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Can Monster Beverage’s Sales Efforts Deliver Better Growth?

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Demand for energy drinks

Currently, there’s negativity about the alleged ill-effects of soda drinks and energy drinks. It’s been putting pressure on the sales growth for nonalcoholic beverage companies such as PepsiCo (PEP), Coca-Cola (KO), Dr Pepper Snapple Group (DPS), and Monster Beverage (MNST).

However, energy drinks are experiencing higher volume growth than soda beverages. That has helped Monster Beverage deliver higher sales growth than beverage giants.

In 3Q16, Monster Beverage had a sales growth of 4.1%. PepsiCo, Coca-Cola, and Dr Pepper Snapple Group reported sales growth of -1.9%, -6.9%, and 3.1%, respectively.

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Prospects in the US market

At its investor conference on January 12, 2017, Monster Beverage indicated that its energy drink category volume rose 3.9% on a year-to-date basis as of October 29, 2016. The growth rate was higher than the 2.1% volume growth of the overall beverage category in the United States and the -0.70% growth rate of carbonated soft drinks.

However, categories such as sports drinks, ready-to-drink coffee, and water delivered higher volume growth than energy drinks in the reported period.

Growth strategy

To improve sales, Monster Beverage is trying to increase its household penetration. At its investor conference in January 2017, vice chairman and president Hilton Schlosberg said that low household penetration, particularly among the older demographic, is a challenge.

The company is trying to address this challenge through aggressive marketing and promotional activities. That includes the company’s sponsorship of professional golfer Tiger Woods and a multiyear partnership with NASCAR (National Association for Stock Car Auto Racing).

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The company is also looking at the innovation of new variants. In September 2016, it launched Mutant, which it calls a super soda. Mutant, introduced in the US market, is positioned to compete with PepsiCo’s (PEP) Mountain Dew. The company is also geared up to launch Hydro, a noncarbonated drink with 100 calories per 500 ml (milliliters).

Sales expectations

Analysts expect Monster Beverage’s sales to rise 12.0% and 12.4% in 4Q16 and 2016, respectively, on a comparable basis. The company’s Monster energy drink brand and the strategic brands acquired from Coca-Cola (KO) are expected to drive its top-line growth.

In the next part of this series, we’ll take a look at earnings expectations for Monster Beverage.

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