Odd Lots - How Monster Beverage Shares Soared a Monster 100,000% in the Last 20 Years

Episode Date: February 15, 2021

When you think about the big winners in the stock market over the past couple of decades, you might think about Amazon or Apple or some other tech winner. Or maybe, if you've listened to Odd Lots before, you think about Domino's Pizza. But there's another company that's outshone them all. Monster Beverage Corporation, the maker of the popular energy drink has been, well, a monster. In the last 20 years, the stock is up over 100,000%. On this episode, we speak with Mark Astrachan, an analyst at Stifel Financial Corp., about how they produced such a stellar return.See omnystudio.com/listener for privacy information.

Thanks for listening to Odd Lots. Follow the show on Amazon Music for more future episodes or just ask, Alexa, play the Odd Lots podcast on Amazon Music. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthaw. And I'm Tracy Allaway. Tracy, I have a new idea for an ETF that I think we should launch. You and about a gazillion other people, but go on. So I think we should make a bros eti-f. like broculture, I feel like is a really winning for me. So I think the basic, can you say bitch on air?

I don't know. The basic bitch portfolio. You just did. So I guess you, I guess so. Sorry, everyone. This is going to be the first episode of Oddlots that comes with a disclaimer about bad language. The basic bitch ETF portfolio has been this sort of long-running theme.

on a finance Twitter. And that's done pretty well, at least in 2020. So things like Pinterest, some of the makeup companies, those sorts of things, Starbucks. So I could see the flip side of that being a bros ETF. Sure. Gaming stocks. Yeah, gaming. So we know video games have done extremely well.

I mean, that's just an incredible sector. Of course, you know, back last summer, we did that episode about Domino's Pizza, which I think, like, you know, ordering pizza while you're, playing video games. That's obviously part of it. I imagine there's some sports element. Oh, well, you could certainly put in draft kings and some of these online gambling,

pen gaming, some of these online gambling names. And there's also a beverage company that I think fits right into the portfolio and it's done extraordinarily well. So I know which one you're talking about. This has become one of your

favorite companies, not just because the story around broculture is quite interesting right now. Lots of people are playing more video games. We're all stuck at home. And so maybe you want to drink more of this particular beverage while you're gaming. But also because the returns on this one have just been absolutely stunning. Yeah, exactly right.

So the company is a monster beverage. You've almost certainly seen them like at any deli or grocery store or anything. They're known for their big cans of heavily caffeinated drinks, sugary. They have like super aggressive label labels on them. It's like this sort of like very like macho, frankly, broy beverage. And the stock has done phenomenally well, but depending on exactly what settings you use, it's, it might be the single best performing stock in history or certainly over the last 20 or so years. I think it's up like 85,000 percent over the last 20 years or at one point it was. Like it's just unreal. Like, it's just unreal. Like, it's just unreal. Like,

It's like we're talking like Bitcoin level returns. Actually, you could probably put like Bitcoin in the ETF too. But we're talking like Bitcoin level returns for a company that sells sugary caffeinated beverages. Right. And I think when most people think about the best performing stock of the past couple of decades, they're going to think about Amazon or Google or Apple or something like that. Not many people are going to think about, you know, a consumer-facing beverage. company. I have to tell you something. So I don't know much about Monster. I've never had one of the

energy drinks, although I am very aware of the branding and, you know, their advertising strategy has been a big part of their success. And I'm sure we're going to get into that on the podcast. But I have to say, in the course of doing some research for this episode, I found the most amazing anecdote on Reddit. Oh, of course it came from Reddit. Of course. That's perfect. What's the anecdote? So I think it was on the financial independence retirement early board, but it was some guy who said

he invested $90,000 in Monster Energy drinks. I think this was in 2010 he posted, and he said he'd invested five years ago. So basically, he had a 500% increase on that $90,000 position, which made him a millionaire in the space of five years. And the best part of it was, so he wrote that in 2010. Everyone on the message board basically said, you are absolutely crazy. I can't believe you have this huge chunk of your portfolio in a single stock.

You need to sell it right now. And, of course, had he held on to it, I don't even know what it would be worth now. But like the big spike in Monster Energy came after 2010. So you can only imagine what 90K invested back in 2005 would look like after a 15-year monster run in monster energy. It's really incredible. I mean, it's like one of these, like, charts where you just, like, slice it up and

you're like, holy crap, these are amazing returns. And then you zoom out and it looks even more amazing. It's just, it's just incredible. So I want to get the story. How did this maker of these drinks that I've actually never had one either? I don't think maybe I had one years ago, but, you know, I see them everywhere. How did it become this just mammoth? player company did, I think, over a billion in revenue last year in 2004. It was just $49 million.

