“I am going to be brutally honest about the good, the bad and the indifferent of the market and the category,” says David Butcher, MD of UK&I Intercarabao Ltd – Carabao to you and me.
We are about to have a high-energy conversation about the energy drink market and Thai-based Carabao’s remarkable rise through the ranks. David pulls no punches speaking about this action-packed sugar- and caffeine-fuelled category.
It is strange to think that about 15 years ago energy drinks was pretty much a moribund neighbourhood. Apart from one flavour of Lucozade and Robinson’s Barley Water at Wimbledon there wasn’t much else around.
How different the scene is now. In 2017 we got through 669 million litres of energy liquid in the UK and now it is a £2 billion market with an annual growth rate of over 4 per cent predicted until at least 2024. The pandemic hasn’t slowed it down either – if anything, with the pubs all shut, it supercharged the pick-me-up aisle.
Suddenly, energy drinks is a crowded and competitive arena. Following on from the desert of the early twenty-first century, more than 750 brands have so far perished in a kill-or-be-killed evolution, leaving the tops dogs – Monster, Boost, Rockstar, Relentless, and of course Red Bull – dominating the landscape with three-quarters of sales between them.
Energy drinks came along at just the right time: millennials were growing up, and staying up all night playing computer games (the internet and energy drinks go together); and people were drinking less beer, thinking a little more about their health and getting, at least image-wise, a bit more sporty. Energy liquid suited this new century culture perfectly.
“The variety and innovation in soft drinks is just breathtaking,”Butcher says. “Having done alcohol in my career, I would say people are drinking less but drinking better, which is a good thing. So soft drinks has benefitted from some of that.”
A thousand flowers have bloomed in the desert, so to speak, but there were a lot of weeds.
“In terms of what’s happening over here in the UK, it’s interesting,” says Butcher. I think the whole soft drinks market has given itself a right good kick up the bottom the past decade to make it a more interesting and dynamic market,”
A messenger from the East
Carabao, which is Thailand-based, arrived only a few years back into the UK’s dynamic but already overcrowded energy-drink space, and it is fascinating to observe how the “challenger” brand, as Butcher calls it, has swashed and buckled its way into public consciousness and sales – up several hundred per cent over the past twelve months.
“The brand is principally out in Asian markets – Thailand, Myanmar, Cambodia, Vietnam, where we are number two or even number one,” says Butcher. “My bosses in Thailand started the brand a little bit behind the timings of Red Bull and Monster. They watched that opportunity start to blossom and decided that they could do a nice job [over here].”
Butcher took over Carabao in the UK a little more than a year ago, in August 2019, but it wasn’t for the first time. He had run the company for a brief period earlier on, and liked it so much he returned.
“There’s not many people who will go back to the same company twice,” he laughs. “My original short stint was a very short agreement; my Thailand bosses knew I had to go and run an interior design global manufacturer, something quite different. So my arrangement was only going to be for a very few short months, to set the business up, here. But the Thais always said, ‘Listen, David, if you wanted to come back we would love to have you back in some capacity.’”
His exit from soft furnishings coincided nicely with a do-over at Carabao. He relaxed for a month or two at home, and then, “The owner rang me and said, ‘I hear you are going to have to look for a job one of these days. We are going to make some structural changes – would you come and run the company again?’”
He would, but was it chance … or something more devious? (“I think my wife rang the Thais up and said. ‘He’s under my feet – please take him back, he’s driving me mad!’ he laughs.)
Butcher has had a varied career including periods at several household names including P&G, and says he is happy to be well out of the corporate environment – and even out of interior design: “It’s a lovely industry but it’s not nearly as dynamic as soft drinks. I missed the pace of this category. I did my 18 months in interiors and I loved it, it was very different, but 18 months was enough.”
He came back at just the right time, as it turned out.
“I went and met all my customers. Nice people: WH Smiths, BP, Spar, Nisa, Asda – you name it, I saw them when I first came back. And they reminded me that just in that little spell when I was away, there had been about 200 other energy drinks that had come to the market, some with millions to spend. And they had failed.”
It was surveying this battlefield that informed Butcher of the right way forward for the plucky challenger, Carabao.
“I take my hat off to the strength of the Red Bull and the Monster,” he nods. “They are largely market-dominant, and when you look at a category like that, if you are going to intervene and become the right challenger, you not only have to be different, you also have to able to look into the mirror and say that I am better.”
Butcher calls the energy drinks market a “Marmite” category: some love it, some certainly do not. “When we came out, what people told us they wanted was an energy drink that doesn’t taste like an energy drink,” says Butcher. They find the taste a little bit polarizing, so with our fruit-flavour drinks, we decided to push our marketing and emphasize that.”
Red Bull was famous for tasting awful yet selling like hot cakes. The drinks on the market basically were full of sugar and caffeine and promised to turn you into the cartoon Tasmanian Devil. Butcher and Carabao decided to make a feature out of not going down that well-trodden route.
