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May 25, 2024

The Soda With Buzz

Red Bull, the "energy" drink created by Austrian Dietrich Mateschitz, doesn't taste very good. Nor does it sound very appealing: The berry-flavored beverage is spiked with additives like taurine and

Red Bull, the "energy" drink created by Austrian Dietrich Mateschitz, doesn't taste very good. Nor does it sound very appealing: The berry-flavored beverage is spiked with additives like taurine and glucuronolactone. And at $2 for an 8.3-ounce can, Red Bull's retail price is at least double what you'd pay for a 12-ounce can of Coke. But it does pack some energy. Red Bull, with 80 milligrams of caffeine, has more than double the dose found in the larger Coke serving, and it has 110 calories per serving versus Coke's 140.

Consumers downed 1.9 billion cans of Mateschitz's potion last year, generating just about $2 billion in revenue. By our reckoning Mateschitz's 49% share of the business is worth $2 billion.

Mateschitz, 60, typifies a new class of billionaires who got rich not by inventing a new product but by selling an ordinary one inventively. Donald Trump gets a premium for his Manhattan apartments because he has propagated the notion that a Trump building is superior to comparable property across the street. Sidney Frank made billions by selling Grey Goose vodka, nearly indistinguishable from bottom-shelf brands, at a rich price.

"When we first started, we said there is no existing market for Red Bull," Mateschitz recalls, in a thick Austrian accent. "But Red Bull will create it. And this is what finally became true."

Since introducing Red Bull in 1987, Mateschitz has invested heavily in building the brand. Last year he spent $600 million, or 30% of revenue, on marketing. (Coca-Cola spends 9%.) But unlike rivals who pay millions of dollars for superstars like Britney Spears, Mateschitz relies on cheaper talent: hip youngsters, students and a legion of fringe athletes. Red Bull sponsors some 500 athletes around the world, the type who will surf in Nova Scotia in January or jump out of a plane to "fly" across the English Channel. Every year the company stages dozens of extreme sporting events, like the climbing of iced-down silos in Iowa or kite sailing in Hawaii, as well as cultural events like break-dancing contests. Then there is Hangar-7, an eye-popping structure of glass and steel that Mateschitz erected next to the airport in Salzburg, Austria. The building serves as a chic eatery for club crawlers and provides shelter for the Flying Bulls, a fleet of 15 show planes that appear at air shows around the world. Mateschitz's latest indulgence: the purchase of a Formula One racing team, an extravagance that will absorb $100 million a year to keep on the track while generating only $70 million in revenue.

All these activities are geared to one objective: to expand Red Bull's presence amid a deluge of new energy drinks being introduced by upstarts and beverage behemoths like Pepsi and Coke.

So far the results have been spectacular: In some countries Red Bull commands an 80% market share. In the U.S., where Red Bull enjoys a 47% share of the energy drink market, sales are growing annually at a 40% clip. Last year it sold 700 million cans in the U.S.; this year it hopes to sell 1 billion.

Impressive results for any go-getter, but even Mateschitz would admit he didn't exactly grab his Red Bull fortune by the horns. Raised by two primary-school-teacher parents who separated when he was very young, the convivial Mateschitz took ten years to get through college. "Life as a student is enjoyable," he muses, during a rare interview at Hangar-7. After graduating with a marketing degree from the University of Commerce in Vienna at the age of 28, Mateschitz worked various marketing jobs, including stints at Unilever and Germany's Jacobs Coffee. In 1979 he became the international marketing director for Germany's Blendax (later acquired by Procter & Gamble), where he pushed products like toothpaste, skin creams and shampoo.

It was a job that took him all over the world. In Thailand he discovered the benefits of a syrupy tonic drink sold in pharmacies as a revitalizing agent. After the long flights from Europe to Bangkok, Mateschitz would down the tonic over ice. His jet lag all but disappeared. He decided to study up on the market. "I realized that these little syrups developed in Japan did extremely well all over Asia," he recalls.

By happenstance, a Blendax licensee in Thailand named Chaleo Yoovidhya also owned a tonic drink company. Mateschitz floated the notion of introducing a tonic drink in the West. Yoovidhya loved the idea. In 1984 Mateschitz quit his job to partner with Yoovidhya. Each invested $500,000 of savings and took a 49% stake in the fledgling outfit. They gave the remaining 2% to Yoovidhya's son Chalerm, but it was agreed that Mateschitz would run the company.