So the growth of the fundamentals have been incredible. We were going to be speaking with an analyst who will explain it. Our guest today is Mark Astrakhan. He's an analyst at Stiefel. He covers consumer goods. He's going to tell us the story of a monster and why it's returns have been so monster. So Mark, thank you so much for joining us. Yeah, thanks for having me. Where did this company come from? It used to be like, it was called something different. It was like some sort of like natural beverage maker originally, right? Yes.

It was called Hanson Natural up until a few years ago. The two guys who are running it, the now co-CEOs bought the business as an investment or as part of an investment group in the early 90s. It was selling juice at the time. Southern California, I think they were living in London at that point, two South Africans looking for an investment and, yeah, pulled some money together and bought the business, moved to California and started selling beverages. So how did the energy concept come about? Because I think around that time, there was already a very well-known energy beverage with loads of caffeine in the

form of Red Bull. And I have to declare my interest here. I'm having to half Austrian. Red Bull comes from Austria. Lots of people don't know that. And so, you know, my loyalty in the energy drink markets are already committed to Red Bull. But I'm curious, like, there was an incumbent with a strong brand. Why did they decide to take on that particular sector? Well, maybe just to take a step back, because I think it's interesting and important. So the Austrian comment, you know, the guy who's running Red Bull, rebel, of course, is a private company. So there's not a whole lot of information out there, but having studied this sector for far too long and finding it as interesting as it is, the guy who's running Red Bull, the CEO,

actually only owns about half of the company. He was a consumer executive in the world before starting Red Bull. He was traveling to Southeast Asia a lot and finding that his travels from Europe to Southeast Asia retiring and was in Thailand and found this drink called Crate and Dang, which is translated into Red Bull these days. And he decided he wanted to bring this back to Europe with him. So he actually created a joint venture with the family of the founder of this business. And so what we know of Red Bull today actually originated as a Thai beverage, which is still sold in a can that looks like it did in the early 80s in a bunch of places around the world,

mainly in that part of the world, China as well. and aside, he brings it back to Europe and starts selling it as Red Bull and these sleek cans as the first energy drink. And so that is kind of where the monster story begins. So Rodney and Hilton, the co-CEOs were living in London and saw that Red Bull was starting out in Europe around the same time that they moved there and could see that this was obviously doing really well. So it had nothing to do with buying the Hanson Natural Juice business, but having seen the growth of the energy category, they thought it would be a good thing to try when they were running their beverage business in the U.S. So before they launched Monster, they actually had some energy drink brands

under the Hanson Natural portfolio. I think it was Blue Sky Beverage. There were a few other ones, but they were launched in maybe the mid to late 90s, and the fact that you haven't heard from them suggests that they were probably a little bit too early. So they were always interested in the energy category, but it wasn't until, I think, 2002 or so, that they and one of their partners, a guy named Mark Hall,

who now is a board member and also one of the chief innovators of the company, decided to create this thing called Monster, this edgier product than Red Bull and the rest is sort of history. So basically Red Bull, we sort of, at the time and still is, it's highly caffeinated. It's associated with extreme sports. I know they sponsor a lot of that stuff. Monster is basically like, we're just going to go more extreme. Yeah, I think that's probably fair.

Maybe starting with the 16 ounce can. I think if you were to think about the energy drink consumer, I believe, I think history kind of bears out as well as sales trends that the Red Bull and Monster consumers are unique in that Red Bull sure went after that extreme consumer, but it also early on focused on premise, so bars and restaurants. And it as a result or maybe coincidentally morphed into what I would consider more of a white collar beverage. and it was partly because it was sold at a premium, partly because it was a smaller can. Now you have a whole bunch of other packages for Red Bull 12 ounce, 16 ounce and the like, but the original can is an 8.4 ounce can. And so it was small in volume and expensive in dollars or euros or whatever it was at the time. And so Monster decided they were going to come out with a 16 ounce to basically sell the same volume or a same value, same price for twice,

the volume. And they also started to market it a bit more towards blue collar workers, construction workers, the like. They flavored the product, I think, to be a little bit more unique than Red Bull. Red Bull was never something that I think people wanted to really enjoy drinking. And the folks at Monster really focused on palatibility and something that they thought would appeal. And it, especially from a very sweet standpoint of the core green monster, which was the original product, really did that to a certain unique set of consumers. But then they added on that with a focus on much more of the, I don't know if it'd be a blue-collar type of extreme sport. But Red Bull was focused more on motorsport and on well-known athletes and music and Monster went a bit kind of next level to younger generations as well.

