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Last week, Coca-Cola Co and Monster Beverage Corp formalised a landmark partnership for the two companies, with the cola giant purchasing an equity stake in the energy drinks maker and transferring ownership of its own global energy brand portfolio to Monster. The distributional advantages of the deal for Monster brand energy are paramount, with the Coca-Cola system giving the company an excellent international growth platform for its eponymous, flagship brand. Yet Monster Beverages also adds upwards of 10 former Coca-Cola energy drinks brands to its portfolio as part of the deal. Which are worth keeping, and where could Monster benefit the most from this new stable of brands?
In 2013, The Coca-Cola Co (TCCC) sold over 400 million litres of energy drinks at retail, with US$2 billion in market value for its energy portfolio, split amongst 10 global energy brands. The company’s largest global energy brand is presently Burn, which accounts for 1.9% of total off-trade volume in the energy sector (compared to 14.9% for Monster and 18.0% for Red Bull). As part of TCCC’s minority equity stake in Monster Beverage Corp (MBC), this large energy portfolio will be transferred to Monster Beverages, a specialist in the marketing and management of energy brands. Monster will become an exclusive energy drinks company, with its remaining non-energy brands (including Hansen’s Natural Soda and Peace Tea) sold to TCCC. In acquiring this broad mix of energy brands, Monster will be attuned to the varying geographic presence and strengths of each new brand. The company may ultimately choose to continue developing NOS, Burn and other brands in some markets, rather than simply placing the entire portfolio under the Monster brand umbrella. A few areas of geographic strength for Coca-Cola’s former energy portfolio may affect this decision:
Source: Euromonitor International
Monster already dwarf Coca-Cola in their domestic US market, with 739 million litres in off-trade volume for brand Monster compared with just 145 million for the entire Coca-Cola portfolio. The brand Monster (Monster green) and its various sub-brand off-shoots are in a strong position to capitalise on a more mature, single digit phase of growth in the US energy drinks category, using strong brand awareness and the new TCCC relationship as a springboard to reach more retailers and consumer groups.
Nevertheless, Coca-Cola’s leading brand in the US, NOS, was specifically cited by the CEO of Monster Beverages in an August 15 investor call as an encouraging, positive growth brand in the US energy category. The brand has strong promotional arrangements with popular NASCAR auto racing teams and relatively high awareness with consumers. NOS brand controls an estimated 6% of total retail energy volumes in North America, up from 4% in 2008 despite a period of intense competition from Red Bull and Monster in a double-digit growth environment. In partnership with local bottlers, Monster may ultimately decide to maintain the NOS brand (and perhaps Full Throttle energy) as a tactical part of its new portfolio in specific, targeted North American regions and channels where these brands have outperformed.
Prospects in Latin America are mixed at the regional level, with Monster facing difficult decisions based on Coca-Cola’s uneven strength in the segment. In Mexico, Monster is already the dominant force in the energy segment, controlling 40% of total volumes. Coca-Cola’s small 8% share (split between Burn and Gladiator brand drinks) would seem like a less relevant part of Monster Beverage Corp’s future strategy, with the company more likely to focus on consolidating its leadership position than dividing its attention on fractional brands.
In the region’s other major growth hub – Brazil – the picture is far different. Red Bull enjoys a dominant 42% share of retail volumes, with Monster controlling just 2% of energy retail. Coca-Cola are the number two player in the region, with Burn rising from 14% of the fast growing market in 2008 to 18% in 2013. It may be a mistake to cut loose the Burn brand in Brazil, where it has taken advantage of a lower unit priced strategy (introducing the introduction of 1L bottles in 2013) to reach a new, broad section of Brazilian consumers.
In Western Europe, Burn has significant penetration only in Turkey and pockets of Scandinavia, led by a surprising market leadership position in Norway. The company have a successful Lotus F1 marketing partnership and an expanding flavour portfolio in Scandinavia (including Lemon ice and other sugar free variants). The expansion of the Monster brand in the lucrative Western European energy market – competing on Red Bull’s home turf – is likely a key tenet of Monster’s strategy with regard to Coca-Cola’s investment, so the relative under penetration for Burn on a regional basis makes brand Monster a more likely focus in the region.
Eastern Europe, on the other hand, is one area where Monster Beverages will gain an instant foothold through Coca-Cola’s energy portfolio, most notably the Burn brand’s popularity in Russia. Burn sold 23 million litres in off-trade volume in 2013, more than a three-fold increase in retail volume since 2008. The brand has benefited from the surging popularity of energy drinks in general, with a 9% retail CAGR expected through 2018. Burn control 15% of energy drink volume in Russia – behind only Pepsi’s Adrenaline Rush – more than double the market presence of Red Bull. Monster’s growth strategy in Russia will be a key decision point as the company assesses brand opportunity, with the risk of alienating Russian consumers that may be familiar with the Burn flavour and brand identity if the company opt to discontinue.
Unfortunately, TCCC’s former energy portfolio offers little real advantage to Monster’s prospects for growth in Asia. Red Bull is the dominant player in Asian energy drinks, with a host of other domestic brands dominating in China and emerging Southeast Asia. Coca-Cola have few standout brands, with the company’s most successful regional effort being Real Gold energy, a brand which has nevertheless lost share in the mature Japanese energy drinks market.
Production in the Coca-Cola system and distribution networks are certainly the biggest advantages of the partnership between the two companies, finally solidifying Coca-Cola’s investment in the emerging energy segment while establishing Monster as a truly global brand. Yet despite TCCC’s relatively small position in the category, it would be a mistake to hastily scrap Burn and its other small brands that have a toehold in Russia, Brazil and Scandinavia. While consolidation around the Monster flagship is inevitable, look for Monster Beverages to leverage TCCC’s potentially significant brand strength in the category as well as its vast bottling and retailer network. The company may decide to explore a tiered brand strategy, with several of TCCC’s more successful niche brands retained as tactical, geographic opportunities for the new Monster Beverage Company.