2017 Interview with Rodney Sacks CEO Monster Beverages MNST Energy Drinks

You know, we've also been somewhat puzzled as to why the slowdown has been more marked in the convenience channel as opposed to the other channels. But one of the things that we've also noticed is that in the first few months of this year we didn't repeat some of the innovation we introduced last year and if you take that, that probably is something that actually counts and accounts for about a couple of percent of sales in the convenience category. Also, as you know, we've announced we've had some capacity problems in production, problems in getting enough capacity for our retort products which is Java Monster and Muscle Monster. Those products were growing really well and have been for many years but growing in the comparable quarter last year. So we had some shortages this year. So again, if you take that into account, that probably accounts for another probably almost a point about so you've got almost three points of difference just in those issues attributable to our own products. But insofar as it relates to the category, is it picking up everything? Were there other channels that may be impacting convenience? You know, I think that there's been a channel switch as well. Again, that's one of the things we've not been able to put our fingers on, but there is a channel shift and to stores, for example, value stores, home improvement stores, mass vending, online purchases as well. So, there has been a swing and we think that is taking away from some of the sales in the convenience channel.

You know, Monster's a lifestyle brand. It's very much an edgy, aggressive, authentic, in-your-face brand. That's what we've positioned it as. The primary target consumer was always has always been an 18 to 34 adult primarily male. So the challenge for us to try and obviously expand the sales and the brand is to try and expand that demographic to obviously bring out products that will be more attractive to female consumers and also to try and obviously extend the age demographic older to the older consumers. The brand's been around nearly 15 years now. So as our consumer base has aged, we have seen an increasing migration of our consumers into the 34 to 50 age group as well. But again, we need to try and focus on how do we broaden that consumer and we think products like Hydro and Ultra will help us do that. The attractive thing for us in the energy category is that we really have a very small, very low market penetration. We estimate, and it's not an accurate estimate but our own estimate internally, is about 18% penetration in the market for energy products among younger consumers or the whole, so we just believe that when you take other products who have penetrations in the 70 and 80% levels, there is a lot of runway still for the energy category provided obviously we can expand our product offering so that we can actually make it more attractive to a broader audience of consumers.

You know, our traditional sports have been clearly more focused and they don't have as broad an appeal again. So as part of our strategy to try and broaden our consumer base for our own products and for the energy category, we obviously looked at how do we do that and how do we address some mainstream sports. We've always been a pretty much a motor brand. So if you look at our extreme sports, even extreme sports are focused on motorcycles and truck racing etc. So we felt that the demographic for the mainstream consumer motor consumer for NASCAR was a much closer match for us than some of the other mainstream sports. So we made the decision to go into NASCAR to broaden that consumer demographic. It was sort of a similar reasoning with Tiger Woods who's an icon. Everybody knows him. But in that case we also looked at addressing not only our consumer but our distribution partners and how do we leverage somebody like Tiger Woods to really motivate some of our distribution partners around the world in the Coke bottling system. And so there are different audiences for why you do certain types of sponsorships.

Well, you know, the key for us in the KO transaction was really being able to secure international distribution. That was the key. We had some international distribution, but we felt that in order to really be a truly international brand, we needed to have a distribution partner with the team and the reach that could do that for us. And so I think that that's been largely accomplished. We've pretty much transitioned most of the countries, I would say the bigger countries in the world. If you take our EMA division, we've probably transitioned we were in about 10 odd countries before, we've transitioned about 50 countries since the deal was done and we probably have about 10 or so to go and they're smaller countries. So we've really pretty much achieved that and as you know we've recently launched in Nigeria, we've recently launched now in China. So there's a lot of this that has really been positive for us and that's I think the main benefit and that's a long-term benefit that's just an ongoing work to work through the system and to eventually launch our products, you know, launching one or two at a time and then obviously we have the very large runway of products. So for a long time to come, I think we'll be able to have additional products that go into the distribution system internationally.

I think that we just have good opportunities. I mean you take things that are outside of the channel, sort of our Mutant product here. And I think there we put our heads together and our focus, I mean there is an opportunity for both of us to proceed and to launch and go forward with that brand in the market. So there are opportunities from different areas.

