Executives
Rodney Sacks - Chief Executive Officer
Hilton Schlosberg - Vice Chairman and President
Tom Kelly - Accountant and Financial Officer
Analysts
Andrew Sawyer - Goldman Sachs
Mark Astrachan - Stifel Nicolaus
Greg Badishkanian - Citi
Steve Colbert - Canaccord Adams
Alton Stump -Longbow Research
Hansen Natural Corp. (HANS) Q3 2007 Earnings Call November 8, 2007 2:30 PM ET
Operator
Good day everyone and thank you for joining today's HansenNatural Corporation’s Third Quarter 2007 Financial Results Conference Call.Today's call is being recorded. For opening remarks and introductions, I wouldnow like to turn the call over to the Chief Executive Officer, Mr. RodneySacks. Please go ahead sir.
Rodney Sacks
Good morning, ladies and gentlemen. Thank you for attendingthis call. I have Mr. Hilton Schlosberg: Vice Chairman and President with meand Mr. Tom Kelly: our Accountant and Financial Officer.
Certain statements made in this discussion may constituteforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933 as amended, and section 21E of the Securities Exchange Act of 1934as amended, regarding the expectations of management with respect to revenuesand profitability.
Management cautions that these statements are qualified bytheir terms or important factors, many of which are outside the control of thecompany that could cause actual results and events to differ materially fromthe statements made herein, including, but not limited to a number of factorsincluding changes in consumer preferences, demand that are weather related,etcetera.
We would also like to place on record that we assure noobligation to update any forward-looking statements. To briefly run through theannouncement: gross sales for the third quarter increased 35.8% to $277.8million from $204.6 million a year ago. Mid sales for the third quarterincreased 38.4% to $247.2 million from $178.6 million a year ago.
Gross profit as a percentage of net sales for the three monthsincreased to 51.9% from 51.6% for the comparable 2006 quarter. Operating incomefor the third quarter increased 73.3% to $73.4 million, from $42.3 million ayear ago and excluding the identified expense items described in theannouncement increased 42.4% to $73.8 million from $51.8 million a year ago.
Net income for the third quarter increased 73.1%, to $45.8million or $0.46 per diluted share from $26.5 million or $0.27 per dilutedshare last year. Gross sales for the nine months ended September 30, increasedto 42.7% to $748.5 million from $524.6 million a year earlier, net sales forthe nine-month ended September 30, 2007 increase 44.8% to $657.8 million from$454.4 million a year ago.
Gross profit as a percentage of net sales was 52%, for boththe nine months ended September 30, 2007 and 2006 respectively. Operating income for nine months ended September 30, 2007 advanced 35.6% to$166.7 million from $122.9 million a year ago.
Operating income for the nine months ended September 30, 2007 excluding theidentified expense items described below, increased 45.3% to $192.7 millionfrom $132.7 million a year ago. Net income for the nine months increased 37.7%to $104.3 million or $1.06 per dilution share from $75.7 million or $0.77 perdiluted share last year.
In connection with the transition of certain Anheuser distributionarrangements, we incurred termination costs amounting to $300,000 and $9.5million during three months ended September 30, 2007 to 2006 respectively to certain of our prior distributors.We incurred termination costs amounting to $15 million and $9.8 millionrespectively during the nine months ended September 30, 2007 and 2006 to prior distributors.
Those costs are, and have been, expensed in full and areincluded in operating expenses for the three and nine months, non refundableamounts totaling $1.3 million, $12.3 million were recorded by the companyrelated to newly appointed Anheuser-Busch distributors for cost of terminatingprior distributors in the three months ended September 30, 2007 and 2006respectively, and nonrefundable amount amounting totaling $21.1 million and$12.3 million were recorded by the company related to those distributors forthe nine months ended September 30, 2007 and 2006 respectively.
These payments have been accounted for and commitments havebeen accounted for deferred revenue and are being recognized relatively overthe 20 year anticipated lives of the respected Anheuser-Busch distributionagreements. The amount of written were recognized as $0.5 million and $0.2million for the three months ended September 30, 2007 and 2006 respectively.
In connection with the company's special investigation ofstock option grants and practices and related litigation, the company incurredprofessional service fees of $0.1 million, net of $0.8 million insurancereimbursements and $11 million net of $0.8 million insurance reimbursements forthe three and nine months in the September which have also been fully expensed.These items are set out in the table in the announcement.
If I can then turn to just initially gross profit: Grossprofit percentage, as you'll note, came in very nicely at 51.9% and 52%year-to-date. Factors affecting gross profits include the increased product mixto DSD products from 83% to close to 88% for quarter. That was positive. Thenegative was in the DSD segment where the increased sales mix of Java, which isat a substantially lower margin, and also negative due to certain increases inraw materials. On the other side there were some increased margins that we wereable to achieve on the warehouse division.
Going forward, gross profit percentages will be affected andthe main factors will be possibly the higher mix of Java Monster products. Weare seeing some increases in certain raw materials, particularly dairy productsand apple juice concentrate. Dairy particularly has gone up in the last sixmonths or so and we're looking to see how we can try and obviously lock in somepricing for next year.
We are planning some price increases for some of ourproducts, and in this regard we are planning a price increase for Java Monsteraround the beginning of the year. We feel that the brand is pulling, it is sellingvery well. I'll come on to that a bit later.
With the increased cost of the actual product, and it is inthe margin to start, we obviously swallowed that and we actually put theproduct out at a price that we thought was not too high and we were obviouslytrying to gauge the consumer response.
We believe that we've been gettinggood pricing at the retail level, which has not had a much of a premium to theregular Monster. But since we launched the product, we have hadincreases in dairy, which is quite an expensive component in the product and, withthe already thin margins from the start, we made the decision to increasepricing of Java Monster going forward in the New Year. We're launching a numberof new products, which I will come to, in Java Monsters. So, all in all, wethink that it is appropriate and we don't think that will affect the product.We believe that in any case there should be some price distinction in order toone of the factors that will help us minimize cannibalization from existingMonster consumers to Java Monster.
Just looking to some selected sales information: obviouslythe main increase in sales is attributable to Monster. Java Monster also camein very much ahead of our expectations. One of the limitations we had in thequarter in Java Monster was production. Java Monster sales were just over 10%of the sales of Monster in the quarter.
We also had some increases in sales of apple juice and juiceblends and in tetra pack juice product. Some of the decreases that we had [inaudible] as a brand, which has sort ofsuffered some reductions in sales and we are taking steps to address that.
Joker, Ace and Unbound are all products on the Alliedproduct side where we have seen a falloff in sales, which has beendisappointing and we’re looking at decisions on what we do with those lines andhow we address them going forward.
We're still very happy with the Rumba line; we think that ithas got some legs. But going forward we've got to make some decisions as towhether we concentrate primarily on Monster, obviously, and then on Rumba. Andthat seems to be a direction we possibly will head in a year, but we haven'tyet made any final decisions on the other Allied brands. We wanted to see whatwe should, or shouldn't, do with those going forward.
