull mixed with vodka or Jäger, since

the mixes became two of the most popular drinks in bars everywhere.

Soon the beverage was sold at nightclubs and festivals around the world, creating a competitive

advantage for the Austrian brand.

But this was only the beginning of the Red Bull marketing machine.

Through the sponsorship and ownership of sports teams, Red Bull continuously engages with

the customer in a deeper way than traditional advertising ever could.

This allows its customers to feel active and intense, by drinking from a can that bares

the same logo as a Formula 1 car, a skateboard, and a record-breaking parachute.

Instead of sober story telling, Red Bull employs story-performing.

They don’t do conventional marketing or try to look for stories to be associated with.

They create their own stories and produce the content with their own media house.

That means they hold the rights to all pictures of their events.

With social media this results in viral communication effects that drastically improve the return

on marketing.

The ultimate example for Red Bull's story-performing was Felix Baumgartner jumping from space in

2012.

The project cost Red Bull an impressive 50M USD, but some experts estimated the global

reporting about the event to be worth approx.

6 billion USD.

So it was probably worth it.

Both, sponsoring extreme sporting events like this and selling products with an edge, enables

Red Bull to remain the market leader in its category.

In 2019 they sold 7.5 billion cans, which helped create a revenue of over 6bn US dollars.

To reach that much revenue, they spend almost a third on marketing.

But despite the huge marketing budget, the revenue growth of Red Bull slowed down since

2012.

The company is depending almost completely on one product only: the energy drink.

This limits its growth and can eventually become a big risk.

Especially with a growing awareness for health and nutrition, the focus on a product that

causes obesity, insomnia and diabetes might backfire eventually.

Investments in sport teams and media production are therefore not only marketing activities,

but the attempt to diversify and create additional value chains next to the can business.

To implement sport as a business, Red Bull takes advantage of a fully integrated entertainment

and media value chain that ranges from media production to team ownerships, broadcasting

arrangements and contract management.

One example how that strategy can work are Red Bull's football teams.

Owning more than one club gives them the opportunity to use synergies, for example when developing

talent.

A player can potentially start his career in Brazil, move to Europe to play in the smaller

Austrian league for Salzburg and eventually join Red Bull Leipzig when he is ready to

play in the Champions League.

At the end of his career he might move to the New York Bulls to spend the last years

in the Major League Soccer.

The team in New York is also a good example how private equity in sports can generate

value for Red Bull.

They purchased the team for an estimated 25M USD in 2006.

According to Forbes, the team is now worth 290M USD.

So Red Bull was able to tenfold their investment.

And with the US soccer market on the rise, the price for a franchise in New York city

will most likely soar in the future.

Nevertheless, the overwhelming revenue driver, to this day, remains beverage sales, representing

approximately 97% of the total earnings.

Red Bull mentions the other activities as “ongoing brand investment”, which indicates

that these are losses, not revenue streams - at least not yet.