Understanding Monster Beverage’s risk exposures


Jan. 7 2015, Updated 10:04 a.m. ET

Key risks

Monster Beverage Corporation (MNST) is one of the leading energy drink manufacturers. There have been growing concerns regarding how energy drinks impact consumers’ health. Monster Beverage’s risk exposures include legal and regulatory risks.

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Depends on third-party distributors

Monster Beverage depends on third-party entities’—like Anheuser-Busch, Inc. (BUD) and The Coca-Cola Company (KO)—affiliated bottlers to distribute its products. Any adverse changes in the relationship with key distributors could have a major impact on the company’s business.

Dr Pepper Snapple Group, Inc. (DPS) is Monster Beverage’s peer in the non-alcoholic beverage industry. Dr Pepper Snapple Group depends on third-party distributors—like Coca-Cola and PepsiCo, Inc. (PEP). These companies are part of ETFs—like the Consumer Staple Select Sector SPDR Fund (XLP) and the SPDR S&P 500 ETF (SPY).

Legal risks

Over the past few years, Monster Beverage faced several litigations due to deaths or serious health conditions. The deaths and health issues were caused by Monster Beverage’s energy drinks. These litigations exposed the firm to financial costs. Also, they tarnished Monster Beverage’s reputation.

Regulatory risks

Monster Beverage’s products fall under the FDA’s (Food and Drug Administration) regulations. Currently, the FDA hasn’t imposed any restrictions on the caffeine limit in energy drinks. The regulatory authority is under pressure from health experts and organizations—like the CSPI (Center for Science in the Public Interest)—due to energy drinks’ increased scrutiny. Health experts want to keep children from consuming energy drinks.

According to the CSPI, since 2004, 34 deaths have allegedly been caused by energy drinks. 22 deaths have been linked to the 5-Hour Energy brand. 11 deaths have been linked to Monster Beverage. One death was linked to Rockstar.

Stricter regulations could have a negative impact on the company’s sales. For instance, in November 2014, Lithuania banned the sale of energy drinks to individuals under 18. It’s the first country to put age restrictions on energy drinks.

Monster Beverage adjusted the caffeine levels in its products sold in Canada. In 2013, there was a regulation that limits the amount of caffeine in any beverage in a single-serving can or bottle to less than 180 milligrams.

In the next part of this series, we’ll discuss how Monster Beverage has been able to perform well—despite the health concerns associated with energy drinks.


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