They sell, and there is a proper contribution, but I thinkthat we are probably allocating too many resources to them and we could havethose resources better spent both on a sales and marketing level; we think withthe principal and main brands.
Just talking about Lost, we still think Lost is a great brand.It has got a good positioning; it's still one of the leading brands in thecountry. What we have done is we have launched a new product; we're just aboutto launch it called Lost Cadillac.
It's, sort of, a margarita mix type of flavored product, butwe also have redesigned all of the cans in the Lost line. We think that theywill appeal to a broader spectrum of consumer and we're going to test the newcans with the full line, launching that in Floridafirst.
We are launching Cadillac in the new graphics nationally,and then, as we get to work through out existing inventory of cans in Lost, wewill introduce the new packages into the rest of the markets in the U.S.going forward. So there will be four products in the Lost line.
We're also planning to increase an additional flavor in theRumba product line, the 100% non-carbonated juice line. We think that thatbrand has got some legs as well and it's selling nicely. We think that with anadditional SKU, it will give it more visibility and presence in the juice shelfand will help the brand overall. And we are going to introduce a new product atbeginning of the New Year in the Rumba line.
Just going through some of the actual financial details,promotional allowances, you'll see reduced from 13.5% to 12.4% in thecomparable quarters and year-to-date basis reduced from 15.4% to 13.8%.
The MDF was reduced considerably as a percentage and we hadan increase in chains we had made which is really shelf space programs with thechains. That did go up as a percentage, but overall the actual number is down.This includes increased invasion fees which we will pay to distributors forcertain customers who we sell to direct, which also was up substantially, aboutdouble on last year. So, total allowances on the reclassification came offresulting in a higher net increase in sales versus gross.
With regard to distribution expenses: our distributionexpenses reduced from 6.5% to 5.3%. We had an increase in warehouse cost,principally due to the changeover in warehouses. We have re-let probably about 60%plus of the previous warehouse.
We are busy with the bulk and are re-letting the remainderof the warehouse that we were in. We are operating fully from a new warehousein Pomona, and we've also moved ouroffices to 550 Monica. So, we have gone through that, and there were periods andtimes, obviously, when we had double rents. And so, we think therefore, thiswill stabilize a little bit going forward.
Freight-out: we did manage to achieve some significant savings,and freight-out was down from 5.7 to 4.2, which we think is a good performanceon that side.
With regard to selling and marketing expenses: sellingexpenses in total down was slightly down to 15.8 from 16.1. On the year-to-datethey were slightly up to 15.6 to 16. Included in selling expenses arecommissions that we pay to AB, which has continued to increase as morebusinesses is transitioning over into the AB system and commissions haveincreased from 0.9% to 1.5% in the quarter. But, overall, resulting in highersales expenses, where, if you take sales and marketing together, we did have adecrease.
I am just trying to get through sponsorships, and some ofthe items that we have hired in last year. Sponsorships were up from 1.3% to2.5%. That's one of the largest items. We are obviously finding that it'scosting more to do business in the category as the competition heats up and thereare competitive brands which are obviously competing for the talents ofathletes and events. And we are also obviously stepping up our program.
We still believe we shouldn't be looking at directadvertising at this point, traditional advertising. So we are putting moremoney and effort into the alternative sports events, that we've traditionallydone, and we want to continue to focus on as we go forward.
As a percentage, we did achieve some savings in merchandisedisplays. It's not as though we've sort of let up it all, but we have in factbeen more efficient. We've also obtained contributions from our distributors tothe cost of merchandise displays. We feel that in overall execution, the fieldhas in fact improved and we've got more merchandize displays as a percentage upin the stores although our cost of athlete funding, those displays going outhas reduced.
So those were probably the major items. One other item thatI would probably refer to is our sampling costs which have gone up from 0.6% to1.1% and on a nine-month basis from 0.6% to 0.9%. We really have spent a lotmore time getting into sampling, and programs at colleges and events and wefeel that's very important for the brand.
Just going back to the selling expenses item, the figures Igave you, I think those expenses included distribution. I'm sorry. And that'swhy, I sort of hesitated for a while and then I looked at them and I saw them alittle differently. Selling expenses, in fact, went up to 10.4% from 9.6% inthe three months and to 10.4% from 8.9% in the nine months.
On the payroll and administrative side, stock basedcompensation was $2.1 million, 0.88%, which was down from 1.6 in the previouscomparable quarter, while actual administrative salaries was down from 4.5 to4.1.
Legal costs are still obviously being incurred by us at ahigh rate as we continue to deal with some of the litigation that is startingto taper off now. As I think all of you are aware, the Securities Litigationmatter was dismissed with prejudice and against the plaintiffs. So, we thinkthat the others will eventually follow in the same direction.
On a segment basis, net sales for the DSD division was $221.888million up from $152.879 million at the same period last year. Contributionmargin was up at $82.328 million from $49.522 million. The warehouse division,net sales were at $25.323 million as compared to $25.787 million, andcontribution margin was a little down at $1.242 million versus $1.572 million inthe previous period. On a year-to-date basis, DSD net sales were $585.611 millionversus $383.745 million. It’s an increase of 52.6% and contribution margin wasup to $204.645 million from $140.456 million, up at 45.47%. The percentages on thequarter basis, was 45% up in DSD segment for the quarter and contributionmargins was up 66.2%.
In the warehouse for the nine months, net sales were $72.216million versus $76.85 million and contribution margin was $2.929 million versus$5.069 million. So, sales were up slightly but, contribution margin due toincreased costs and increased promotional costs were down.
Case sales, 192-ounce case equivalents: in the three monthscase sales were up at 26.5 million cases, an increase of 5.3 million cases or24.9% versus 21.2 million cases in the three months, ended September 30, 2006.
Overall average net sales price per case increased to 935 inthe three months, which is 10.9% higher than the average net sales price of8.44 for the three months ended September 30, 2006. The increase in average net sales price per case wasattributable to an increase in the proportion of case sales derived from higherpriced products.
On a year-to-date basis, case sales were $72.8 million forthe nine months, an increase of $17.5 million or 31.7% over $55.3 million forthe comparable period last year. Overall average net sales price per caseincreased to $9.04, which is 10% higher than the average net sales price of$8.22 for the nine months ended September 30, 2006.
On a sales regional basis in California,sales of the company decreased from 32% in the quarter to 28.8% in California,comparably outside increased from 68 to 71.2 on a year-to-date basis. Sales in Californiadecreased from 32.4 to 28.8 and comparable outside figures are 71.2 to 67.6.
Customer mix in the three months, sales through grocery,specialty chains, and wholesalers decreased from 10% to 8%. Club stores, drugchains and mass merchandisers increased from 14% to 16%. Full servicedistributors increased from 70% to 72%, health food distributors was level about2% and others was a decrease from 4% to 2%.
