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⚡ Monster Beverages: Beast Mode?
Monster Beverages (MNST) wants to capture the alcohol-based products category. It is also looking to cater to customers looking to cut down on sugar consumption. Along with this come strained financials despite record sales. Will Monster manage to give customers the high they deserve?
The global energy drink market thrived during the pandemic. 52% of consumers in the US drink these beverages multiple times a week. But shopping and consumption patterns are changing. Customers are not only purchasing energy drinks in multipacks but are looking to shift towards drinks that don’t pile on the calories.
According to an International Food Information Council Survey in 2021, 72% of consumers are trying to limit or avoid sugar entirely. The low-calorie energy drink market came into existence in January 2003 with the launch of Red Bull Sugar-Free and had a 17.3% volume share by 2006. That share is now likely to rise to 42.1% by 2025.
Monster Beverages, one of the pioneers in the energy drink segment, remains the No.2 player in the non-aseptic energy drinks market in the US, with a 30.2% market share after Red Bull’s 41.3%. Incidentally, both brands have lost ~1% market share over the last 12 months. Celsius is the only player among the top 5 that has gained over the previous year.
PepsiCo has recently acquired an 8.5% stake in Celsius for $550M as part of a long-term strategic distribution agreement. Analysts believe that Pepsi’s move could be the first step towards full ownership of Celsius to boost its portfolio.
As the energy drink market gets increasingly crowded, companies are looking to capture customers from other segments; alcoholic beverages are one such area. The global alcoholic beverage market will grow to $800B by 2026 from current levels of $510B.
Monster has “vehemently opposed” the idea of Carbonated Soft Drink (CSD) brands launching alcoholic products, calling the practice a “slippery slope.”
However, competition is looking to double down on its presence in the alcoholic beverage market through partnerships. For example, Coca-Cola has teamed up with Molson Coors for the Topo Chico Hard Seltzer and Simply Spiked Lemonade. Boston Beer launched Hard Mountain Dew, while Diageo is partnering with the Vota Coco Company on a line of premium canned cocktails.
Monster has also moved aggressively to enter the alcohol sector, further blurring the lines between beverage companies and those focusing only on intoxicants or non-alcoholic drinks.
The company acquired Canarchy Craft Brewery Collective, a craft beer and hard seltzer company, for $330M earlier this year. It wanted this deal to act as a “springboard” into this space by providing the necessary infrastructure and licenses.
In line with its plans for the alcoholic beverage market, Monster has decided to launch its first flavored malt beverage alcohol product later this year. The product, known as “The Beast Unleashed,” will contain 6% Alcohol By Volume (ABV) and will initially be available in four flavors. It hopes to have a national distribution line through the US by the end of 2023.
The management hopes for The Beast Unleashed to leverage Monster’s brand equity while carving out its own unique space in the market. They called the company’s alcohol innovation pipeline “robust,” teasing the possibility of further launches in the future. Alcoholic beverages form only a minor portion of Monster’s overall sales.
In addition, Monster has also supported the demand for a low-calorie energy drink with its Rehab Monster Line. It recently launched its newest Rehab flavor – Watermelon. It will also launch Monster Energy Zero Sugar as part of a bid to retain old customers planning on cutting down sugar consumption.
Monster has looked to go beyond conventional energy drinks by launching the first 100% vegan energy drink called Java Monster Farmer’s Oats in 2019. It has also mulled a foray into Cannabis. A deal with Constellation Brands is also in the works, the status of which remains unclear.
The company reported record sales of $1.66B in Q2. However, a substantial gross margin compression overshadowed the sales figure. Gross Margins plunged to 47.1% of sales from 57.2% year-on-year. Increased freight and fuel rates, higher input costs, and higher prices of aluminum cans are key factors behind the drop in margins. Operating income in Q2 fell to $373M from $526M during the same period last year.
To mitigate the rising input costs, Monster will undertake a system-wide price hike in the US from September 1 this year, although it has not specified the quantum of the hike.
A stock that has returned a dizzying ~4,00,000% to investors since 1997 is currently witnessing a sober year. Monster aims to become a monster within the alcoholic space and would hope that consumers welcome the move with open cans! Competition would look to blur the company’s path towards success and ensure they don’t kick the can down the road!
MNST ended at $89.43, down 2.13%.
Company Snapshot 📈
MNST 89.43 -1.95 (2.13%)
Analyst Ratings (21 Analysts) BUY 48% HOLD 48% SELL 4%
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Today’s Fun Fact
Pepsi was once called Brad’s drink. It was rebranded Pepsi Cola on the belief that it helped stave off dyspepsia