Red Bull Launching Flavored Variants, Should Monster Shareholders Cut and Run?
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Next month, Red Bull -- the leading energy drink maker -- will launch its new flavored editions nationwide. Will these variations sell well enough to crush Monster Beverage (NASDAQ: MNST) once and for all?
Monster has been Red Bull’s most threatening competition
Red Bull largely invented the energy drink market, entering the U.S. in 1997. Since then, the market has exploded in popularity, and a host of competitors, including Monster, have emerged.
Still, Red Bull has long retained the top slot globally, outselling all others, including competition from the likes of soft drink juggernaut Coca-Cola (NYSE: KO).
However, in recent years, Red Bull’s dominance has waned. In 2006, for example, Red Bull had over 40% of the energy drink market share, according to energyfiend (via Bevnet). By 2012, that gap had narrowed, with Red Bull posting sales of $2.95 billion, just ahead of Monster’s $2.6 billion.
And for 2012, Monster bested Red Bull in the U.S. in terms of sales volume, selling 35% to Red Bull’s 30%, according to Bloomberg Businessweek.
Continued innovation has allowed Monster to narrow the gap
Until recently, Red Bull only offered two variations: the standard Red Bull, and a sugar-free variant.
Monster, on the other hand, has taken a completely different strategy. As of this writing, there are 27 different flavors of Monster Energy.
In addition to the standard Monster and sugar-free variation, there are versions of Monster blended with juice (its Khaos lineup). There are coffee-flavored versions of Monster (Java Monster) that appear to have more in common with Starbucks’ bottled frappuccino drinks than other energy drinks. There are versions of Monster that are intended to taste more like soda than an energy drink. And there are versions of Monster that are aimed at the tea market.
In short, Monster’s cornucopia of offerings has meant that it has, quite literally, something for everyone.
Don’t like the taste of standard Red Bull? Too bad. Don’t like the taste of standard Monster? Here, try something different.
Red Bull’s new flavors are just the most recent development
Red Bull's new flavors have been available in 7-11 stores since November. These cranberry-, lime-, and blueberry-flavored varieties aren’t the first move in a new strategy; rather, Red Bull has been becoming more like Monster for some time.
Early in 2012, for example, Red Bull introduced “Red Bull Total Zero,” and prior to that, Red Bull began selling its energy drink in different-sized cans (rather than just the standard 8.4-ounce can) -- something that Monster had been doing for quite some time.
Still, the new flavors will bring the total amount of Red Bull varieties up to six -- only about one-fifth the size of Monster’s extensive catalog. Regardless, it shows signs of a more aggressive Red Bull, one that is willing to fight to take back the U.S. market.
What should Monster’s shareholders make of Red Bull’s strategy? If Red Bull’s flavored variations are embraced by the energy drink market, it could be enough to win sales over from Monster customers who prefer something apart from the taste of a traditional energy drink. That would mean reduced sales for Monster, as customers opt for the new Red Bull flavors in place of Monster’s offerings.
However, on the other hand, it shows that Monster be must doing something right, as the company who invented the market, and who still leads on a global basis, has begun to replicate Monster’s business strategy.
The energy drink market, too, is still growing. Beverage analysts at Zenith International, for example, believe that the energy drink market might show total growth of 25% from 2010 through 2013. Thus, even if Red Bull’s adapting its strategy, a rising energy drink tide could lift all boats.
Could Monster be acquired?
CNBC’s Jim Cramer is fond of recommending that investors never buy stocks simply because they believe the company will be acquired. That’s probably sound advice.
But rumors of a Coca-Cola acquisition have surrounded Monster for months. Last April, shares of Monster Beverage surged mid-session after The Wall Street Journal reported that Coke was in talks to buy Monster.
Shares of Monster then dipped after Coke officially denied the report. The WSJ later followed up with a piece stating that big Coke shareholders (Warren Buffett?) urged Coke’s management to reconsider.
What about Pepsi?
If Coke’s out of the picture, perhaps its biggest competitor might consider an acquisition instead.
Pepsico (NYSE: PEP) plays in the energy drink market, but like Coke, its brand hasn’t come close to the success of either Monster or Red Bull. Its failure was so evident that, late last year, Pepsi relaunched its Amp brand with a completely new flavor.
Unfortunately for Pepsi, the reviews of the new Amp haven’t been favorable. BevReview called the new Amp a “generic, gross-tasting, standard energy drink.” If Pepsi can’t make Amp a success, perhaps it could look to Monster.
Pepsi is set to report earnings Monday. Investors might look to see whether Pepsi’s management comments on its energy drink efforts.
Monster remains the lone energy drink stock
As Red Bull is a private company, Monster Beverage remains the lone pure energy drink stock. Investing in Monster is a way to get exposed to the continued growth of the energy drink market. There’s also the potential upside of a possible takeover.
Investors in Monster, however, should stay on top of rivals, particularly Red Bull. Flavored Red Bull could pressure the one aspect that has long set Monster apart -- its variation. Still, Red Bull’s attempts remain unproven, at least for now.
joekurtz has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, Monster Beverage, and PepsiCo. The Motley Fool owns shares of Monster Beverage and PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!