In the nine months the figures are, retailing decrease from12% to 9%; Club stores and mass increased from 13% to 15%; full service was thesame 70% to 72%; health food 2% on 2% and other 3 down to 2% in mix.
Dealing with the balance sheet: cash and short-terminvestments increased at September to $255 million from a $198 million in June,and from a $137 million in December. This increase was probably due tooperations, partially from the exercise of options. Cash is generally investedin high-grade securities with less than one year's duration. And in the threemonths ended September we've been earning approximately about a 6% yield.
Accounts receivable were at $90 million as of September 30,down from a $111.9 million in June but up from $54.6 in December.
Sales were lower going intoSeptember than sales in June; obviously, you're going to up your trend insummer. And the same comparison applies to December/September: sales werehigher than in September and going into December, at the end of the year, webelieve we'll obviously also be able to get accounts receivable down. Salesgoes outstanding with 31.2 as of September 30, down from 33.9 in June and 27.1in December, largely affected by lower days outstanding from the CadburySchweppes Group. Cadbury was 32.1 days outstanding as of September, which isone of our large customers. They were at 41.1 in June and 30 in December.
The days outstanding also reflect increased sales todistributors that have longer payment terms than other customer groups who takethe benefit of a 2% 10 day discount that we extend to those groups.
On the inventory side, inventory balances were $94 millionas of September versus $87.5 million at June, and $77 million at December.Average days of inventory were 71.2 versus 67.9 in June and 97.7 at the end ofDecember.
On the intangible side: trademarks were flat compared toJune, marginally up at 23.9 versus 23.6 and up from 21.2 as of December.Current liabilities were 97.8 versus a 114 in June and 62.8 in December.
Deferred revenue increased from $20.4 million at December to$40.2 million, due to receipts from AB Distributors which more than compensatesthe company for the distribution termination payments that we've been paying orhaving to pay to existing distributors, because the non-matching issue thatshows up on our balance sheet as deferred revenue item will be taken to revenueover 20 years.
Working capital has increased from $212 million to $363million. This should give everyone a reason; a good explanation on the balancesheet items. Going forward for October, company's gross sales are up 48% forthe month of October and about 43% on a year-to-date basis through the end ofOctober.
Year-to-date Monster sales was up about 44.5%. We are happywith the sales increase; we'll talk about the category. We think the brand isstill continuing to pull strongly. It's pulling ahead of the category and we'lldeal with some of the operational issues we've had in introducing Java and howwe plan to address them going forward.
According to Nielson, all outlets combined which areconvenience and gas, grocery and drug. But it excludes Wal-Mart's and independentmarkets. The energy category grew in the 13 weeks to the 29th of September grew33.2% versus a year ago.
The Red Bull increased share, we've introduced a 12 ouncebottle, and their share was up for their total brand at 36.4% over a year ago,and their share is 36.2. So, they have changed year-on-year, and is 0.9%.
Monster's increased share, according to Nielson, was 51.4%and our percentage dollar share was 24.9, which is also up 3 points on the yearago numbers. Rockstar's percentage change a year ago is 38.5, and their shareis 11.8% and their change in points is 0.4. Full Throttle has a 29.7 increasefrom last year despite a number of new brand extensions, and has a 6.4% share,and so their change on share is down 0.2 from last year. AMP, which is Pepsi,is up 38.4% change. The share is 5.1 and they are 0.2 up from last year withthe AMP brand, which they have extended into 160- and 24-ounce and they’ve alsohad a flavor extension.
So, Be No Fear, which is Pepsi, is down 32.8, their share is3% and the share is down 2.9 points. Adrenaline Rush , which is also So Be fromPepsi, share from last year is up 4.6%. Dollar share is 2.2 of the category,but down 0.6 in the category.
I need to just check that figure as we go. There may havebeen an error in that. No, that is correct. And Lost, share is down 26.9%, theyhave a 0.5 share and they are down 0.4. So, we’ll see a slight decrease in thepercentage changes. But in the convenience channel, which is a major channel,the category is up 35%, and in that channel, which we regard as the majorchannel, Monster is up 50% and Red Bull is up 40, Rockstar is up 37.9’ Full Throttleup 35 and 34.7, No Fear is negative, Adrenaline is up marginally at 8.3, and Lostis down 25.
Talking about Monster; we've increased on the top brand,we've increased our percentage of store selling by 16%. Our sales per point areup 23.7%. And we see the actual brand still being extremely healthy in thecategory.
One of the factors that we look at, which may not becompletely scientific, but it’s something that we’ll share with you. When welook at the brands, all of the major brands have been introducing lineextensions, package extensions, size extensions over the past year.
So when we look at increased share of the brand, we think italso is useful to look at the actual increased share of the individualproducts. And if you take what we would call: “the main” or “the flagshipproduct” and size package in each of the brands and look at their growth, that oftentells a slightly different story.
In the case of Red Bull, 8.3 AMP, they did introduce a12-ounce pack, which cannibalized their other packs, so they are down 23.4% [inconvenience in] their lead item, which is their 8.3 regular product. Ourregular product, which is Monster 16-ounce green, is up 29.5%.
Rockstar's main product: the black regular energy drink, inthe black can, is down 0.6%, Full Throttle’s main product is down 11.5%, AMP isup, but also it was going through a conversion to 16 at the time, but their 16 isup 16.7. No Fear is down 26, Adrenaline is down 70, and Lost is down 38.
So when you look at it in that light, we believe that Monster'sperformance was probably unbelievable. The green product was the strongestproduct in the category by far on year-over-year comparison, on an individual SKUbasis. And as we indicated earlier in convenience, the actual product as abrand is still up at 50%, which is very strong.
Just on some marketstrategy, just to take you through sort of analysis over the past four quarters,we measure convenience and gas at the end of each quarter. That's usually afour- or five-week period because of the year events. So, if we take the yearsthat actually ended up in a five week periods, Monster's market share inconvenience and gas as at the end of the December ’06 was 22.1%. That increasedto 22.5 at the end of March, increased to 24 at the end of June, and is at 26.8at the end of September. Red Bull was at 35.3 at the end of December, went upto 36.4 at the end of March, dropped to 35 end of June and is dropped to 34.9at the end of September.
Rockstar was 12.3 at the end of December, dropped to 11.6end of March’, up to 11.8 in June and is down to 11.3 at the end of September.Full Throttle was 7% at the end of December, is down to 6.7 on each of thethree periods following still down at that 6.7.
