Monster Beverage Corporation says it will reclassify Monster Energy as a beverage in the US to remove Red Bull’s competitive advantage, and admits that no 5-Hour Energy energy shot rival has “really cracked the code” after Worx Energy sales slumped.
Announcing results yesterday for the year ending December 31, Monster reported net sales for the year ending December 31 up 21% to $2.061bn, while net income increased 18.8% to $340m.
Net sales in Q4 were up 15% to $471.5m; net income for Q4 2012 rose 5.3% to $68m, and Sacks blamed a growth slowdown in US energy drinks over the past few months in part on negative media publicity regarding energy drink safety, and suggested limits on ingredients including caffeine.
Sacks told analysts on a later call that he believed Red Bull’s gains in the quarter were due to the fact that negative press “seemed to have been directed…more on our brand than the category”.
Red Bull exempt from sales tax
Citing a number of business reasons for switch from supplement to conventional food, Sacks said it “leveled the playing field with our major competitors”, name-checking Red Bull, which is exempt from sales tax and eligible for purchase with food stamps in certain states.
He said Monster also saw, “no reason to continue being subjected to erroneous and misguided criticism that its…drinks are being marketed as dietary supplements to avoid FDA regulation”.
“As we have always said, dietary supplements are subject to as much, if not more FDA oversight than conventional foods, Sacks added, “and Monster Energy drinks could easily satisfy the regulatory requirements applicable to both categories.”
Monster recently joined the American Beverage Association (ABA), Sacks said, and would now follow its recommendations to list caffeine amounts on labels.
“The change will be put into effect as and when new packaging is manufactured and new products are introduced,” Sacks said. “The ingredients currently in Monster Energy drinks will continue to be included in those drinks in the future, save for some inconsequential changes in minor products.”
Worx Energy future hangs in balance?
UBS analyst Kaumil Gajrawala asked Sacks on the analyst call about the substantial Worx Energy decline in Q4 2012 (versus Q4 2011), and whether “it is a category that maybe somehow just doesn’t fit the profile of your playbook?”
Sacks admitted that 5-Hour Energy was the only major player earning good margins in shots. “We believe there is room for a competitor, but so far nobody’s been able to really crack the code,” he said.
“But it doesn’t mean we shouldn’t continue trying, whether it’s with Worx in its present form, its present flavors, its present size, its present pricing. But we haven’t made final decisions on what to do exactly with Worx or what direction to take in that category.”