focusing on early on like X games, but focusing on things like video games, which really weren't a focus at that point for Red Bull, focusing on MotoGP, focusing on Supercross, you know, things that Red Bull wasn't necessarily focused on at the time, and probably still to a large degree really isn't focused on. And so they were able to bring in a completely different consumer. So they've done a really good job of retaining that blue collar consumer, which I think is pretty important. You can look to see the green can, which is still their biggest best-selling product, but also that they've now skewed, I think, a bit younger than Red Bull as well. Maybe their core consumer is kind of late teenager to 30. Red Bull's consumer probably comes in

in mid-20s and off. And so they've really segmented the energy drink category. And as I said, at the outset of the question, I think if you asked the consumer, consumers, they would largely tell you they're a drinker of one and not the other. And so I think that has really led to the success of both businesses. And interesting, I mean, we can get into the international expansion for Monster, which has been quite successful. But it's interesting that both businesses, as best we can tell, because as I said before, Red Bull's private, so you don't have as much information. But they're both still growing at unbelievably strong rates, in the case a monster almost 20 years after the product was created in the case of Red Bull almost 35 years now,

still growing at an amazing rate. I think that customer segmentation is really interesting because, you know, as I mentioned, I have had Red Bull throughout my life. One of the worst cocktails I have ever had involved, I think it was Red Bull vodka and gummy bears, and it was absolutely disgusting. But I haven't had a Monster energy drink of any kind. But I am aware of the advertising. campaign, the very distinctive can with the green claw marks. I think a lot of people have probably

seen hats and t-shirts and things like that over the course of their lives. But one thing I wanted to dive in, so we spoke a little bit about how the marketing was important here, the advertising, how the brand set itself apart from Red Bull. Can you talk, well, you started to touch upon this with the international expansion mentioned, but could you talk about the distribution network here and I guess the deals that Monster struck with first AB InBev and then Coke. Yeah, and it's important from just a beverage standpoint to understand that basically what you try to do as a brand owner is to put yourself in a position to be distributed by the biggest and the best distributor over time. And so success sort of breeds success in that regard, meaning that you've got to get out there and kick the tires and sell the product to retail. to distributors on a single case basis at the beginning. But as you get more success, you attract more

attention. And the result is you have these networks of distributors of beverages who ultimately want to put more product on the truck. And the idea, of course, is to find the product that sells the fastest and also provides you the best profit in doing so. And so as the energy category accelerated is Monster Share accelerated, you started to see Monster, get proposition by a lot of distributors because of the success. And you think about it too, you're taking a step back, the biggest non-alcoholic beverage category is carbonated soft drinks. Energy at the time, 15 years ago, was a pimple of a pimple of size. And this behemoth of carbonated soft drinks was out there. If you look today, you know, fast forward 15 years, in a lot of convenience

stores, which accounts for about 70% of energy drink sales, you've got a full door, maybe even two doors, depending on the store, selling energy drinks. And you've seen at the same time the amount of space dedicated to carbonate soft drinks shrinking and basically giving share away to energy drinks because it's growing faster and it's allowing for more profit margins from both the distributor as well as the retailer. So it creates this opportunity for itself. And obviously it starts with the consumer wanting the product. But if you're able to have higher velocity and greater value in your rings,

it's a self-fulfilling prophecy. So you go back to mid-2000s, and Monster was starting to gain this traction. So Anheuser-Busch, not a non-alcoholic company, but a company that still has trucks and distributors that goes in services, grocery stores and convenience stores and the like, said, hey, you know, we want to put you in our trucks. And so I think the original agreement was for about half of the U.S. The other half of the U.S. was a bit of a hodgepodge of distribution from a Monster standpoint. And slowly the distribution progressed where in the early 2010s, the distribution had

evolved into about half Anheiser Bush and half Coke, because Coke saw the opportunity there. They had been a partner in an international starting in the UK. It was actually the first distribution partner that Monster had outside of the U.S. I mean, Monster was doing a little bit on their own, but really it started to accelerate with Coke's help in the UK. And eventually that morphed into Coke, I think in 2014, announcing it was going to take at the time, I think, a 15 or 16% stake in Monster, which is now close to 20% because Monster has bought back a lot of stock, increasing Coke's ownership. And at the same time, that agreement made Coke the global distributor of Monster, with a couple of exceptions in certain countries. And so basically,

Monster kicked Anheuser-Busch out and is now fully distributed, at least domestically, through Coke and as I said through probably something like 97% of the world. And so if you think about distributors out there of size on a global basis, Anhezor Bush is a very good distributor, globally in Hasra Bush and Bev, very good distributor, Pepsi, very good distributor, but I think many people believe the Coke is the creme de la crem. So Monster really positioned itself with the best distributor, the one with the global reach to put you into every single bodega on the planet, if need be. And importantly, if Monster wants to launch a new product, the Coke system can get that on to store shelves virtually the next day. How much, you know, it seems like there must be like a real chicken and egg problem for any upstart consumer food or beverage company.