Amp was at 5.4, they increased to 6% at the end of March andhave since dropped off to 5.7% share at the end of the June and is down to 5%share at the end of September. No Fear was a 4.8, down to 4.1 end of March,down to 3.4 at end of June, and down to 2.9 at the end of September. AndAdrenaline was at 3.3 at the end of December, was down to 3 at the end of March,to down 2.6 at the end of June and down to 2.2 at the end of September. Monsteris the number one product in 9 out of the top 30 convenience store, convenienceand gas store markets in the U.S.according to Nielsen numbers for the 13 weeks ended September 29.
As I’ve indicated previously, by and large the transition arrangementsto the AB system is largely complete. We did put a brake on them. We arelooking to as to what we should be doing going forward. There will be someselected markets, where I believe we will continue to transition additionalmarkets to the AB system, but that will be done on a carefully selected anddetermined basis.
We think that if you can see from the distribution numbersthat we have increased our distribution pretty significantly. Overall, we'veincreased our regular Monster as a brand by about 16%, which we think is prettygood and the quality of distribution has also increased pretty dramatically. Inthe case of a lot of our other products, we're also up equivalent amount.
So, we think that is largely due to the transition into theAB system. One thing one needs bear in mind is that the Nielsen numbers measure,basically, the chain business whether it's convenience and gas or grocery. Itdoesn't really deal with the “up and down the street” and the independents,where some of the business is done. And it doesn't measure it, and that isprobably the one area where the Budweiser system is not as perhaps as strong asperhaps the independent beverage systems like Coke and Pepsi, because that'sparts of their everyday businesses, going to all these non-alcoholic, small mom’sand pop’s stores which are traditionally not on the radar of the beer distributors.
In all cases, theyhave agreed to address the smaller nonalcoholic areas or the dry areas wherethere isn't a complete match up of some of the accounts. But there is a greatlychallenging part of matching our distribution needs with the traditional ABsystem. We think that it’s continuing to improve, but that is an area thatobviously we have to address with AB system. Shouldn't AB distributors have embracedthe brand and the potential for the brand in these, sort of, non-alcoholicaccounts more readily with more resources than others? And that is just anongoing challenge that we've had in the transition to AB.
But we all are continuing to make progress there, and, byand large, we are certainly happy. If somebody asked me: looking back would webe happy? Would we’ve done the AB transition again? Yes. We would have,absolutely! We think that was the right decision for the company, the rightdecision for the brand. It's just a question of working through AB, our goodpartners, and as I said, it’s a question of working through these issues. And,as we go forward, we’re still growing at better rates than all of our majorcompetitors.
With regard to: on premise, that is the one area that isprobably coming along more slowly than we had hoped for. It's a slow go. It’s alot of hard work, a lot of hard lifting. We’re making progress. We are seeingincreased sales rates on a monthly basis into the on premise. We are makingpresentations. It's probably too premature to give you some [again, I think weare having] some success in some very high profile accounts, which we aregetting distribution into and some of that distribution will be starting in thefourth quarter and beginning in the new year when contracts come up forrenewal.
A lot of that business is done on contracts, and, althoughwe’ve approvals, obviously, we can't get going until the existing contractsexpire. So, again, on the on premise, I think some of the [funds] and analystsmay have possibly expected a quicker sales ramp-up. It is taking time. It's abusiness that Red Bull has built up over the last 10 years plus and secured a [brilliantgreat] position and we are obviously working diligently to break into it. AndRed Bull knows that we're doing that and they're, obviously, also workingdiligently to keep us out of it.
So there is a heavy lifting, but we are very confident thatwe are going to make a success. We are going to get it going; we are workingthrough some issues in sort of integrating the sales effort into the AB salesteam. There are some challenges there because they've got their focus on theirown products as well and so we're looking through the various issues. But, onceagain, it is taking some time and that's one of things that have, perhaps, notcome on board as quickly as we had originally hoped.
On the Java Monster side, the brand is doing extremely well.It's been very successful, it’s successful pretty much, we've hampered byachieving sufficient production. We are getting more production, it's startedup. We ramped up production in October and November.
Our plans for the product line are very exciting. We've beengetting very good response from the retail chains. They've seen the salesnumber. We've seen the sales numbers falling to come through in the Nielsennumber for convenience and gas, but we, ruefully, got no grocery or other [travelmass] business yet. And in those cases, Java Monster is selling at sales perpoint that is comparable to Chaos and [MIT] and Assault. So we're very excitedthat we are getting nice sales per point sell through on Java.
The challenge, again, has been in launching the productbefore we've had the schematics in the convenience stores changed. We aregetting the schematics change. We are in the schematics coming -- starting the NewYear where we are in the right shelf, we are in the coffee door. And we areplanning to introduce a number of additional SKU's in that line. We think we seethat line as a very different line. It's sort of a cousin; it’s a subline ofMonster, but it is different, and in order to maximize our opportunity there,we are going to introduce quite a number of additional SKU's in Java Monster.We’re in fact introducing a low-cal version, a hazelnut flavor version called [NutUp]. We are introducing a product called: the Russian which is a Kahlua-flavoredcoffee energy drink and one called: Irish Blend, which is sort of an Irish-whiskey-flavoredcoffee blend. They're all nonalcoholic. But that gives us that we're alsointroducing a Chai Hai product. The local product obviously it can't get it tothe same low calories that you would normally get a diet drink to, but it isabout half the calories of our regular drink.
So those are going to come out, pretty much, towards the endof the year. We think that’s going to really [start to promote] at least probablya full shelf in the major convenience and gas chain accounts.
And once we have that real estate put in place, and lockedin with programs for 2008, we think that the cannibalization that we hadexperienced, and the trial going over from Monster consumer, will be minimizedand we'll be able to draw and compete head-on. Obviously, more directly withthe Starbucks’ coffee range, and the new coffee range, that Coke is introducingunder the Caribou name. This will minimize cannibalization from us, but also drawequally from almost all energy consumers to the extent they do have conversionat the moment.
With lots of these retailers having put Java Monsterdirectly into the Monster space, obviously, the principal brand that'ssuffering the canalization is Monster itself and it’s also to be naturallyexpected. At the end of the day you have traditional monster consumers. They'recoming to the store; they're seeing another product named Java Monster. You aremore likely to get them sign the brand and then doingsome cross-switching.
But again, after trial, that will settle down. One of thereasons we think that we can take a price increase is we have to sales. We do think there should be a cleardistinction in price between Java Monster, which is more closely priced to thehigh price coffee drinks that Starbucks has.
On an ounce for ounce basis, we have more value and so webelieve that we will be able to sustain the higher prices. We're going to use ahigher price across the whole Java Monster line going forward.
We are still in the process of working through the priceincreases on the 16-ounce Monster line. We are going ahead with some priceincreases, but we have some other things in the works, and we're just sort oftrying to decide finally what would be the optimal time and basis of doing sogoing forward.
We're also going to introduce an additional juice product inthe Monster line, which is a juice product called Mixed, and we're also aboutto introduce a 52-ounce can sized Monster to complement the BFC Monster underthe brand name called Heavy Metal in a 32-ounce can.
