BUT $5M LEGAL BILL HAMMERS BOTTOM LINE

'Hugely successful' Monster Energy Zero Ultra mines soft drinks vein but $5m legal bill bites

By Ben BOUCKLEY contact

- Last updated on GMT

 "A little less sweet, lighter-tasting, zero calories, but with a full load of our Monster energy blend" (Picture Credit: Monster Beverage Corporation)
"A little less sweet, lighter-tasting, zero calories, but with a full load of our Monster energy blend" (Picture Credit: Monster Beverage Corporation)

Related tags: Soft drink, Coca-cola, Caffeine

Monster Beverage CEO Rodney Sacks attributes new product Monster Energy Zero Ultra’s sales success to a ‘lighter and more drinkable’ taste that sites it closer to soft drinks than classic energy products.

The company reported its Q2 results yesterday – with Monster sales overall up 10.1% – and noted weak quarterly sales for all its energy (including shots) rivals bar Red Bull (+6.7%) and NOS (16.5%).

Net sales rose 6.5% to $630m in the three months ending June 30, but net income fell 2.7% to $106.9m in Q2 year-on-year, with legal costs related to defending the Monster brand – against attacks on its safety and marketing – and foreign currency translation losses eating into profits.

Monster will lap last year’s launch of Zero Ultra in Q3 2013, and Sacks insisted it boosted the firm’s incremental sales, albeit at the cost of some cannibalization across existing SKUs.

Second best-selling Monster SKU ever...

However, Nielsen data for the quarter – 13 weeks through to June 29 in C-store and gas channels – showed that Zero Ultra was Monster’s best-selling SKU after Original Monster Green.

Sales were also positively affected by the Ultra Blue energy launch in March 2013, Sacks said, telling analysts that a better sales mix meant higher gross margins in Q2 – 53.3% vs. 51.8% y-o-y.

In part this was due to the a greater percentage of sales from the two Ultra lines and Rehab Pink Lemonade, Sacks explained, due to lower ingredient and input costs vis-à-vis other 16oz drinks.

Caroline Levy, CLSA analyst, asked Sacks on yesterday's earnings call what he thought Ultra’s appeal was to consumers because "it’s obviously hugely successful”.

“What niche is it filling? Because I don’t truly understand what makes someone think of that versus base Monster?” ​she asked.

Sacks replied that, whereas Monster had the “energy drink flavor profile or taste”​ the Ultra line had “much more of a soft drink easy-to-drink flavor that is light. It’s not as filling”.

“And for whatever reason, we were able to come up with a flavor profile that clearly has appealed across a lot of categories and not simply to the diet drinker," ​he added.

5-Hour Energy and AMP sales stall

No-calorie option, Monster Zero Ultra appealed to the diet drinker directly, Sacks said, as did Absolutely Zero and Monster Low-carb.

“But then again, our Low-carb had the Monster profile. So this is a completely different set of profiles, which is just lighter and more drinkable and probably more on a soft drink vein that the traditional energy drinks.”

Sacks cited weaker performance for major rivals – with Nielsen data for convenience, grocery, drug and mass mechandisers showing Rockstar sales down 7.2%, AMP (PepsiCo) down 15.4% and shot market leader 5-Hour Energy down 11.6%.

Glossing this data Sacks told analysts that the two major brands – Monster and Red Bull – had the “major space”​ and “seem to have the major variety”​.

Red Bull saw a lift in the quarter due to three new flavor SKUs, he said, adding that with Monster’s innovations the two brands were “driving the growth of the category”.

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