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How Red Bull make money?

Last year in 2019, Red Bull sold one can for almost every person on the planet.

Alongside selling 7.5 billion cans of their energy drink, they also run two F1 teams, five professional football clubs, two ice hockey teams and the clothing brand AlphaTauri.

That’s not to mention the events like the crashed ice challenge, the Wings for Life Run and the international soapbox races.

They sponsor thousands of athletes and run media production.

Obviously with all of that considered, Red Bull do a lot more than just sell energy drinks.

But is everything else just marketing?

In this video I take a look at how Red Bull makes money.

In 1982, the Austrian businessman Dietrich Mateschitz found himself travelling in Thailand and suffering from jetlag.

It was then that he tried the local drink Krating Daeng, which alleviated his jet lag substantially.

Krating Daeng which when translated means Red Gaur, a large type of bison (or bull) that is common in Thailand.

Inspired by its effects, Mateschitz decided to bring the product home with him in the format to create a new product category – the energy drink.

After pitching the product to Western investors and being turned down because they didn’t see a market for the product outside of Asia.

Being so convinced of his product and despite knowing that there was no market at the time, Mateschitz decided to create one.

He invested half a million himself and then teamed up with the boss of Krating Daeng, who invested half a million for the other half of the company.

After adapting the formula and flavour to suit the European market he successfully launched the product in Austria in 1987, five years after first trying the product.

Red Bull initially benefitted from being banned in Germany, with its reputation of being an outlaw brand meant that young Germans would cross the border to Austria to buy the energy drink. This resulted in Red Bull selling over a million cans in the first year.

After Austria, Red Bull quickly spread across Europe, launching in Slovakia and Hungary in 1992 and then in Germany and the UK in 1994.

When they finally entered the US market in 1997, Red Bull were selling over a million cans each day.

While companies such as Coke and Pepsi, have the deeper pockets to create and promote their drinks. What they didn’t count on was the strategic intent of Mateschitz and the Red Bull brand.

He created a company that focussed solely on the downstream activities of the value chain, whilst outsourcing the operations such as production and logistics.

That means that Red Bull doesn’t actually produce its iconic drink – with this being handled by external partners. This leaves Red Bull completely free to focus on selling the drink.

Judging by the profit margin that they achieve, it has been a decision that has definitely paid off.

One of Red Bull’s secrets is that they can charge a much higher prices than their competitors.

Each can cost around 9 cents (approx. 7p) to make.

The RRP for a can is $3.59 (approx. £2.87).

Wholesale customers such as supermarkets pay between $44 and $48 (£35 and £38) per case of 24 cans. So, $1.87 (approx. £1.49) per can, which is more than 20 times the cost of production.

The reason that people are so willing to pay for the drink is the Red Bull brand power.

This is the result of a well-thought marketing strategy.

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

Now a days it is really hard to imagine a student party without several packs of Red Bull on hand, this is the case because the company made use of student brand managers.

Popular students would be encouraged to promote the Red Bull drinks and brand on university campuses and to throw parties at different locations. Everything supplied by Red Bull.

VW Beetles with larger-than-Life Red Bull cans strapped to the back would show up at beaches, universities, gyms and even large office buildings. Armed with free samples.

Bartenders quickly found that this new drink was a money-making machine and was a popular night-out drink when sold with vodka or Jäger.

Soon the beverage was being sold in nightclubs and festivals across the world, giving the Austrian brand a huge competitive advantage.

But this would be only the start of the Red Bull marketing machine.

Through the sponsorship and ownership of various sports teams and events, Red Bull continuously engages with their customer in a much deeper way than traditional marketing ever could.

This allows the customer to feel active and intense, by drinking from a can that bears the same logo as an F1 car, their favourite football team or a record braking parachute drop.

Instead of sober storytelling. Red Bull employs story-performing.

Rather than using conventional marketing or looking for stories to be associated with, Red Bull instead looks to create their own store and produce the content themselves using their own media house. That means that for all of their events, they own the rights to all of the pictures of their events.

By using social media, this results in viral communication that drastically improves the return on marketing.

The ultimate example of this strategy was Felix Baumgartner’s jump from space in 2012.

The project cost Red Bull an impressive $50million (approx. £40million), but some experts estimate that the global reach and virality of the event resulted in media coverage of over £6billion (approx. £4.7 billion).

So, it was probably worth it, looking at those numbers.

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

Red Bull to remain the market leader in its category.

As I mentioned earlier, they sold 7.5 billion cans in 2019, this helped them create revenue of over $6billion.

But to reach that much revenue, they spend almost a THIRD on marketing.

Despite the huge marketing budget, the revenue of Red Bull has slowed down since 2012.

The issue?

The company is reliant on a single product – the energy drink – to create the majority of the revenue.

This limits the growth potential and becomes a huge risk to the brand, especially with the increased awareness of health and nutrition.

Investments in sports teams and media production are therefore not only a marketing activity, but also an attempt to diversify and create additional value chains next to their drinks business.

To use sport as a business, Red Bull integrates the entertainment and media value chain that ranges from media production to team ownership, broadcasting arrangements and contract management.

One example of how that works is their football teams.

For example, a player can start their career in Brazil at Red Bull Brazil, before then moving to Red Bull Salzburg in the Austrian League. Then on to Red Bull Leipzig in the Bundesliga before potentially ending their career at New York Red Bulls.

The team in the New York is also a good example of how private equity in sports has benefitted Red Bull.

They purchased the team in 2006 for $25million, which according to Forbes is now worth $290million.

With the popularity of the MLS increasing the tenfold value growth the club has seen will surely continue to grow.

Nevertheless, despite these huge growths in value from their other investments, the main revenue driver remains the drinks business which brings in a whopping 97% of the total earnings.

Red Bull mentions the other activities as “ongoing brand investment”, which signals that they are losses rather than revenue streams.

At least for the time being.

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