Business - Coke makes a monster move

Kenneth Hein

Coca-Cola has decided that having part of a monster in its portfolio is better than none at all. The No. 1 cola player announced today that it has signed a long-term distribution deal for Monster's line of energy drinks throughout about half of the U.S., as well Canada and six Western European countries. Monster's owner, Hansen, currently has a deal in place with Anheuser-Busch to distribute the product in non-Coke territories.

Coke currently has its own Full Throttle energy drink brand in the stable and a deal in place to distribute Rockstar. However, neither of those brands are growing. For the first half of the year, Rockstar and Full Throttle volumes were down 0.3% and 11% respectively, per Beverage Digest, Bedford Hills, N.Y. Monster, meanwhile, was up 22%.

"More than anything, it exemplifies how the energy drink sector has coalesced around a handful of much-coveted independent brands," said Gerry Khermouch, editor of Beverage Business Insights, West Nyack, N.Y. "Otherwise it's hard to imagine companies like Coke and its largest bottler CCE settling for only a portion of the U.S. for Monster, and hanging onto Rockstar all the same, despite their fractious relationship."

Energy drinks, despite seeing slowing growth, are among the profitable in the beverage segment. Monster leads the category in volume thanks to its 16 oz. can, but trails Red Bull in sales. Monster was named one of Brandweek's Marketers of the Year for 2007.

Speculation surrounding the deal has run rampant for weeks with many guessing that Coke would take an equity stake in the company. That didn't transpire. A Coke rep said Hansen will continue to conduct the marketing for all of its brands.

While experts agree the relationship is good for all those involved, it is most certainly bad for the Dr Pepper Snapple Group, which will lose the brand as of next month. Morgan Stanley analyst William Pecoriello estimates the loss to DPS as $50 million in gross profit and $35 million-plus in operating profit.

"We believe DPS could eventually reach a deal with Rockstar [which could include partial equity stake]," wrote Pecoriello in a statement. "We do believe that CCE is better off with having a growing brand [Monster] in 50% of the U.S. vs. having a declining brand [Rockstar] in 100% of the U.S. We also believe that down the road the Coke system could potentially pick up the balance of the U.S."

As for the rest of the category, "Pepsi has let its two SoBe-branded entries erode dangerously and put all its chips on Amp," said Khermouch. "It's too early to say how much Amp's recent success has to do with its becoming an enduring brand and how much is just a function of the heavy marketing spend and proliferation of flavor and size extensions. That leaves Red Bull, Monster and Rockstar as the cream of the crop."