Because obviously, you need these distributor relationships to get out there. They're not easy to get. There's limited shelf and truck space. On the other hand, you also presumably need to have a pretty big. marketing efforts so that people actually buy it. But if you don't have the distribution, then you can have all the marketing and brand in the world, but no one can get it. How do they sort of navigate that simultaneous challenge of raising the brand awareness, becoming an entity that people knew while also making sure that once people became aware of

the brand, they were able to find it? Yeah, it's actually interesting too. Monster, if you just take a look at marketing or advertising expenditure, despite it being a marketing company, it's not even a company that manufactures its own product. It outsources all manufacturing to third parties. So it's really just a brand manager. Despite being a brand manager, its marketing expenditures is actually pretty low as a percentage of sales. It's not a traditional I'm going to watch an ad on TV and want to go out and buy a monster. So what they do is what I was saying before.

and sponsor athletes, events, video games, rock festivals, sporting events, and the like. And that creates the lifestyle image of the brand and becomes that self-fulfilling prophecy. I mean, Red Bulls kind of done the same thing. They do a little bit of TV advertising, but the bread and butter is really that you're sponsoring these athletes and events. And so that relies a bit more on a guerrilla marketing proposition. What Monster was really good at originally was just feed on the same. street, sampling, and kind of showing up to the right place to create the image that they

wanted for the brand. And that continues, believe it or not, to this day. They've evolved, as everybody has, from traditional or more traditional kind of advertising, at least in their sense, of course, of brick and mortar, but we're a real visible, in real world advertising to now digital and social media, but they're still doing it in kind of that same way, appealing to the same consumer. And it's not going to be something that you're going to find on a Jeopardy advertisement, for example. And I think he is probably going to be something that continues for the foreseeable future. And so I think that's a bit different than kind of the rest of the world that I spend time

analyzing the Proctors and Gambles or Estee Lauders or L'Oreales of the world that are doing more traditional advertising. On April 4, 2023, around two in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, we did this to you. What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16.

So I'm curious, you know, you've laid out the sort of history of the company, what made it different from its major competitors, how it was doing some things, rather unusually. So for instance, in marketing, it wasn't spending a ton of money, buying traditional ads. Instead, it was going through these sort of grassroots efforts or sponsorships. How did the street approach Monster in its early days? Like, how were analysts actually viewing the company and its potential? And how did that evolve over time? It's a good question. Frankly, I'm still not sure the street. fully understands what they're doing or what they've created. No offense to the guys running the company, but it is interesting. They don't even have an in-sourced investor relations function.

So management uniquely here doesn't really even talk to investors. Don't talk to analysts. Don't talk to investors. They hold for earnings calls a year and allow people to ask. Probably on the very minimal side of questions, two, three, four, five per quarter. They do a couple of investor events a year outside of that. But that's really it. There's no real outreach on their part. And so that's actually what, to me, has created such an interesting proposition from an analyst standpoint to covering it. And if you think about it, yes, they're a public company, but they almost treat themselves as a private company as a result of what I just said. And you couple that with Red Bull being an actual private company. And that Coke and Pepsi, yes, they distribute energy

drinks but don't have really any of their own and never really had any success doing that, that there's almost no information out there from an energy drink company standpoint. So you're left to really do a lot of feet on the street kind of thinking about how these businesses work and what has driven the success, which I think is fun. And it creates an opportunity to really do unique analysis in my opinion. I think one of the things that we've done a good job of historically is that is looking at things in a way that people haven't looked at it before. I mean, ultimately, I see my job as trying to help investors make decisions and help them

make money. And I think in a company like this, where they give more information in regulatory filings, but not necessarily something that you have an investor relation person or team kind of directing people to find that, that it creates an opportunity to do that. And so if you go back 15 years ago, there was none, Zilk, you know, Zilch, there was just very little information. whatsoever is also a smaller company at the time. And so it was probably something that really just fell through the cracks. If you were lucky enough to cover it, maybe it was one that you'd

give less focus to than covering some of the bigger companies like a Coke or Pepsi within your coverage universe. And it was just there because you thought it was interesting. And so in the early days, I mean, I can remember just making phone calls to private beer distributors and asking how sales are going and what they're seeing from a category standpoint. Is there any, are there any other brands that are coming up? Because at the time, if you go back to the mid-2000s, Coke and Pepsi were both trying to compete in this. They saw what was happening from an energy standpoint.

