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April 30, 2024

Pepsico, Inc. v. Vital Pharmaceuticals, Inc.

Econ One was retained by Vital Pharmaceuticals, Inc. (ā€œVPXā€) to assess the economic damages incurred by the Respondent/Counter-claimant due to alleged wrongful acts of the Claimant/Counter-respondent.

VPX was incorporated in the State of Florida in March 1996. The Company produces fitness-focused nutritional supplements and beverages, and offers energy, muscle building, pre and post workout recovery, health, and other products. The products of the Company are sold primarily through distributors.Ā  In the second half of 2020, VPXā€™s affiliate Quash Seltzer, LLC (ā€œQuashā€) developed hard seltzer and hard tea alcohol beverage products. These products have been marketed and sold under the Bang brand since March 2021. VPXā€™s key products are the Bang-branded energy drinks. VPX ā€œcreated a unique energy product appealing to consumers focused on health and wellness and broke through barriers to entry in the highly competitive, fast-growing, and high-margin energy drink category otherwise dominated by Monster Energy and Red Bull.ā€ VPX grew its sales from $150 million in 2018 to $728 million in 2021. VPX achieved its success with a distribution network that consisted of approximately 300 independent distributors, and a self-distribution function.

PepsiCo, Inc. (ā€œPepsiCoā€) is a Fortune 50 company and a global manufacturer and distributor of snack foods and beverages. ā€œPepsiCo products are enjoyed by consumers more than one billion times a day in more than 200 countries and territories around the world. PepsiCo generated $70 billion in net revenue in 2020. PepsiCo manufactures (or uses contract manufacturers), markets, and sells a variety of snacks, foods, and beverages globally.Ā  Its beverage portfolio includes well-known brands like Aquafina, Gatorade, Mountain Dew, and Pepsi.

PepsiCo entered into a Distribution Agreement with VPX in March 2020 (ā€œDistribution Agreementā€) to distribute the Companyā€™s ā€œready-to-drink Bang-branded products,ā€ primarily Bang energy products, in the U.S (excluding some Bang-branded products though, e.g., Bang shots). In connection with the Distribution Agreement, PepsiCo funded VPX $125 million to support VPX buying out the VPX distribution rights given to various independent distributors nationwide. In October 2020, VPX terminated the Distribution Agreement without cause, with a notice served to PepsiCo.

In November 2020, PepsiCo filed a Demand for Arbitration with the American Arbitration Association (AAA). In January 2021, VPXā€™s affiliate, Quash Seltzer, LLC, filed a lawsuit alleging PepsiCoā€™s assertion of distribution rights for Bang Hard Seltzer tortiously interfered with its agreements and relationships.

As an economist and financial expert, Mr. Ilhan Geckil was asked by counsel for VPX to estimate the lost profits related to lost sales of Bang-branded alcohol beverage products, including Bang Hard Seltzer and Hard Tea products. He was asked to perform this analysis under the assumption that PepsiCoā€™s claim over exclusive distribution rights to these products is upheld and PepsiCoā€™s distribution capabilities were consistent with their representations and warranties in the Distribution Agreement.

Specifically, he was asked to determine what profits VPX would have gained from the sale of Bang Hard Seltzer and Hard Tea beverages if PepsiCoā€™s representations that it ā€œhas the infrastructure, equipment, and capability to diligently and aggressively cover and service the [entire United States] in its entiretyā€ with Bang-branded alcohol beverage products were true.

Shortly after we submitted our expert report including lost profits as economic damages, the case was settled. It is our understanding that our expert report and analysis helped our client to receive a settlement offer.

Services: Damages
Industries: Food and Beverage
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