Ultimately, we haven’t made a decision yet but, the plan maybe to take that into and we shall see how the reception is, and also take itinto a 16-ounce extension probably in the second quarter of next year. So we dohave some brand line extensions. We're also going, as I indicated earlier, toextend the Rumba with an additional juice product in addition to the Lost.
So we have a number of new products going out. We will getadditional shelf space. We're busy at the current time in negotiations with majorretail chains to secure shelf space for 2008, and we think that that will alsobe important in enabling us to continue to see incremental growth in theoverall Monster brand.
On the international side, sales in Canadawere consistent. They are all continuing to grow. We've overcome a number ofobstacles in working with the Pepsi group. We think that things are workingmore smoothly now and we're seeing some solid increases and we're very happythey are increasing the number of Monster SKU’s that they will be distributingto Canada, so that is positive. We're also continuing to make progress in theMexican market. We're going to introduce an additional SKU there. And that iscontinuing to grow and we're very happy there.
With regard to expansion into Europe:we have taken the decision to expand into Europe. We'vemade the decision to expand into the United Kingdom as the first country that we'relooking to. We've appointed a Senior Marketing Executive from Red Bull, Mr. GuyCarling, who was with Red Bull in the U.K.to head our U.K.operations and ultimately going into Europe.
We also are starting to start up those operations. Due tothe unusual distribution systems in the U.K.,we've certain specialty distributors who go, for example, to the what we call: “convenienceand gas”. They call it: “the garage forecourts” or the “on premise”.
In order to avoid an extra tier of distributor, in somecases, we will be dealing direct with retail chains. For example: grocery, atthis point in time, it is our plan to go direct to the grocery chains. To getto the forecourts, we will deal directly with the specialty distributor thatgoes in there.
We'll appoint a specialty distributors for on premise and wehave appointed an on premise person to head up the on premise in the U.K., whois an ex-employee of Red Bull, who has left them some months ago, but he isvery well known and is very experienced in the on premise business in the U.K.
As soon as we get the U.K.settled down, we are going to look abroad. We are going through and we'reevaluating packing opportunities in Europe now. We mayinitially start -off by shipping product from the U.S.in the five normal cans, but ultimately, obviously, we will be packing in the U.K.and/or in Europe as we go forward.
So the plan is pretty much starting to get exposure,starting to make some marketing plans there and to kickoff in the U.K.early in the New Year.
Sales in September were somewhat weak and until that timethe sales had been going pretty well. I can't explain why they were weak inSeptember. The increase was weak in the last couple of weeks of September(Technical Difficulty).
Question-and-AnswerSession
Operator
(Operator Instructions) And we'll take our first questionfrom Andrew Sawyer of Goldman Sachs.
Andrew Sawyer -Goldman Sachs
Hello guys. I was wondering: if you could talk about thisvolatility? I guess, we're seeing in your selling with second quarter up 57%,the third quarter up 38%, and now October up, I think you said, 48%.
Has there been a real slowdown in sell- through? Or is theresomething in the ordering pattern which could explain that? Or how do you thinkwe should think about that?
Rodney Sacks
I just don't know. I don't have an exact answer for you onthat. I saw that we had a slight reduction in sales in September, which I justdon't have an explanation for why that happened. It picked up again. I waslooking at the AB numbers and the same thing. The AB numbers had been growingfrom AB distributors, as we were transitioning for each month, we increased inJune, July.
We were up on May, June, July, and August. And then just adrop off in September and we were back up in October. Pretty much very close tothe August number again. Obviously, October is traditionally a weaker month,but we will be pretty close back to that number on the AB distributors.
And so, I'm looking at the category generally and I justdon't have an explanation of what happened towards the end of September. I justcan't throw more light on it. When I look at the actual Nielson numbers, which mayjust change, we're up very nicely in that. I mean we're up 51%, on the 13-weekbasis.
Andrew Sawyer -Goldman Sachs
Okay. And then, I guess, kind of shifting gears and youtalked about cannibalization rates for Java Monster, any way: can you put some sort of quantification aroundwhat impact you think that had and quantify, perhaps, how incremental shelfspace you getting as part of these resets?
Rodney Sacks
In many cases, we did achieve a full shelf for Java Monsterin the separate door and pretty much we’re getting between two, three and insome cases up to four shelves for monster now.
So we are actually getting incremental. In many cases, it'sanother full shelf.
Andrew Sawyer -Goldman Sachs
And then, just one last quick one, you talked about takingthe Java Monster price increase: can you tell us how much that is? And then: canyou update us on whether you’re thinking of taking a broad 16-ounce priceincrease, especially Red Bull talking about 16-ounce product?
Rodney Sacks
I think, on the Java Monster side, it's probably going to bein the order of about $3 a case, but I can't be more specific. We haven'tfinalized the amount.
Andrew Sawyer -Goldman Sachs
That's about 10%, I guess?
Rodney Sacks
Yes. And Monster, we haven’t yet decided, because we havesome other things in the works that are just too premature for me too discussedat this point on the cans. So we are looking at Monster, we’re going up roughlyof the order of about probably 6% or 7%.
But, we haven't yet finalized when we going to it andexactly what context we're going to do it. So there are some other issues thathave arisen that we trying to address before we go out and be seen, what'shappening with Red Bull and other competitors, we'll make a decision on thatreasonably shortly, but we just haven’t finalized that yet.
Andrew Sawyer -Goldman Sachs
Thanks a lot, guys.
Rodney Sacks
Sure.
Operator
And we'll take our next question from Mark Astrachan ofStifel Nicolaus.
Mark Astrachan -Stifel Nicolaus
Good afternoon, guys. I guess, first of all, just to followup on Andrew's question: could you talk a little bit about what you saw interms of your own core energy drink brands versus some of the tertiary brandsin the quarter; in terms of what the incremental negative was for the Lost and Chaosand so forth, looking at what the core brands did?
Rodney Sacks
If you look up sales for the all brands, just list of salesfor quarter. I'll get to that, Mark, and I'll get back to you. [I’ll justonset] longer we're dealing with it. Just one thing I wanted correct the onefigure I've given for promotional allowances reduction from [’06 to ’08 about]13.5 down 12.4, it is actually 14.5 down to 12.4, and the year-to-date was 15.4down to 13.8, just wanted to correct that.
Mark Astrachan -Stifel Nicolaus
Okay. Well, I guess, while you're looking for that. I cangive you another question.
Rodney Sacks
Okay. I've got it over here: The effect of the drop off insales of what I would call these Allied products was in the quarter about $5.5million to $6 million with energy. So about $6 million was the dropped off inthe other energy products, based on the pervious year, whereas, obviously, wehad expected an increase. So it, obviously, has affected the numbers quitedramatically.
Mark Astrachan -Stifel Nicolaus
$6 million for the previous year?