They saw the share shift commencing, you know, even early days at that point. And so they were all trying this. And I think the fear amongst investors was these are the behemists, the 800-pound gorillas, and they're going to come in and they're going to kill monster and they're going to hurt Red Bull. And it just never materialized like that. And as I said, you started getting bigger and bigger from a distribution. standpoint, I think these big beverage companies ultimately decided if you can't beat them,

you join them, or if in this case, if you can't kill them, you distribute them. And so you still make a piece of the distribution or the profit that's out there, but you can't own the brand fully, I guess, unless you go out and want to buy it. And it's just very fascinating from that standpoint. I mean, I think you didn't ask the question, but there is clearly this dynamic that's still at play here that Coke owns close to 20% of the company, but monsters are still like public companies. You've got these two companies that are public answering to their own shareholders. And so you can't be fully aligned with one another as a result of that. And so I would describe it

as almost a healthy tension where I think if Coke were to ultimately buy this company, you would probably see some of that tension go away. And you'd probably actually see better execution because you'd have more streamlined focus from a organizational standpoint on selling monster. So Coke's done a good job, I think they could do a better job. Is that something people talk about? I mean, do people speculate that at some point, Coke just might buy the whole thing? Yeah, there's a lot of speculation on that. I mean, I could probably spend an hour answering that question alone.

But in terms of the specifics, yeah, Coke has done what it's done. They've never increased their stakes since the original purchase. They, if you pay attention to current news, have some tax issues, which ultimately could result in them having to write a big check. And so that probably prevents things from from happening nearer term, their stock, which I would think they could use in a potential deal, is also down off of highs given the whole impact to their business from COVID. And so their equity is a little bit depleted relative to historical level, so it probably makes it harder. But the flip side to it is the two guys who are running Monster Rodney just turned 70 end of last year. Hilton is 67, he'll be 68, middle of this year.

They're not young. They've been running this company for a long time. And uniquely, each of them own about 5% of monsters. So if you think about that on a roughly $50 billion company, they're worth an awful lot of money. And so they're not getting younger. They're worth a ton of money. I think they want to spend more time doing other things at some point than just running

monster. They both have grandkids. They're both enjoying spending more time with them. I think they would like to travel more, assuming that one could ever actually leave their house. And so, yeah, there's this question of kind of what happens from there. In my humble opinion, I'm sure they would disagree with this. But I think the bench strength is at least lacking as far as visible facing folks to the street. And it's not obvious to me who would necessarily run the company, should they both?

get hit by a bus tomorrow, God forbid. In fact, I don't think there is somebody internally who would make sense to do that. And I think it's a very unique organization. And I think that creates a bit of a question mark about what happens. But obviously, it takes kind of like firing nuclear weapons, I guess. It takes two people to turn the key or two sides to do that. And so you need to have a willing buyer as well as a willing seller. I'm not sure that they necessarily are willing sellers, but the right offer comes along,

who isn't. But I think as they get older, I think that becomes more, more reasonable. But then the question is who ultimately would buy them. And I think the distribution arrangement, the equity ownership would put poke in that position. I just think at present, it's probably a little harder to pull off. So we'll see how that goes. I've long thought that there could be some others out there, kind of dark horses that aren't really talked about that could potentially be buyers of the business. But we'll ultimately see how that plays out. But, but, but, You know, for the time being, I think they're very happy and they're obviously very successful in doing what they're doing. But we'll see what happens in time.

So Joe mentioned in the intro that we did a previous episode on Domino's Pizza, which was another stock that had a stellar performance, perhaps unexpectedly. And we also did a podcast about tobacco companies. Again, a similar story. you would have expected that an industry that's been under a lot of pressure over the years might have suffered, but actually they've generated pretty consistent returns. Are there any parallels between, I'm trying to think how to phrase this, are there any parallels between tobacco and energy drinks here? I mean, ultimately, you're selling a product that a lot of people would classify as unhealthy

and addictive. Is the business model as simple as that? Well, I think the difference is energy drinks don't kill people. True. That's fair. And I think there has been a question historically about the health of these products. If you go back, I think it's now seven, eight years ago, it had come to the attention of various political folks in Washington who ultimately put it to the FDA to figure out whether these products were healthy or not. and whether they should be sold. And Rodney from Monster and the then CFO at Rockstar and a senior marketing executive at Red Bull were pulled in front of, I think, a Senate committee to talk about the health of energy drinks.

