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On the heels of Coca-Cola’s 16.7% acquisition of Monster Energy, speculation regarding the potential for Monster’s international expansion is high. In the agreement, Coke traded its energy brands (and markets) for Monster’s non-energy brands. Monster also agreed to make Coca-Cola is preferred global distribution partner, while Coca Cola agreed to let Monster operate as its only energy play. Global off-trade value sales of energy drinks have slowed in recent years, but the category’s forecast US$12 billion absolute off-trade value growth from 2013-2018 bodes well for both parties. Furthermore, the expansion of energy functionality into categories such as RTD tea, juice, carbonates, and bottled water favours manufacturers able to reliably generate new flavours and formulations. As Monster begins its international expansion in earnest, the combination of Coca-Cola’s speed to market and Monster’s knack for new products could play well in a global landscape where product lifecycles are becoming shorter all the time.
While Monster is available in over 40 countries across the world, it has only managed to capture 25% off-trade value share in three markets: the US (43%), Mexico (40%) and Greece (36%). Coca-Cola’s stable of energy drinks, on the other hand, has at least 25% value share in 12 markets and is the number one overall off-trade value soft drinks player in 60 of Euromonitor International’s 80 researched countries. This global reach will undoubtedly give Monster greater access to retailers across the world, as well as facilitate Monster’s ability to introduce new products to international consumers – a major factor in its continued growth in the US.
Years before Red Bull ventured into flavours with Editions, and Pepsi launched the soda/juice/energy hybrid Mountain Dew Kickstart, Monster was on the search for ways to differentiate its products from competitors. What started with a 500ml can to differentiate it from its rival Red Bull has led to a stable of 30+ energy drinks, ranging from protein-fortified Monster Muscle energy shakes, to non-carbonated, tea-flavoured, electrolyte-fortified Monster Rehab and to zero-calorie, distinctly different, soft-drink style flavoured Monster Zero Ultra. The stable of flavours and formulations helped expand both the consumer base and use occasions for energy drinks in the US. This effectively opened the doors for non-energy drink manufacturers to introduce this functionality such as Pepsi’s Mountain Dew Kickstart, Starbuck’s natural-positioned Refreshers, and V8’s juice-based V8 Fusion + Energy.
Monster had slowly been releasing these formulations in international markets. However, due in part to the limited overseas success of Monster branded products (especially in comparison to their success in the US), convincing international retailers to invest in shelf space for new variants is no easy task. With Coca-Cola’s vast distribution network behind Monster’s products, retailers may be more willing to support Monster’s plethora of sub-brands – especially considering the growing interest of energy in international markets.
Energy drinks can be considered on an evolutionary spectrum. At inception, functionality was the core purpose of the product and specifically marketed to young consumers. From here, manufacturers expanded its consumer base and use-occasions by using new flavours and ingredients. This then opened the door for multiple soft drink categories to tap into this functionality. The US is well entrenched in this third stage. However, as energy drinks have become more popular in markets ranging from Chile to China, other countries are quickly advancing along this field. Lucozade sports and energy drinks have introduced varying flavours of energy drinks to consumers in Western Europe. Vive 100%, one of Mexico’s fastest growing energy drinks, promotes its natural formulation of guarana and tea extracts, attempting to appeal to more health-conscious consumers. And in Israel, coffee maker Strauss is using its popular Elite brand to launch Coffee Shot– an energy drink that appeals to the Israeli consumers’ appreciation for strong coffee, competing with traditional energy drinks.
Monster has wholeheartedly adopted a strategy to launch new and interesting energy products in the US. At times, it misses the mark, like with its energy cola, rum and cola inspired Cuba Lima that failed to resonate with consumers despite its unique taste. More often, it succeeds, with hundred million dollar brands like Monster Rehab and Monster Zero Ultra. One reason for Ultra’s success is Monster’s ability to create energy products with flavours more akin to soft drinks like carbonates and juices. And, as evidenced by the company’s most recent earnings call, plans for new products are already on the horizon including Monster Ultra Sunrise, which combines Monster’s energy blend with carbonated juice for a more accessible taste, and even a low-caffeine and/or caffeine free product called Monster Unleaded. This commitment to new products could finally allow the company to replicate its domestic success overseas. With Coca-Cola’s backing, Monster has the resources to examine potential new markets and the distributional strength to bring items to the shelves.
While Monster is set to greatly benefit from Coca-Cola’s support, Coca-Cola comes away from this deal with more than 16.7% of Monster’s energy drinks revenue. The evolution undergoing energy drinks applies to soft drinks as a whole. Over the last few years, as carbonates have declined, a varied group of soft drink products have risen to take their place, but no single brand or category dominates global growth. Instead, smaller brands and categories like fruit-flavoured RTD teas, various juice drinks and flavoured and functional waters are each finding their foothold in a variety of countries. This represents a global shift away from singular brands dominating the beverage landscape. Global manufacturers are fully cognizant of this shift as companies like Coca-Cola and PepsiCo highlight their entire beverage portfolios rather than singling their colas.
Because of this, there is a premium on product innovation. In recent years, Coca-Cola has looked beyond its offices in Atlanta for the latest trends, exhibited by its acquisition of Glaceáu and Honest in the late 2000s and its more recent partnership with Keurig Green Mountain. This new partnership with Monster gives Coca-Cola an inside look into Monster’s new product process. As beverage category lines blur across the world and smaller brands find success, Coca-Cola’s biggest profit may come from the knowledge gleaned from Monster, with profits from the rising energy drinks category being the icing on the cake.