Rodney Sacks
Yeah, in the quarter. These Allied product sales were lower.So if we had been projecting a 40% increase or 50% on the Allied products, soif you’ve got it in numbers that would have made about a $10 milliondifference.
Mark Astrachan -Stifel Nicolaus
Right. Okay.
Rodney Sacks
Okay. And then, one of the major other items was in our DSDdivision we lost about $3 million in the quarter on teas, lemonades, andcocktails that was down, which was sale for one customer where their sales weredown, we were doing sort of a special brand for them. A control brand and theirsales were quite substantial as you can see from those numbers. I think thereason was probably it introduced [off and] there was sell-in. And thataccounted for $3 million also negative on the warehouse division.
Mark Astrachan - StifelNicolaus
Okay. Great. And then, in terms of thinking about your selling andpromotion activity on a forward-looking basis: Yeah, obviously, Pepsi has talkedabout making more of an effort to get into the energy drink arena throughvarious sponsorships and product promotions and things like that. So, I guess,tell me: what you’re seeing their in terms of preliminary trends for '08 interms of what the potential cost increase in this category?
And then, building on that,you're talking about getting these incremental placements in coolers andshelves and having Java Monster separate from your Monster brand. What is thatgoing to cost you as well in terms of how do you think of that?
Rodney Sacks
As I indicated earlier, we'veactually achieved a reduction in our allowances, which is really the area youwere addressing there. That’s the MDF and chain CMAs et cetera that we put inslotting. We believe that, going forward, we will at least be as efficient aswe have or possibly be able to get some reduction even going forward eventhough we will be listing it for the first time a lot of the, obviously, theJava Monster into the chains. But going through the year, it may get a littlebit skewed in the beginning. But if you take it over the whole of the nextyear, we believe we probably will be very close to, or better than, the lowernumbers that we've shown in this quarter. With regard to the marketing costs:we have stepped up our marketing. We believe: “yes, there will be additionalmarketing”. Pepsi has publicly committed to going into spending additionalmoney. They've spent a very substantial amount to get into NASCAR. We're notsure that that's going to help the brand very much. We're not sure it's theright consumer, and we don't believe that’s going to change the fortunes ofAmp. We’ve seen Amp that has -- it had tremendous amount of attention given toit and a substantial amount of SKU and package expansion into 16- and 24-ounceand yet when you look at the numbers as I read them out earlier, it's reallymade no difference. In fact, they're lower than they were six to nine monthsago.
So, we don't believe, as a marketshare -- so we don’t believe that Amp will in fact have the legs to ultimatelyincrease any market share of any significance that's going to affect our marketshare. They other brands in the Pepsi camp don’t have the legs that are fallingoff quite substantially. We have a similar view to Full Throttle. We don'tbelieve that that has the legs. There has been a tremendous amount of effortput behind Full Throttle going forward. They have had three to four. There werenow a total, I think, of four different SKUs in regular and low carb. They havegot diet. They have got 24-ounce. They’ve used a new one called Mother orsomething of that order recently.
And again, if you look at theirshare, they've also come off. They’ve not been able to go on [share] eventhough they're at an awful lower base. Now, they are already spending andpromoting very aggressively across that brand and so we do believe we'll beable to handle it. We believe that we're going to continue to do what we'redoing. We think we do that well. That really translates and identifies who weare as a brand. We think we need to stay true to the personality of the brand.And that sort of our strategy at the moment is to continue to go along thoselines and not be distracted by the fact that there are these enormous spendsthat might be coming from one or other competitor into other areas.
Mark Astrachan - Stifel Nicolaus
Great. And then final question:could you tell us what your trends look like from fourth quarter of last year,on a month by month basis, in terms of what you are lapping in October and whatare going to be lapping in November and December, your volume increases?
Rodney Sacks
Yeah. I'll just try and find outwhile we are here; I will try to find out individual monthlies. I don't havethem easily to hand. But we'll try and find them while we're looking, and I'llcome back to that question.
Mark Astrachan - Stifel Nicolaus
Thank you, guys.
Rodney Sacks
Thank you.
Operator
And we'll go next to GregBadishkanian of Citi.
Greg Badishkanian - Citi
Hi. Just a few questions here:First one on Java: You’d mentioned that it’s about 10% of, I think, Monstersales. And what percent do you think that could get up to over the next 12months?
Rodney Sacks
You know, Greg, we really don'tknow. We think that the category will expand. We are having competition. One ofour competitors, Rockstar has just copied us as they’ve done in the past aswell. They've introduced a Rockstar Roasted. We think that just a not a reallywell thought through attempt to just compete with whatever we do. But we thinkthat that whole category will broaden into that coffee area, really that'swhat's going to happen. We think that that category will expand and expandconsumer usage and then consumer demographic into the category. So, we thinkthat it will, ultimately, with the extra expansion, we're coming and offering alow carb version, offering these other versions offering a chai version. Webelieve that will increase the category and the consumer base and percentage.But we think it will go into the double digits. It will be in the teenssomewhere. Overall, it might get to the high teens of the overall sales. But,hopefully, we won't cannibalize the existing products to the extent that weprobably have in the past three to four months. But we think that, ultimately,we are probably hoping to be something close to 20% of our business. The realbenefit is that these products offer a morning alternative to traditionalcoffee to the existing cold coffee drinks. But with the energy kick to it wethink that we will actually also draw on the hot coffee sector -- from the hotcoffee sector. Additionally, we just believe that the whole product lineup hasbeen very well received and will continue to grow.
Greg Badishkanian - Citi
And what percentage of Java rightnow is sold next to energy as you sort of look at the retail? And where do youthink that ultimately will be? Do you think it's going to be a vast majoritysort of in that emerging category?
Rodney Sacks
We think we will get the vast,going forward, we believe we’ll get the vast majority into the right door. Inmany accounts that door is right next to it or maybe above it or below it. Andsometimes in very small stores there may only be one or two doors.
But those are the minority. Themajority do have a separate door and separate either next to it or may be twoor three away. We believe that the vast majority of our sets going forward willend up in the right door. Whereas, at the moment, we're seeing probably thevast majority in the energy set because that's been the easy way to sellingthree SKUs. While having a whole offering of eight SKUs to nine SKUs or,whatever it is, of eight SKUs, seven, eight SKUs, which will take up a fullshelf of nine. It won’t be able to be put into the Monster Energy, and thatwill force it into its own space. Particularly, with extra SKUs coming on theMonster side on the juice and heavy metal, we believe we will be able totighten up, get extra space, but tighten it and that will force retailers toactually take the trouble and effort to go and reset their shelves. So, thatthey actually put the product in the right section instead of taking the lazy,easy way out which is what's happened to us in the past three to four months.
