Coca-Cola in fight with Monster over new energy drinks
- Coca-Cola is planning to launch its first line of energy drinks — called "Coca-Cola Energy" and "Coca-Cola Energy No Sugar" — positioning the company in competition with its partner Monster Beverage. In 2015, Coca-Cola acquired a 16.7% stake in Monster for $2.15 billion.
- This news of the new drinks went public in an earnings call Wednesday when executives at Monster said Coca-Cola filed arbitration to determine whether the proposed energy drink products would violate the deal they made in 2015.
- When the soda giant bought its stake in Monster, the energy drink banned Coca-Cola from distributing other energy drinks. There is an exception for products marketed under the Coke brand. "Coca-Cola has developed two energy products it believes it may market under an exception relating to the Coca-Cola brand. We believe that the exception does not apply," Monster Chief Executive Rodney Sacks said on the call.
As more big soda brands look to diversify their product portfolios and meet changing consumer demands, Coca-Cola appears to have decided to branch out into energy drinks. It could be a lucrative decision. Energy drinks are expected to bring in about $16.9 billion in U.S. sales by 2022, according to Market Research Hub.
With this new energy drink, Coca-Cola is looking to attract a new better-for-you audience since its beverages would be made from naturally derived sources and include a no sugar option. This comes as Coca-Cola CEO James Quincey has urged the company to expand its portfolio because consumers are drinking less soda in favor of healthier teas, juices, coffees and waters.
Monster claims that Coca-Cola's two new energy drinks violate its agreement from three years ago when the beverage giant agreed to take a stake in Monster and distribute its products. But Coca-Cola's argument is that this drink would be for a different audience so it wouldn't take Monster’s consumers.
A Coca-Cola spokesperson told Food Dive that the soda giant filed arbitration and plans to abide by contractual obligations.
"We value our relationship with Monster," the spokesperson said. "As a good partner, we have submitted the difference in interpretation to an arbitration panel for resolution, which is the mechanism agreed by The Coca-Cola Company and Monster in the original agreements."
Coca-Cola hasn't announced when the new energy drink would hit the market. But Sacks said on the call that Coca-Cola has suspended the launch of the proposed products until April 2019 while they figure it out.
"Our commercial business activities and relationship is continuing as in the past, and we are looking to just get a third-party determination for the correct interpretation of our respective rights," Sacks said. "And we think we will come to a resolution reasonably quickly as to what that exception means and how it should be implemented."
This public feud could be a bad look for both brands and weigh down shares during the time it is in arbitration.
"We've agreed to go to arbitration civilly and determine what course of action is appropriate," Monster Chief Financial Officer Hilton Schlosberg said on the earnings call.
At the time of the acquisition, speculation swirled that Coca-Cola could be looking to acquire the rest of the company at some point. In the past, Coca-Cola has claimed to prefer an equity investment over ownership of Monster.
Bonnie Herzog, an analyst for Wells Fargo Securities, said the arbitration could signal that Coca-Cola prefers to maintain the status quo.
"While, (Monster's) management declined to provide much detail and doesn't expect the issue to have a material impact on its relationship with (Coca-Cola), we believe this development increases uncertainty around (Monster) and could further suggest that (Coca-Cola) is not as likely to acquire the rest of (Monster,)" Herzog said in a note to clients.
In the meantime, Coca-Cola's new proposed drinks are already doing damage to Monster despite any release being months away. After the news, Monster's shares fell more than 13% on Thursday when it revealed that it was in arbitration with Coca-Cola. For now, a lot is riding on this arbitration ruling for Monster, and a ruling could go a long way in determining its future business relationship with Coca-Cola.
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