“Most people think energy drinks all taste like Red Bull,” he says.He quotes from some research the company commissioned: 71 per cent of shoppers say they would likely purchase an energy drink if it tasted great. Another 18 per cent think that energy drinks actually taste nice. The market currently appeals to only about one in five consumers, in other words – clearly an opportunity exists.
“We had a feeling we were right about that, but we didn’t know how right, but that’s worked fabulously well,” Butcher says.“The guys at Monster do one or two nice flavours, actually, they’re no slouches. We’ve got a range full of lovely flavours – it’s arguably the thing that’s converted us from being a start-up to being a keep-going.
Hello, I must keep going
So Butcher came back last summer, not knowing he would barely have six months to reorganize the company before Coronavirus threw everybody’s plans off course. All things considered, the boy done amazingly good.
“The first thing I did was to go round all the customers and see what was happening with my lovely brand since they’d last seen me, a couple of years before,” he says. “And I have to say they were the best free consultancies I have ever had in my career. You don’t need consultants and all those people – you just need to go and talk to your customers, because they give you the good, the bad and the downright ugly.”
The feedback Butcher got was first that they were grateful a supplier was talking to them at all. But secondly, it was not all pretty with Carabao: “They said, ‘You’ve gone past that birthing stage and you are the keep-going brand now, but what’s next?’”
Butcher knew he had to get busy quick to transfer the impetus from a successful high-revving arrival on the market into a longer gear.
“So I then set about, over the course of about six weeks, resetting everything,” he explains.“I reset the marketing with a new message, and having done lots of research our insight is that people love energy drinks and see them as the real petrol in their tank to get through our ever-busier days.
“We also reset our manufacturing. We had been partnered with a lovely company called Refresca, but as we were getting scale in the UK, we opted to remove our production back to Thailand.” The company had opened a massive new plant just outside Bangkok “that would eclipse anything the likes of a Coca-Cola or a Pepsi Cola might have in terms of a production facility.”
Manufacturing Carabao there meant a high degree of control and true vertical integration: “It gives us more surety of supply quite honestly, more flexibility, and gets us closer to what we want to do around our research and development,” Butcher says. “So we make our own cans and we even blow our own glass. My boss is either all-in or all-out. And he is all-in.”
So Carabao decided to jink where other energy drinks jumped. They decided to cut sugar instead of loading up the liquid with it; and they decided they would develop excellent fruit flavours, so it wouldn’t just be teenagers or twenty-something frat-bros who would drink Carabao.
It was a way that a smaller company could make itself noticed in a busy, roiling market.
And yet, while Carabao may be comparatively small in the UK, they are big back East – worth billions on the Thai stock exchange – so innovation is truly possible.
“We can develop a new flavour and have it on the market in months,” Butcher says.“I know another soft drink company I used to work for, and also a wine company I used to work for, where innovation can take over a year.
“You almost lose the will to live by the time it’s gone through the corporate treacle. So we are very fortunate in that we are so agile.My bosses in Thailand are extraordinarily humble people,” he adds. “They have a love of data built into their DNA and they love to get a really deep understanding of things. It makes us innovative; it makes us do things differently.”
So there was bold new marketing. “Our lower-sugar, lower-calorie proposition, that tastes delicious,” says Butcher. “One of the things we [also] did was that we changed some of the packaging on Carabao. We called out the fact that it contains only 63 calories.”
And with the new production in Thailand also came the last element of the reset: a new position on price.
“Our customers had said to us, ‘Look, you’ve got a very nice proposition, but on a kind of pence per millilitre basis you are quite expensive, so you might want to have a think about that.’And we had a long, hard look at it, and talked to quite a few convenience customers as well. Hence, we have arrived at a price strategy now, which for convenience is a price marked pack at 69p.”
It’s a bold strategy to anchor your brand identity on a PMP, but Butcher thinks it is ringing the bell considering where Carabao is at right now, morphing from sprinter to marathon runner.
“It makes us competitive with the likes of Monster, Relentless, Rock Star, Boost etc.,” he says. “So pull that bundle together and since last August our base shipment model year on year has grown four times, so 400 per cent. So we know we are on to the right thing.”
It’s still a jungle out there, though: an energy jungle. Small brands without Carabao’s back-office (or back factory) clout are being ruthlessly predated by the big beasts – so what does David Butcher predict will happen next?
“I think the way it gets resolved is that eventually there will be a shake-down in the category of good, better, best,” he says emphatically.
“I like the Boost brand in Convenience and I think they do a very good job and they are nice people – you hear nice things about them. We like their model and we think there is room in the market for both of us – them at 59p and us at 69p.
“We are the ‘good’ versions: they are there with their original taste and us with our fruity, low calorie taste. We think there is a ‘better’ version: which is, you’ve got Monster, Relentless and Rockstar, and inevitably Monster is going to eat the other two up. They are playing to the same audience, a very youthful audience – and big 500 ml cans (we are in a 330ml).”