And I think they also believe usnow. I think everybody weren’t sure whether Monster Java would be a crediblecompetitor to Starbucks, because literally nothing else has been able to standup to Starbucks over the past number of years. And I think everybody in theretail side have been converted and they already do believe and see that thisbrand in the coffee format has serious legs, good sell-through and clearlythey're now all prepared to make space in order to maximize their ownprofitability in their stores.
Greg Badishkanian - Citi
Do you know what their margin ison yours versus Starbucks?
Rodney Sacks
I don't know that figure offhand. I don’t know. But they are getting very healthy margins on our product.They're getting pretty much their full margins.
Greg Badishkanian - Citi
Okay. And so higher than theStarbucks you think maybe?
Rodney Sacks
I just don't know the Starbucks.I know that they have full modules. I don't know what Starbucks has been ableto achieve with them generally.
Greg Badishkanian - Citi
Yeah.
Rodney Sacks
I just don't have thatinformation.
Greg Badishkanian - Citi
All right. Absolutely. And do youhave any early read on the Red Bull 16-ounce can? I think it is 3.49 to 3.60price point that's being sold at the market?
Rodney Sacks
I don't think they're achievingthat. I think it’s coming into the market at 3.79.
Greg Badishkanian - Citi
It is. Okay.
Rodney Sacks
Yeah. And which is way above our24-ounce pricing. So we think that that's not going to be a big issue. Again,we think what's happened is, if you look at the Red Bull numbers, they havekept up with the category, so they have stopped the erosion in the percentageshare. But when you look at the actual product mix, they’ve really transferredproduct sales from their 8-ounce to their 16 to their 12 in order to keep uptheir market share. And when you look at that, overall, I think that the16-ounce is probably only going to cannibalize more than the 12. But the resultis I think that they’re going to find that 8-ounce is probably going to becomethe smaller packet. And it is almost going to go away.
And I think they going to [talkforth], they carry on and introduce 16 permanently, they will probably find isour guess that they will end up with 12 and 16 and eight will go away, whichhurts them on their own margin. But they've obviously been trying to fightcontinuing loss in market share over the past of couple years and this is whatthey are trying. But I think that 16 is not going to help them other thanreduce their own margins and costs.
Just going into the numbers onthe sales from one of the earlier questions, this October versus last year, I'mlooking for this October. Last year October was marginally ahead of September.And then it dropped off on a gross basis to about 44 from about 52 dropped offto 44 in November and about 38, nearly 39 in December whereas on the numbersthat we have, we've basically gone up from September to October. Our Octobernumber is about 10%, 11% higher than September. So, just to give you some idea.
Greg Badishkanian - Citi
Great. Thanks.
Rodney Sacks
All right. Thank you.
Operator
And we'll take our next questionfrom Steve Colbert of Canaccord Adams.
Steve Colbert - Canaccord Adams
Hi, guys. Good afternoon.
Rodney Sacks
Good afternoon. Hi.
Steve Colbert - Canaccord Adams
Looking at sales for the quarter,how should we look at the sequential drop off in growth? I know you justtouched on it a little, but September was soft. Can you quantify how soft itwas year-over-year versus what you saw in July, I guess?
Rodney Sacks
September, I don't have it forthe whole company for the month. I don’t have it. I have it percentage wiseversus the year before. I know that in September, Monster was about -- July --August was off about 3% from -- the increase was about 3% lower in August thanJuly and then in September was about 4% lower than in August on a prior yearbasis.
Steve Colbert - Canaccord Adams
Okay.
Rodney Sacks
And then what has happened is,then in October, it's come back about 10% higher.
Steve Colbert - Canaccord Adams
And I know you touched on it, butyou really can't kind of pin anything on what's driving the re-acceleration?
Rodney Sacks
No. I think a lot of it may justhave been timing. I don't know whether it was orders coming in for Labor Day,that they pulled back orders and then put the orders in after deliveries. Iknow we did struggle with some deliveries. We couldn’t get out. We had moreorders for Java Monster than we could deliver. That was a material number thatwe had to reverse out. There was a little bit of a couple of other productsdeliveries we just didn't get out at the end of the month. So we probably had aslightly higher. When we book our sales, we close over month end and then weactually go back in and check the deliveries to see, to verify which productswere actually delivered to customers before we book them.
And so normally we end up for themonth and then you end up with a reversal depending on how much of the productsthat have shipped had actually been received. And I know that in September itwas just higher than usual. But again, that was a smaller portion. The mainportion was, in fact, I believe the Java Monster that we just weren’t able toget out at the end. There were a couple of manufacturing issues. We shipped the[light] things a few days and in any case we just couldn’t keep up with theorders. So, we ended up with quite a bit of a reversal there. And I just don'thave another explanation because I just don't have one. I mean, I haven't beenable to get to something that I have been able to put my finger on and say thatit is.
Steve Colbert - Canaccord Adams
Okay. Fair enough. Obviously, theNielsen numbers, everything still looks pretty strong. How do you view theconsumer environment? How discretionary do you think energy drinks are?
Rodney Sacks
We think that they are. We thinkthey're just becoming more and more acceptable. They are becoming the softdrink of the future. We think that they're performing. We think that consumersare drinking the products regularly as part of their regular beverage selectionnow. It's not as though it’s a treat selection or they I'll do it once or theyare going to go out and party and do it with something. We believe that this isfrom our read into the markets and the feedback people are just regularconsumers. The same as if you have a regular coffee consumer. They drink onecup of coffee every morning. People are drinking one cup of Monster in themorning or they are drinking one can in the afternoon. It's just becoming aregular part of their traditional beverage selection, their regular diet. So wesee that the category continuing to solidify, continuing to strengthen. Thatthe use occasions continuing to segment out. And there will be use occasionsfor the morning, for lunchtime, for the evening, for mixing. We just continueto see that. We really do see it continuing to grow. We do see, obviously, aslight deceleration in percentage wise when you look at the dollar numbers.They're continuing to be very, very strong. I mean this whole sector iscontinuing to grow enormously in dollars now. It’s becoming a real big sector.When you look at all the other new age sectors, this sector is starting tocompletely outgrow that.
Steve Colbert - Canaccord Adams
Okay. Fair enough. And then ifyou can just talk a bit more about the opportunity in England?How big do you think the market is over there? What's the rollout going to looklike?
Rodney Sacks
We think that the market is a bigmarket. We think that traditionally the market is the biggest, what I'd callreal energy product is Red Bull. A very heavy product there that had for manyyears, that was traditionally not an energy drink, but it was pretty much aglucose based drink called Lucozade and it was used as a, sort of mix it anddilute. It’s a ready-to-drink [cold]. They’ve put an enormous amount. It isGlaxo SmithKline who owned it. They’ve put a tremendous amount of effort behindthe brand. It sold primarily in glass bottles or plastic. They positioned it asjust a sort of a sports pick-me-up. And it’s slightly different positioning,but they have a lot of business. So if you look at the whole category, webelieve the category is probably of the order of about £400 million to £500million. That’s probably between $800 million -- or $750 million to $1 billionat retail.