And ultimately, the FDA said the amount of caffeine in this product was well within our daily limits. the other stuff that helps to make it an energy drink, things like Torrine or Guarana or ginseng are all what would be considered generally regarded as safe, meaning that they're all okay to go into the body. And there's nothing that we can say or do that should change how these things are sold. But ultimately, the energy drink companies had come to an agreement to kind of have this go away, which is that they just put more explicit messaging on the cans to say pregnant women shouldn't drink these. You shouldn't drink more than one a day. And here's the amount of caffeine that's in the can. And you've seen over the years various countries that have

tried to do similar things, have tried to ban sales to minors. Monster also agreed not to market to kids under 12, whatever that means, because they don't really market anyway. So I'm not sure how a 12-year-old or younger can be differentiated from those that are older from that. But the point is, it's been vetted, it's been vetted all over the place, and it effectively still has less caffeine than a espresso at Starbucks or thinking about a frappuccino that has a lot of calories in it. It's no worse for you than kind of anything else that's out there. I mean, I'm not arguing these are good for you.

I'm not arguing carbonate soft drinks, you're good for you. But it's in that same vein, and it's not something, as I said, that will ultimately link to cancer, I think, pretty definitively. And so it is what it is. I think it's interesting, too, just stepping back, it's never been perceived as good for you, and the world seems to evolve into more healthful products. And yet, while the consumer says on one hand that that's what they want to consume, whether it's eat or drink, they want things that are cleaner label and more natural and organic and whatnot,

the actions, the sales, the volumes, the accelerating growth globally of energy drinks would speak otherwise. And I think ultimately like coffee, sure, caffeine is an addictive drug to some extent, but this is something that fills a need state. Consumers are sleeping less, working more, want more focus, and this is what it offers. But as I said, interestingly, it still has less caffeine in it than an equivalent cup of coffee. Yes, there's more caffeine in it, but I wouldn't say it's materially more. It's kind of four times the amount of caffeine is a can of Coke, but what does that really do necessarily from a body standpoint? I don't think it's all that significant. So it's a long-winded answer is saying, not healthy, hasn't seemed to have an impact,

doesn't really harm you. It's been vetted across various regulatory bodies. And I think at this point, I mean, knock on wood, but it seems like most have generally accepted what I just said. So I want to look into the future a little bit. I mean, you mentioned that outside of the current management, there's not an obvious replacement, perhaps a reason for them to sell. Talk to us about, like, where has the growth been lately and what are the opportunities going forward? Like, where will, you know, where theoretically will the next 10 years of growth come from for a company? Yeah, it's a good question. And I'll start by saying in the U.S., which is still two-thirds of revenue, it's still growing at at least a high single, if not a low double digit rate.

So here is a business that's been around in the U.S. now for 19 years and still growing at that rate. And they don't really take price, so it's almost all volume that's driving. It's more incremental cans being consumed. The U.S. is a bigger profit center than the international piece. They just have higher margins here. And so it probably accounts for 90-ish percent of global prices. profit and it produces just massive cash flows. So you've got this business just before I answer the question on where does it go. You know, you talk about it being a great stock. It's just the

greatest business ever invented. I mean, these guys don't produce anything themselves. There's no real capital expenditures. They spend a percent of sales or less per year. There's no debt on the balance sheet. So it just mince money, a billion dollars plus and free cash flow a year that they use to basically just buy back stock. So you've got this business that's growing domestically at a, call it a high single digit rate, I think can grow at that rate for at least the foreseeable future here. And we didn't touch on it, but Ken, if you want to later, I think they've done a really good job of expanding usage occasion. So you keep the core consumer and you innovate into new product categories. And that has really driven interest in incrementality of purchases. And it has

contributed to the consistent growth in the U.S. And in the U.S., they have around a 40 share or so on a dollar basis of the energy drink category about the same. As Red Bull, volumetrically, they're actually higher because they sell, as I said, twice the volume for the same price. So they are the leader from a volume standpoint on a market share basis in the U.S. If you take that 40% and look at it globally excluding the U.S., our best guess, because there's really not good data, is that they're probably somewhere in the low to mid teens as a percentage of global share. Red Bull is somewhere around a 50 share. So if you think about what they've been able to do in the U.S., starting at zero and now being a volume share leader in the U.S.,

if they can have that kind of success outside of the U.S., you go from a 12 or 13 global share to a 40 share in a category that's growing at a, I don't know, 10% or more rate on a global basis, you get a business. you get a business that's three, four times the size of what you have today on an outside the U.S. basis, which today is roughly a third of the business, and you have a business that's growing in the U.S. at a high single-digit rate. You've got a really long growth rate for the revenues of this company. To put in perspective, best we can tell, Monster in 2021 will do about $5 billion in revenue globally. I would guess Red Bull is probably twice that size. you're talking about a $10 billion company. So Monster can easily see its sales double from here

