September 8, 2014 Leave a comment
Looks like Coca-Cola realizes what it’s good at and what it isn’t good at. Their increased stake in Monster Beverage proves as much. With $2.1 billion invested, Coca-Cola now owns 17% equity in the energy drink behemoth, and in turns switches up their product portfolios. Coke will give Monster their own acquired or homegrown energy drink brands, which includes Nos, Full Throttle, and Burn among many others, while Monster trades them their non-energy drink products, such as Hansen’s Natural Sodas & Juice Products, Peace Tea and Hubert’s Lemonade. This deal brings together the world’s largest soda manufacturer and the U.S.’s largest energy drink manufacturer. Although both sides got a great win out of this, but who needed this deal more – Coca-Cola or Monster? Let’s start by seeing what each side actually gets out of this arrangement.
For Coca-Cola, acquiring a larger stake in Monster and then trading energy drinks for teas & juices serves as a win in itself. With consumer habits and preferences changing, fortifying their product portfolio to keep pace with these changes was a necessity. And with key brands generating bad press lately (think Diet Coke slogan fiasco), Coca-Cola could not afford to keep beverage products that carry high negative publicity potential. Nos, Full Throttle, and the like most certainly qualify given the category requires caffeine content regulation following linkages to caffeine poisoning.
Energy drinks didn’t necessarily fit into the brand image that Coca-Cola wanted to sustain. Energy drinks focus around an extreme sports lifestyle, with key sponsorships across mountain biking and motor biking. Distancing the brand from energy drinks better promotes Coke’s image as a family-oriented product manufacturer. Furthermore, their marketing acumen is better leveraged across Monster’s non-energy products given Coca-Cola’s existing strength across juices and teas. Coca-Cola has already made a strong name for itself behind Minute Maid, Simply, Odwalla, Nestea, and Honest Tea. Giving up energy to return focus to juices and teas helps Coca-Cola stay sharp and work on what they’re good at.
For Monster Beverages, this deal unlocks a stronger global distribution network to grow their product base. They’ve also added some larger name-brand energy drinks to complement Monster. A strong competitor like Nos now becomes a fantastic ally. Full Throttle owns a cult following despite Coca-Cola’s neglect and has a very good chance of being resurrected. This arrangement gives Monster a wide assortment of products to target energy drink consumers, both locally and internationally.
Monster has also done a better job at marketing energy drinks than Coke because they’ve invested in resources to build out an entire lifestyle. Energy drinks are more integrated into a consumer’s lifestyle than some other beverages, given their wide target in terms of drinking occasions. The soda drink manufacturer was not prepared to build out a 24/7 lifestyle like how Monster, Rockstar, and Red Bull have. Though Monster’s success isn’t a defined blueprint, they already have the infrastructure in place for one energy drink and this could be scaled up for other energy drinks.
It’s really hard to say who needed this more though Coca-Cola benefits more in this new arrangement. The soda maker had more to lose because they were never going to catch Red Bull, Monster, or even Rockstar with their homegrown products. Giving up distribution bought them expertise and healthy beverage brands. Similarly, Monster’s true success existed in the energy drink segment, so much that they even changed their company name to halo off some brand equity. Their strength in energy drinks would have prevented them from properly developing their nonenergy product portfolio.
Regardless of who benefited more, this only proves that larger companies must take creative approaches to keep growing. In the past, it was about building strong brands. Now, it’s about buying a brand that’s already been built, and making it stronger.