Well, you know, in measured channels, I think the core product is pretty stable. What we've seen is some nice increases in our Ultra line. The Rehab line was sort of a little negative last year, but it has returned to growth this year. So, we actually believe that the Ultra line is really the line that's been good for us. We believe that once we get back into production and have sufficient inventory of our Java Monster products, those will also continue to grow as they were on a good growth trajectory until we ended up with some shortages in product.

We believe, you know, we've made arrangements, alternative arrangements, and we believe we'll be pretty much online and we'll have sufficient production by mid year. It'll take a couple more months to actually get that production through onto shelves. So we're looking for a third quarter to get back to a normalized production. Will that be okay going forward with a reorder? We believe so. We secured again, but again, there is limited production. So we've made arrangements to secure additional production. We also have had sort of plans to launch Cafe Monster this year, but in the light of that, that's actually got deferred somewhat. So we'll need to obviously once we get that production right, we'll have to build up some inventory of Cafe Monster before we launch. So we're looking at probably launching Cafe Monster at the end of the year, maybe even beginning of 18. We'll see what the production holds for us.

You know, the two brands were interesting because they had sort of different positioning. NOS was a brand where we took it, it had a we believe the individual single NOS SKU was the fifth or sixth bestselling SKU in the energy category. So the actual brand was doing quite nicely. So we've taken steps to reposition the brand. We've redone the packaging. We've introduced a new flavor. We've actually aligned ourselves with Kyle Busch and we've introduced a product called Rowdy which is his nickname. And it's really a motor brand. We felt that initially the brand had gone a little bit out of its sphere. It is a motor brand. That's what NOS stands for. But yet they were sponsoring UFC and a couple of other things. So we sort of brought it back to its core to motorsport. And we think that it's got good products and good flavors and it's doing well. We introduced a we sort of discontinued that bottle. They had that unusual shape 22 oz bottle, plastic bottle. And we put it into a 24 ounce resealable can and we did that at the beginning of last year and that's really been doing well. So the NOS brand this year up to date if you look at the Nielsen numbers is up pretty close to 10%. So that's doing nicely. The Full Throttle brand struggled a little bit. That's been down a little bit but again we've taken steps to completely revamp the product line. We've redone the packaging. We're introducing a new flavor. We're repositioning it and launching it. And so we're pretty excited that this time we'll actually have a really nice product in the Full Throttle brand. The Full Throttle brand we probably going to promote more as a fighter brand. Whereas NOS is still a premium brand at the traditional pricing just focused on a different consumer.

I think pretty much but you've got to take into account and really put in context. If you put in context, we launched Mutant knowing that we did so off cycle when it's not a normal time to introduce new soda brands going into winter. We actually decided deliberately to go into selected stores and not to just put it out generally. We also wanted to try and establish a premium price point for it. We weren't trying to just start going out and then immediately price promote it and discount it. So for the last six months we've really done that. We've established that price point which is very much closer to the $1.99 price point which is what we want to do. Now that we're going into summer and we're going to start the price promotions. We're starting to do promotional activities. We've actually switched some of our Monster marketing events like Vans Warped Tour and Monster Jam to some extent and we've put that into Mutant. We'll be using that for Mutant. So we're going to provide marketing support for Mutant. We're going to go out and do price promotions in order to encourage trial. We're going to do sampling and as we start promoting the brand, we will get trial and awareness going into summer. We're also launching about to launch a new product in that line which is a zero calorie White Lightning. So again, we believe that the brand has got really good potential for us. It's got a good niche. If you look at some of the market statistics, it's quite interesting. The brand is clearly positioned against Mountain Dew and against Kickstart who are trying to get into the energy category from underneath us, so to speak. And if you look at the results in Nielsen of those two brands in the last two, four week or four, five week period as the case may be, both of those brands are down. They're down in the four to five percent in the case of in the convenience channel, which is where we're focused. So Mountain Dew is down four odd percent and Kickstart is down four plus percent or even more in the convenience channel. And so you look at the dollar value of the drop off in those sales of those products. You look at the dollar value of where Monster's playing, Mutant's playing, and it's clear that we're having an impact in that category with that competitor. And that's what I referred to earlier where I think there is strength in the relationship with Coke because there is a citrus category. We believe we can introduce some fresh products into that category and we can still get some growth and establish a really nice good brand in that category. So we're optimistic about the brand going forward. Is it national distribution now across the? It's national but not extensive and we are rolling it out. We are rolling it out to more of the large format stores and it is going out. It's now in I think it was Walmart. So we're going to put it into Walmart. So we're going to roll it out much more extensively now and we're still pretty bullish on the brand.