For the next three years Mateschitz tinkered with the drink formula and developed a marketing strategy. The Thai drink is called Krating Daeng (translation: "red water buffalo"). But for Western markets and later others in Asia, Mateschitz preferred the name Red Bull. He decided to carbonate the drink to make it more familiar to Western palates and to package it in a slim blue-and-silver can. But he left in place three key ingredients found in the Thai drink: an amino acid called taurine, the caffeine, and glucuronolactone, a carbohydrate. A friend of Mateschitz's came up with the slogan "Red Bull gives you wings."

Before launching, Mateschitz hired a market research firm to test Red Bull's acceptance. The result was a catastrophe. "People didn't believe the taste, the logo, the brand name," he recalls now with a smile. "I'd never before experienced such a disaster."

Mateschitz ignored the research and set up offices in Fuschl, a town just outside Salzburg.

Passing the taste police was only one of the obstacles. Mateschitz needed the approval of the ministries of health in most European countries because some of Red Bull's ingredients hadn't been used in anything else on the market. The Austrian health ministry was the first to grant the okay, in 1987. Powered by a secretary and a six-person sales force, Red Bull began to show up in retail outlets and bars across Austria.

Approval to distribute Red Bull in Hungary and the U.K. soon followed. In 1994 Red Bull entered Germany, where the drink became so popular that the company couldn't meet the demand of nearly 1 million cans a day. Halfway through the first year Red Bull disappeared from the shelves. It was back in stock the next year, but Mateschitz believes the hiccup hurt his market share, even though Red Bull now has a 50% share of the German energy drink market.

From the outset Mateschitz dispensed with TV ads in favor of guerrilla marketing, a tactic that would ultimately become Red Bull's trademark. "We were always looking for a more creative, different point of view," explains Mateschitz. What could be more wacky than Red Bull's Flugtag (flying day) contest, in which people compete to fly the farthest over water in homemade flying machines. He targeted students by paying the trend-setting types to throw Red Bull parties and supplied them with the drink. The company also marketed the drink to bars, which took to using it as a mixer with alcohol.

The marketing gimmicks fueled sales of 1 million cans the first year. But they also piled up a $1 million deficit, financed 90% by the partners' initial capital and 10% by a bank loan guaranteed by a friend. Sales doubled to 2 million cans the second year and doubled again the third year, enabling the company to recoup all of its losses.

Some European countries still haven't approved sales of Red Bull. Denmark and France claim that the drink violates their food regulations. Mateschitz says his executives meet with French authorities ten times a year--so far to no avail. "They can survive without Red Bull, and we can survive without France," he sighs. Meantime, it plans to launch in Japan this year; Dietrich might even alter the formula there because the Japanese have been drinking these tonic drinks for so long.

Can the cult of Red Bull continue? Since Red Bull entered the U.S. in 1997, launching energy drinks as a category, the market has become a $1.7 billion business. Coca-Cola, PepsiCo and Anheuser-Busch have all jumped in, as well as a number of upstart brands like Rockstar, Monster and Crunk, the latter being peddled by Grey Goose entrepreneur Sidney Frank.

Declares Mateschitz: "We created the market. If you appreciate the product, you want the real one, the original. Nobody wants to have a Rolex made in Taiwan or Hong Kong." Yet Red Bull's U.S. market share has fallen from 75% in 1998 to roughly 47% today, a smaller piece of a fast-growing pie. "Coke and Pepsi came from nowhere in the water business to having the top two brands. They could easily become major factors in the energy drink category, too," warns John Sicher, editor of the newsletter Beverage Digest.

So far Mateschitz has been cautious about extending the Red Bull brand. In Los Angeles the company is test-marketing an herbal tea drink called Carpe Diem that's supposed to boost the immune system and improve metabolism. It's been sold in several European countries for a few years but so far doesn't look set to repeat Red Bull's success. Mateschitz also intends to employ the Carpe Diem banner for a chain of fast food outlets offering Austrian and international food packaged in edible "crunchy containers" made out of potato. And he plans to launch a quarterly magazine in Europe filled with stories and pictures evoking the Red Bull world: music, extreme sports, night life, social trends. He bought an island in Fiji from the Forbes family for an undisclosed sum and plans to turn part of it into a resort.

In the future he imagines further line extensions. Mateschitz intends to make Red Bull a brand that lasts: "We have the next hundred years in front of us."