And so we think it's a bigcategory. For a country of 50 million people, that's a pretty high per capitaconsumption. And what we see is that that is a great market. It's really beenunchallenged. The competitors that were there haven'tmade inroads. And we just see that there is a great opportunity. And once weobviously establish ourselves, they will go into other markets. We see Germanyparticularly as a high consumption market. There are a little bit of some lowerpriced brands, local brands that have done quite well there.
So the pricing in some cases,there is a price stratification in Germanybetween Red Bull and the local brands. But there are also some strong marketselsewhere in Europe. And the whole European market ispretty much, as big as the American market. So, we see a lot of growthopportunity, but, again, it will take time and effort to get there and to do itright. But we obviously are determined to do that. And we see that as a mainfocus for the next couple of years for us.
Steve Colbert - Canaccord Adams
Okay. And then final question forme: Looking at the cash balance you built up, what's the current repurchaseauthorization? And then: are there any plans to be active in it?
Rodney Sacks
On the share repurchase, again,we do have an intention to look at that. We basically do have an existing planin place. We are going to evaluate an increase in that plan. And to go ahead,obviously, there was quite a substantial run up in the share price over thepast couple of months. We will look at the repurchase program based in thelight of current share prices from time to time. And our belief is that, again,we need to get a Board consensus on it because we're having a Board meetinglate this week. But certainly from our point of view at management, we believethat we should go ahead and instigate a share repurchase program. But that willbe subject to the formal approval of the Board, which we’ll need to go thoughwith them. And then, obviously if that is so, we will announce it.
Steve Colbert - Canaccord Adams
Okay. Great. That's it for me.Thanks, guys.
Rodney Sacks
Thank you.
Operator
And we'll be taking our finalquestion of today from Alton Stump of Longbow Research
Alton Stump - Longbow Research
Thank you. Hello, Rodney.
Rodney Sacks
Hi. Hi, Alton.
Alton Stump - Longbow Research
Just had a quick question, not toget too specific, but on the cost front, you mentioned early on that there wassome increased shelf space programs as well as invasion fees. Could you try toballpark that number for me? What impact it was year-over-year and in the thirdquarter?
Rodney Sacks
The Invasion fees that we paid inthe quarter were about $3.8 million versus $1.3 million in the prior period.
Alton Stump - Longbow Research
Great. Thank you. And then, onthe shelf space program: any idea there?
Rodney Sacks
That was up from about five tojust over eight in the quarter.
Alton Stump - Longbow Research
That's great. Thank you. Andthen, just one other question: We've seen for the last couple of quarters in arow, superior growth in the category within the convenience and gas channelversus grocery. Obviously, the CG channel should be more saturated, but stillit is doing better. Any thoughts there? It is just better focus from all themajor players involved do you think that's driving that?
Rodney Sacks
You say you’ve seen more growthin the convenience?
Alton Stump - Longbow Research
Right so.
Rodney Sacks
Yeah. There is. It’s just aquestion of, I think, that the grocery chains are just haven’t yet reallycompletely embraced the energy category as a substantial incremental value tothem whereas I believe the convenience and gas have in fact done so. And Ibelieve that the grocery chains haven’t allocated the same amount of spaceproportionally that perhaps they should have done, whereas the convenience,just because they have been in it much longer have done so. And they have seenmore profit. So when you look at the grocery increase, grocery is only up 22.5%year-on-year as a category. Although, obviously, we feel we’ve done very wellthere, because we’ve actually upped 53.7% in grocery, which is quiteinteresting because you’ve got really good execution coming out of Coke withFull Throttle, they are only up 7.3. That sort of made earlier inroads becauseit isn’t a channel that they’re more familiar with, but the year-on-year isonly up 7.3, and the same thing with Rockstar, that’s up 37.
And even the sort of revitalized,call it, Amp is only up 49.6 in that channel, which is the hunting ground forPepsi. That’s their one of the main channel for sales of beverages. So we’veactually exceeded the growth in that category. But the category as such stillis still very small proportion of convenience. And as you say, the overallgrowth in convenience is still outstripping them. But I just think it’s aquestion of embracing it and consumers embracing it. And it will grow. It’sjust going to take more time.
Alton Stump - Longbow Research
Okay. Great. That’s all I have.Thanks, Rodney.
Rodney Sacks
Thank you.
Operator
And Mr. Sacks, I’d like to turnthe call back over to you, sir, for any additional or closing remarks.
Rodney Sacks
Okay. Thanks very much. Sogentlemen, again, thank you very much. I know there have been a number ofissues that we’ve had to deal with and we are trying to deal with in this calland as we go forward in the category, there is some unusual things that havehappened. We’re all very excited. We do believe that we’ve got a category thatis still growing very much more than any other category particularly with thesize of it in the beverage field, because we believe that it will continue togrow.
And we believe that the expansionof this category into this coffee area is an extremely exciting number for us.We think that that will help expand the category. We also believe that ourjuice offerings in the Rumba line will expand the category. So going forward,we are pretty excited for the prospects for the fourth quarter and for nextyear as a whole for the company.
We need to address some otherissues. We realize that on-premise to try and see how that grows and see whatwe can do to speed that up to the extent that we can. We need to minimizecannibalization. We think that will rectify itself when we get more identifiedshelf space going forward into the New Year.
And we also need to address theseissues of the Allied Products and we have some plans. We've just introduced anew whole line of products in a slim can, in a 11-ounce, 10.5-ounce slim canwhich are less than 100 calories. There is a dark line, there's a green tealine in it. We believe that going forward next year, we are already positionedvery well in that healthier alternative category as well. I know it's sort ofdwarfed at the moment by the Monster product, but in the long term we believethat’s a very solid and viable category. Half the beverage category is stillcarbonated and we believe we have a very credible [player] that pretty much everybody’slooking for is the solution to get a healthier better position. So, we believewe do have that in that Hansen line. So we are quite excited going forward withour products. We are still very excited about as I’ve said I want to reinforcethat the relationship with Anheuser-Busch is a very strong relationship. We arevery happy with the relationship. We understand that they are happy with therelationship as well. We just got to deal with operational issues as we goforward because that happens in life and that we'll get through them all.
We are going to also take stepsto try and address some of, perhaps, the smaller independents and some of thedry area issues that we've encountered in transitioning into AB system and wehave some plans in place to try and get to them to also improve our generalavailability and sales of our products.
So overall, we are excited. We dobelieve it has been a good result. We're getting some of the other issues andstock option issues behind us. Hopefully, that will stop distracting managementand we can put our heads down and go forward with the business.
So, thank you very much for yoursupport. And we'll report back at the end of the year on the fourth quarter indue course. Thank you.
Operator
And that does conclude today's conference call. Thank youfor your participation. You may disconnect at this time.
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