You know, it's a unique package and we took this unique package and we also decided not to do it in a sparkling product which changes the dynamics when you're actually packaging it from a production point of view. So we decided to do a still product in this plastic can and we think it's unique. We think it's important. It's part of what we've done is try and do things that are different and try and do packaging that is different to distinguish Monster and not just do the same thing. The easiest thing in the world for us would have been to just put in a regular can or just put it in a plastic bottle. And so those were challenges and just how it ran. There were different production issues we don't need to go into. But really we needed to build up sufficient inventory and when we were sort of planning to launch we just felt that we didn't have enough inventory. We started to get really good acceptance because we intend to launch Hydro across the general trade. So it's going to have a general full launch and we were concerned about not having enough backup inventory to follow up once we had filled the pipeline. So we decided to rather build up inventory which we've done and we are currently doing in order to do that. And so we have slated that launch for towards the end of May and that's pretty much going to go ahead as a general launch. So we're very excited about that.

I agree but I think you got to look at it. It's more the enhanced water. I don't think this is going to replace your regular pack you just order. But in the enhanced area or value added water, yes, it's going to play in that section. Obviously, we're looking to put it into that section in the convenience stores as to where we're going to place it. And that's really where we again endeavoring to actually expand the energy use occasion and the demographic of our energy consumer.

I think Dunkin' has come out in a plastic bottle. It just has its own market and its own segment. It's much more closely competitive to Frappuccino in that area. In the case of Cafe Monster, it again we're trying to align that closer to a Frappuccino because that's got a big segment, a big user base, a big consumer base. But again, we have the energy twist to it. But in that particular case, we obviously are looking to have a brand that will appeal probably more to the female consumer, also a lighter energy. So the energy component in it won't be at the same level as in Java Monster. So Java Monster is a regular energy drink. It's in a coffee format. It's milk, but it has the full Monster energy load in it. This will be a much lighter, more drinkable, able to on broader use occasion. Hopefully, we'll attract more female consumers. We're trying to get our calorie count down versus the Frappuccino, but it's going to compete in that market, whereas Java Monster is really competing against the double shot Starbucks in that market. So they're two different markets, both growing really nicely. So that's the opportunity for us.

You know, the fundamentals are still very much intact. And if you look at and maybe take a step back and look at Europe, Europe's an older energy market than the US. It started in the 87, 86, probably 10 years before the US. And if you look at the market in Europe, it's had periods of more rapid growth and it slowed and then a couple of years and then it picked up again. And a lot of that really is linked to innovation, more shelf space and competitors coming into the market to make it more attractive. If you look at the European market today, it's actually growing. The current last quarter it's grown pretty nicely according to the Nielsen in Europe. So we see with the fundamentals being intact, being able to introduce new products, we're pretty optimistic about it. And you referred to the slowdown earlier and there was quite a big slowdown. The principal slowdown happened inexplicably actually in December. And I think all the beverage companies saw that December and so the actual category went slightly negative in December. But when we look at all measured channels that are measured since that time on a monthly basis in the four or five week intervals according to Nielsen, the category starting to pick up is up 0.9 in January, 1.4 in February, 2.6 in March. So there seems to be some momentum going forward. So we're optimistic but your guess is as good as mine. We don't know. But I think we'll continue to see growth and I think it'll be a healthy category particularly as we still have quite a good runway of innovation to come. These are the products we've talked about now. We obviously have some others that we're working on. So we're quite positive going forward.

We've got a lot of innovation.

I mean, the one thing we've actually done, we've just launched, it's gone onto the shelves of Asda this week, was a product with Hamilton, the Formula 1 driver. So, we've got a product which actually does very well in Europe, which is the Rossi drink with the doctor who's a very well-known famous figure in motorcycle racing. But Lewis Hamilton is probably the best, almost the best known Formula 1 driver, and Formula 1 is very big in Europe. So, we actually developed a drink together with Lewis, who we have a personal sponsorship arrangement with, and we've launched that. It went onto the shelves of Asda literally in the last day or two. It's going to be rolled out in Great Britain and in the rest of Europe, probably roll out to about 25 countries by summer.