over a long period of time, just based on the math that I just outlined. And so it's partly just this getting more distribution, increasing brand awareness, and expanding usage occasions through innovation. And the Coke system, this is where the Coke system is really coming and done a good job. I think in the U.S., Monster didn't need Coke,

but outside the U.S., I think Coke has really been helpful in just getting the product to market in an efficient, effective manner, and really getting more product on shelf. And I think that's also an opportunity beyond just category growing. If you think about a typical 7-Eleven cooler in the U.S., you could have 12 to 15 monsters sitting in that cooler. If you go outside the U.S., on average, you're probably seeing three to five per cooler. So there's also an opportunity to just add more products, those incremental products that have expanded the usage occasions and brought in more consumers to the the Monster business. And that has been one of the big things that has driven outperformance relative

to Red Bull, in my opinion, that Red Bull has been more about just adding different packaging sizes and until more recently just not really wanting to add flavor extensions. And Monster, beyond just flavor extensions, has created new sub-brands. They've created juice, you know, energy plus juice. They've created coffee plus energy. I mean, it sounds almost like an oxymoron. And yet they've created a multi-billion dollar business globally that they're the day along with Starbucks and others are competing in. And so they've created this. I mean, when they launched that in 2005 or six, this Java Monster product, I'm sure I wrote something obnoxious at the time. Like, oh, my God, how can you possibly be successful with doing that?

And sure enough, here we are. So they've just done a really good job of kind of going to where the consumer is going to be. And I think, you know, the thing that you can't overemphasize enough is that the management here, back to the beginning of what you said about what has made this so successful. They've just been, the management here, Rodney Hilton, Mark, those three guys, have just been brilliant at figuring out where the puck was going and trying to figure out how to expand those uses occasions for the consumer. And the Red Bull maybe being a big, fat, happy private company never had to do that.

And Monster was given the opportunity and clearly capitalized on it. A lot of short daily news podcasts focus on just one story. But right now, you probably need more. On Up First from NPR, we bring you three of the world's top headlines every day in under 15 minutes. Because no one's story can capture all that's happening in this big, crazy world of ours on any given morning. Listen now to the Up First podcast from NPR. What separates good leaders from transformational ones? I'm Jessica Chen, and in season two of Leading By Example,

we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps. Listen to leading by example, executives making an impact on the IHeart radio app, Apple podcast, or wherever you get your podcast. I'm curious, we've talked a lot about the success of Monster and you seem pretty optimistic about its future. what, in your opinion, is the biggest threat to the company?

I think the biggest threat at this point, the thing, I guess there's probably two things. The two biggest things we hear are, one, how long can category growth continue? Because that's the most important. If they can retain their share or even grow their share of a category that's growing at that rate, I think they're going to be pretty happy. The second would be, you know, and sort of related to that, what about new entrance into the category? And so if you go back 12 to 18 months ago, there was a new entrant or relatively new entered into the category in the U.S. called Bang, which is selling what is called performance

energy, which is basically selling, if you can believe it, twice the caffeine in a same 16-ounce can as Monster. And that was something that started to resonate with consumers. And like Monster, they move from smaller distribution into Anheuser-Busch distribution. distribution and they're now actually distributed by Pepsi. And so there's questions about whether the share that they were able to get to fairly quickly, which was mid to high single digits, and it's since stopped and moved backwards. But that share they got fairly quickly, it wasn't as hard to get as maybe some people thought. And so digital, social media,

new age marketing can allow or potentially allow new entries to come in and reduce the barriers to entry. You see a few smaller companies like Celsius and C4, also seeing very strong growth at this point off of admittedly a very small base, but you're seeing more competition in the space. So the question is how relevant can Monster be within that? And so it's just not one of these things that I think they can sit there and rest on their laurels. It's always about constant innovation and tweaking the image and the products that they're offering. And to Monster's credit, for example, when the world started focusing on this, or the energy think world, I suppose, the subset of losers like me that focus on the beverage industry, when people started focusing on this bang product

taking share fall 2018, Monster was able to get a product out to market within six months called rain that ultimately got to a three share of the category, stopped the growth of bang and has done quite well considering it was a brand nobody had ever heard of two years ago. That brand, I think at this point, could be doing something on order of hundreds of millions of dollars in revenue at retail. So they've done a really good job of creating something out of nothing. But that's the question. How can you continue the growth and how you can sustain the share you have? I mean, I'm curious, bigger picture. I mean, beyond Monster, you cover consumer brand overall, all this question of the degree to which new, new avenues for promotion, social media, Instagram,