This is the hard-partying arena where the mad-for-it companies compete for the supercharged youth and teens.
“They’ve got great big aggressive marketing on them, for a younger audience and I think Monster, ultimately, because it has better flavours, will eat up Relentless and Rockstar. And if that’s the ‘better’ bit, the ‘best’ bit is Red Bull.”
“Red Bull is a super brand, it is ubiquitous in the energy drink category,” says Butcher, “but the one ‘watch out’ for them is that they don’t become the Hoover to the Dyson in the category.”
After such a vivid analysis it is easy to see the actual chiller of Butcher’s imagination, which looks entirely plausible.
“There is room for us,” he says, “and I think that’s how you get to a more consolidated view that’s got room for Boost and Carabao, Monster and Red Bull. That’s a sensible approach for convenience.”
Have a nice year
It’s a good strategy, but the great 2020 Carabao is having (“We’ve had a nice year – and it’s funny to say that when the pandemic is knocking everything sideways”) is also, he insists, down to a very lucky decision taken back before the lockdown was even a twinkle in Boris’s eye. Butcher modestly believes he is a very lucky general.
“I don’t know if you know that speech where Napoleon said he didn’t care about good generals, but he liked lucky ones,” Butcher laughs again.
“We opened up new distribution pre-pandemic, and that tended to be to the outlets that the government encouraged to stay open. We had a choice to do more off-trade in convenience outlets or to divert our resources to go and do more on-trade. Luckily we judged that we still had to build the brand in the off-trade,” he says. “And that stayed open and the on-trade closed.”
Carabao dodged a bullet, there. “If we had followed our competition, which is Britvic, Pepsi, Coca-Cola and Red Bull with vast on-trade businesses, it would have decimated us. But we didn’t suffer that pain.”
Good fortune even extended to its soccer sponsorship with the Carabao Cup.“By a stroke of good luck we were the last major tournament before the pandemic and got the final done [1 March], Man City won, great audiences,” he says. “Then the pandemic came and now we are the first football back, pretty much. We have already had the Carabao Cup round one.”
Luck is always aided by good preparation, and it also helped that being data-driven and tech-savvy, shutting down the UK Carabao offices had zero effect on operations and productivity. In contrast to more traditional organisations,every employee was able to change to remote working without missing a beat.
“That wasn’t even a thought for us – we just did it,” says Butcher. “Everything we’ve got in this business is cloud-based, so that was easy. We could work anywhere in the world. And then we embraced video-conferencing almost as if we had shares in Zoom.”
The HQ is back open now, for those who want to go there. “It’s on a rota system and you can choose if you want to come in. If not, the video technology is working fine.”
Looking toward the future at last, after a summer of weirdness for everybody, leads to a discussion of upcoming plans, which on the one hand Butcher says are simple – “The more people we can put our liquid into, the more we win, quite honestly” – but on the other need some battlefield precision.
He sees PMP as a vital tactic for Carabao.
“Let me talk some more about price because I think it’s important and it’s going to become more important,” he says. “We launched our PMP into Convenience and there’s more coming – we are doing our new flavour [Mixed Berries] in a PMP in November. So we will have four flavour in PMPs where we currently have three. We are seeing nice results. Convenience customers have said thank you for listening.”
The double-barrelled economic consequences from the pandemic and upcoming Brexit he believes will play out in his category with some specific results.
“My instinct tells me that lots of suppliers will be putting through price to Convenience, they will be putting their prices up next year,” he says. “I think some of them will do it because they have lost a more profitable on-trade business, which isn’t going to recover quickly. Some will do it under the guise of Brexit tariffs. And some will do it because they’ve got greedy investors who take a short-term approach.”
Again, Carabao’s tack is to differentiate themselves from a general trend.
“At Carabao, our commitment for the next year is we are not going to put through price, we are going to stick with the 69p PMP and keep offering what we know to be prosperous margins we give our Convenience customers.”
That, he says, is the first strand.
“The second strand is that we are looking at multipacks. We do two flavours at the moment: a Mixed Berry multipack is launching at the end of this year at very competitive price.” Butcher says they are also looking at multi-deals, because he does not presume to think all customers will suddenly want to buy four of something.
“I think there is quite a leap in any category from someone buying one of something to buying four of something, so we are looking more at a multi-purchase strategy because they can also benefit from that next year,” he says.
“We’ve trialled something with our nice friends at BP recently, where we did two of something for £1.20 – a Carabao and a confectionery item – and we had record sales.”
Similar promotions are on the way, and it feels like a good way to get consumers to try out Carabao and turn it from a challenger to a keeper in the market – especially in convenience, which seems like a natural home for the brand.
“I happen to believe that a vibrant convenience channel is great for the economy and for society,” he says. “My message to your readers would be that I want to be a great friend to them.”