Energy Drinks Are a Business, Not an Empire

Sep. 9.08 | About: Monster Beverage (MNST)

As Monster Energy, Hansen Natural’s (HANS) energy drink,  is closing in on Red Bull in the U.S. (market share 28.3% vs. 35.7% per Nielsen Q2 2008) and Rockstar trails with a share of 10.8%, internationally it could get interesting as well…between Monster Energy and Rockstar that is. Privately owned Rockstar is aggressively  building its international presence and can get head-to-head with Monster with a clean slate, in new markets where reputation or brand strength in the homeland don’t mean so much.

From fluidtrade.co.uk:

Rockstar has also been aggressively growing its European distribution which will see the brand launch in Germany in the spring of 2008 as well as in 10 other European countries before the end of the year.

With limited shelf space, being the first next brand does count. Monster Energy may have a reputation in the U.S., but it has to start from scratch internationally. And with Monster being outpaced by Rockstar, it has to play catch-up, as Rockstar “entered” the consumers’ mind first. And although Rodney Sacks (CEO of Hansen Natural) described Monster’s international undertaking by saying “Rome wasn’t built in one day” (conference call Q2 2008) or remarks of similar nature (“International is not going to happen overnight” – conference call Q2 2007; “we are just going to be patient” – conference call Q4 2007), proverbial Rome might be foreclosed on before it’s even finished. Meaning that coming late to market is probably more damaging than being too patient in wanting “to do it right” (conference call Q4 2007).

Both Rockstar and Monster Energy distribute their drinks (outside the U.S.) in Canada, Mexico and the U.K. Although the Netherlands isn’t officially listed on the Rockstar website, currently Rockstar is sponsoring a Dutch TV-show (including product placement) suggesting that distribution in the lowlands is imminent. And somehow Monster Energy doesn’t even bother to prominently display any reference to international markets on its website.

Below is a table that shows the countries the two companies have entered apart from each other, with population count and a weighted average of GDP per capita.

As energy drinks can be categorized as a discretionary consumer good, it pays to enter markets where people can and will pay an extra buck or so (or local currency equivalent) for a drink and buy into the lifestyle. So, disposable income counts (GDP per capita is just a relative proxy). Population size matters because of economies of scale: do you have to deal and negotiate with 1, 5 or 10 distributors (as most distributors will probably work only within their country’s borders) to reach the same amount of consumers? More different smaller countries also means more customizing your marketing message to local needs and modifying your product to local legislation (note that in Sweden’s neighbouring countries Norway and Denmark sale of energy drinks is banned, limiting benefits of “marketing spill-over” for Monster Energy from Sweden to the people next door).

Although the table is not really meant as a scorecard (really,…not really), as this international expansion is an ongoing process, it’s an interesting observation of how different managers make different strategic choices. But referring to ancient Rome to “rally the Monster troops”, Mr Sacks, might be somewhat out of character for a fast-moving consumer good (especially an energy drink). It’s a business, not an empire…

Disclosure: Long HANS.