You know, I think that the health and wellness is an important opportunity for us, and the question is and the key is how to really capture that. Like everything, people and consumers still, I'm maybe a little bit skeptical, but consumers think healthy but don't act healthy. And the question will be, the challenge will be, how do you develop an energy drink and then basically take a niche healthy product or a healthy formulation and then basically try and extrapolate that and get that to be big enough to make a difference to the brand. So we've seen the organic side, we've seen different things coming onto the market. When you look at them, in the health food channel, in the Whole Foods area, they do well, but when you take them into the mainstream, they really just don't seem to have the legs to be sustained. So I think that that's a challenge. If we can get that and get a healthy product that is perceived to be healthier, I think it will help the category continue to grow. It's one of the challenges we have to be able to again continue to expand it. And on the other side, from the litigation side, we don't really think that that's a major issue. We think that sugar is not a major issue. It's a major issue for everybody, but I think that the energy consumer is probably less affected than some of the other consumers. And then when you look at our portfolio, we have a massive portfolio of zero calorie products and we haven't positioned them as diet, but we've had zero. So there's a line of six products in Ultra now that are all zero calorie. So we will continue to do that. Our whole Rehab line is 10 calories. So it's also low calorie.

Well, we like it. Okay. But the international market is sort of a little different to the US market. What happened in the international market principally in Europe was we didn't get to that market for a long time and it started 10 years before the US market. So what happened was, you know, Red Bull was very dominant and really had the major share of that market for a long time and I think retailers eventually have one product and for one whatever reason want an alternative and want an option, whether it's because they see an imbalance of power or negotiating power, and so what happened was this allowed basically store brands to basically take hold in many of the countries in Europe. So if you go to Europe, you'll see a lot of the private label less expensive energy alternative. The effect of that was that it really did take down some of the premium value in pricing. Red Bull had to come down to try and meet and not have too much of a diversification of its own franchises. So going into the European markets today, you've really got a market that is divided: there is sort of your low price private label and then you've got the premium brand. So we sort of come in and we're playing in the premium brand area. But that's the one issue we've just challenged we deal with internationally. That cuts the market in half. It sort of cuts it. But again our challenge is now by broadening it with different products, different types of flavors. We are bringing back, we think, a lot of the consumers to the premium sector from the lower value sector because the lower value sector is very simple. It's a Red Bull wannabe and it tastes like it and that's all it is. So I think there is that opportunity. But it's, you know, it's rolling it out and it's a big market. Internationally we're just doing it. We're going into the Coke system. We've transitioned mostly to most in most countries. But as we do it, we obviously each country and each bottler adapts to the brand differently. Some embrace the brand more readily, some slower. And as we go through this again, in order to not do it all at once, you can't just take your whole line that we've spent 10, 12 years building up in the US and have it overseas. So you start off with two or three products in a country, then you go with a third, you introduce more and more. But we see this as the opportunity because there is an enormous opportunity to improve not only the extent of our distribution and number of accounts we're in but also the quality and depth of distribution and then starting to introduce this broader product line which again we think is a very good opportunity for us going forward.

China's, as you know, is probably the second biggest energy market in the world. We launched in about September last year in Beijing as you said. Now the Coke system, it had three bottlers, one of which was big. They've refranchised that big operation. So they've sold off their operation to the other two operators. So you have this, you have SW and COFCO, and they really operate through about 32 business units. So we've launched business unit by trying to do it on a rational basis and we have just over the 50% mark in the number of units and we're probably cover probably just north of 60% of what we see the main energy market in China. And again, as we're rolling it out, so we're looking at probably trying to achieve a full rollout by pretty much towards mid end of summer in China. That's great. It's a difficult market. Red Bull. And it's not the Red Bull we're used to. The Red Bull is the Austrian Red Bull. They call it the Western European Red Bull. The Red Bull in China is the Thai family who have the Red Bull brand there. They have a gold can. It's a squat 250 mil can. It's not carbonated. So it has a real Red Bull sort of flavor profile, but it doesn't taste like regular Red Bull. And they've developed a very strong hold in that market. They're probably north of 200 million cases. But their price point is at about six to seven RMB retail which is just basically about a dollar or so. So it's a different model. So obviously we're focused on growing. We're getting into the market. It's going to take a lot of effort. But we're very encouraged by the early signs that we've seen. It's just going to be a lot of work but it is a really big market at the end of the day.

I think the probably the most important thing is for us to be able to get alignment with the Coke bottlers and the Coke company so that all of us actually understand how do we divide up the category and how do you allocate shelf space, cooler space, these sort of things because we are the Coke energy play, we have this arrangement with Coke, but at the same time they're also in the beverage business and they've got coolers so everybody's trying to, unfortunately the coolers are not elastic so we like to fit a lot more on the shelves. But that's one of the issues and the challenge is getting everybody focused and firing on the same cylinder to do that. But I think that we're a long way there. I think there's always hiccups but I think we pretty much are aligned and I think that things are moving forward in a good way. So it will take time but I think that we have the opportunity to really be able to utilize this enormous distribution system and work together with them so that we both benefit, the system and us will benefit from the opportunity that we see is available.

Well, I don't know. I don't know. But whether we do or don't, I think we'll be, you know, we're very happy with the opportunity we have.

You have more insights than I do.

Yeah, you talk about 14 and a half million. That was actually large. You talk about how many employees we had. I was number 13. I mean, we fitted in, you know, fitted in three offices. So it really was something that you just couldn't have imagined. And it was a long road. I mean, we experimented a lot. We launched a lot. We tried a lot. Failed at the beginning. I want to say something. I did a lot of stuff and just you don't know what works and what doesn't work and for what reason and what's the right time. So, even when we initially started, we launched a Hansen's in an 8 oz can, slim can, and we competed and we just didn't have a real reason for product differentiation at the time. But things worked out and at the end of the day we are very focused and happy with where we've achieved.

I don't know, you look ahead and you say well one day when are you going to retire? So the only thing I do know for certain is I'm two years closer to that date now. I'm not sure what that date is but we have fun. I mean the business is a nice business. The beverage business is a nice business and particularly being in the side of the business which is really devoted to the sales and marketing side and creating new products is very exciting and you're very good at it. But what's nice about it is you go into a store and you can see your products. When you make a nut or a bolt and it goes into some machine you never know where you are. You never see it. So this is really a fun business to be in. And you go in and see. We still go into stores and make phone calls from the stores and pitch at everybody because why isn't our product on the shelf? But that's the part that keeps you going, that you can continue to be exciting. You continue to say, 'I've got a new product coming out. We've got others coming out.' When you can get a product and you achieve something like we do with the Hydro line, it's new and it's there. I think it's going to be a great product and I think that sense of achievement is really good for us and we enjoy it so that motivates us to come to work every day.

You know, food service is a channel that has been improved. Our ability to get into that channel has been improved since we've tied up with Coke. There is no doubt that that's been improving and we are making inroads. It's still a small percentage but it's a really important area for us to grow. We're doing things now with Dunkin Donuts and some other people and we actually think that it's quite opportune for us but it's going to take some time.

This is really about sustainability and how the company does it. We obviously do look at these issues but we pack through and co-pack generally through the bigger companies. The principal packer we have is Coke and so Coke has its own sustainability programs so really we work in conjunction with them. I go back to what we are: we're really a marketing and sales company. The packing and the sustainability issues are really looked after and implemented pretty much by our production partners.

Yeah, we don't think coffee is having a big impact on the category. In fact, coffee is growing. So it's really an exciting category both in respect of traditional coffee and I'd call it the energy coffee part of it because both have been growing and continuing to grow. So I'm not sure it has an impact. I mean coffee technically is an alternative to energy. That's coffee. You drink coffee you can get the caffeine and get the buzz from it. That's exactly why most people drink coffee. So we just think that that will continue to grow and it's attractive. Cold brew is still very small and it's very niche and you look at it and I think we need to appeal to a broader consumer base and I think the broader consumer base is still focused on regular coffee with cream or milk and that's an indulgent product for them.

I would not be here today if I wasn't a rougher, tougher, in-your-face aggressive brand. If I was Red Bull, I'd be me too. Red Bull, we see Red Bull as a more sort of exclusive elite brand. They really are a yuppie sort of brand. We are an in-your-face blue collar brand. You have to stand for something in life or in industry. So that's what we stand for. That is why our consumer demographic was pretty much primarily males, 18 to 34, but primarily male. But what we've been able to do as we've continued to grow the brand is introduce products that are less formidable, that are sort of less intimidating. And that goes to the Ultra line, that goes to the coffee, everybody drinks coffee. We think that that's what we're going to extend further with Cafe Monster, with Hydro. So obviously it's important for us to expand that consumer demographic and I think that is so today. I think there are far more consumers. I think we are still predominantly male but there are far more female consumers who are in the Monster franchise. One of the other detracting issues from a female point of view is the size of the can. Just the fact that it's a 16 oz can. But that again, unless you start switching and going back, we've tried to do some 8 oz and it's sort of a real weird thing but the 8 oz people just don't want the 8 oz. We've had a tough time sustaining it in stores where we try to go to it. It's sort of you're known as a 16 oz brand and sometimes you've got to stay true to what you are and who you are and I think that's important for us again while at the same time trying to expand our base to obviously attract more female consumers. That's obviously important and we're continually looking at how do we do that and we probably can address that with probably a new but smaller package. It's something that we will continue to think about.

I think the environment has been reasonably stable. If you look at some of the brands, the brands that have tried to compete on price have not really succeeded. The two largest brands which is Red Bull and ourselves which have probably north of 70% share, really compete at a very similar level. We give more value, but the pricing is in that $2 to $3 range. And the brands that have just tried to come in under that are really not making a lot of inroads and the consumer sees the product not as simply refreshment but they see the product as giving a benefit and so they are prepared to pay for that benefit if they feel it's authentic, they feel it's their brand, they like the flavors. We've obviously spent a lot of time ensuring that we try to develop the best flavors we can and we think that that will continue and that's been strong. From that point of view, I think Red Bull has been a good competitor in the sense that it has not resorted to simple pricing, you compete in other ways.

And that's, I don't think so. The Mutant product will probably appeal to a slightly different consumer because it's really a soda positioned as a soda, but I think our new products will themselves broaden that consumer base. Now, we have some really good product that we bought from the Coca-Cola company. There's an interesting brand in Europe which is a small brand which is very much a more female oriented brand. So we're looking at that brand and seeing how do we expand that because we're pretty positive about it. And that might be something we would look at introducing here. But again, you just keep diluting your marketing dollars if you have different brands. You got to start from square one and just build a brand. I don't think that's something that we would have the appetite for. I think we need to try and get consumers, female consumers, more comfortable with the Monster brand.

You know, Mark has been involved in the creative side since the outset. I've worked closely with Mark now for 20 years. He's been at the company in fact. And what Mark really loves is the creative side and I think that that's not going to change. I think it's important. I think Mark Estan came out with a note shortly after we made the announcement which was actually a very perceptive note by him because what Mark loves is creating ideas, creating the packaging, dealing with the artwork, etc. And that's exactly what he's going to continue doing. What Mark was, was just basically getting to a point that he didn't want to continue doing was to deal with the day-to-day operational factors that put pressure on him to deal with 100 decisions a day. And in fact, that detracted from his ability to really get focused on where his strengths were. I actually think this is an opportunity to really get Mark more focused on the strengths and the areas where we will continue to work with him. We have other people involved in creative. I will stay involved in creative with him and we will support the marketing side with other people from in the company. So I don't see this as a major change of direction or a major change in our ability to continue to innovate.

Ask Coke. I'd love to be in their fountain systems. Fountains a challenge because it's a question of quality. It's a question of how the syrup goes out. You're dealing with an energy drink, but you want to measure your actual servings. So that's a bit of a problem for us. I have a concern about the premium image for it. And there's a debate because some people say a fountain drinker is not a ready-to-drink package drinker and you're not going to change. It's not taking the market down. But I'm not sure on vending. We clearly are working with Coke. We are getting into vending. That's another channel for us that is expanding. We're doing quite nicely in vending. And that is a great opportunity for us to go into the Coke machines here and internationally with the Coke system.