and new avenues for distribution, the whole direct-to-consumer phenomenon. How much space for that is? We have another conversation, actually, the timing-wise, I think it's going to come out right after this episode where we talk a little bit about that. But from your perspective, you know, you mentioned the importance of these distribution deals, the Coke network, this sort of the oligopoly of distribution. the U.S. and globally, how much under threat is that from the internet, from new stuff, or how much can it withstand these sort of these changes? I don't want to understate the importance,

but in a category like beverages where, as I said at the beginning, 70% of energy drink sales are done at convenience store, meaning is an impulse buy, it's going to be pretty hard to see that materialize. Monster and others are selling more online and on Amazon than they ever have, but those numbers are, I would estimate probably something like 2% of sales at this point. So it's still pretty small and the idea of shipping heavy cases of beverage is still not something that necessarily appeals or that I think will get traction like it could in selling sneakers or in selling pet food or something like that. So I think in this category in particular, it's probably a

little bit harder. I won't say that it will be impossible, but I think that's an advantage of where we are. And historically speaking, at least so far, you just, you haven't seen any brands like that gain traction, partly because you want to be where the consumers are and they need to see the product to want to buy it. I think that's a good place to stop. But do you have any other sort of like anything we missed in terms of like understanding this story and where it's going that we should think about. It's worth pointing out and making it, making it important that this innovation thing is really what has driven success. And the guys that this company are very good at understanding what consumers want. And I think they're still, despite being a company that will do $5 billion in

revenue this year, operating like a company that's going to do a couple hundred million in revenue. Like I mentioned with the rain product, I couldn't even imagine how long it would take a product like that to come to market at Coke or something equivalent to Procter and Gamble, but it would take probably two years of market research and consumer testing, and these guys were able to get it done in months. And early last year, Red Bull launched a watermelon flavor, which sounds simple, but it just killed it. I'm sure Tracy would love that in a cocktail. There you go. Probably very good with vodka and a little bit of sprig of basil or something. You joke, but now that you say it, Red Bull Watermelon with a Sprig of Basel and some vodka, like... Well, but if you don't want the full sugar product, so that product did really well, Monster put a product in the market on their zero calorie line in September.

So within months of seeing the success, they were able to get that product, the formulation correct, the taste profile right, and they were able to get it to market. I will say if I'm able to do anything here, it's to at least get you to try a monster at this point. I feel like both of you have never tried one. What's your favorite one to try, and I'll get that one. What's your favorite flavor? I think you should try one of the ultra lines. Try ultra sunrise, which is the orange flavor or ultra paradise, which is their, I don't know, I'd call it, like an apple, kiwi, cucumber kind of thing.

but those are probably the ones that I would try first. All right. I'm going to, I'm looking up. I'm going to test the... No, what were you going to test? The watermelon with vodka, obviously. Obviously, but I was going to say, I'm going to test the strength of Coke's distribution network

and see if I can actually find a monster product in Hong Kong. That's job number one. You will definitely be able to find a monster in Hong Kong. I'm just envisioning Tracy. on a rooftop in Hong Kong at some, you know, where they apparently like they have the virus under control drinking a monster watermelon basil cocktail. And I'm very jealous of that. I'm very jealous of that moment right now.

I don't think you're going to find a watermelon ultra in Hong Kong, unfortunately. But they actually are expanding in China at this point too, which they have even a slightly different product offering there than they do in the rest of the world. but they have three of their mainstream products and two non-carbonated tea products there. So I'm confident you'll be able to find at least a couple of those on shelves. I'm on it. Before this episode comes out, I'm going to get one. All right, Mark, thank you so much for joining us. I've been so curious about this company for a long time.

And I feel like you told its story extremely well. So really appreciate you joining us. Yeah, absolutely. Thanks for having me. That was great, Mark. Thank you. Thanks, Mark. Tracy, I am kind of embarrassed that I've never had one. I think I probably have like 2004, 2005.

Like I have like some memory of like going to the bagel store on Bedford Avenue in Williamsburg. And I remember like seeing them. Like I have this vague memory of like the first time I like saw them proliferate. But it's definitely been a bit too long since I've had a monster beverage. But that's kind of an interesting thing, right? So I have a feeling that even for most people, who haven't actually tried Monster, they're aware of the branding. Yeah. Because it became such a big thing and it was so distinctive. I do think that whole conversation was obviously fascinating, the strength of management,

this idea that they're able to respond to the market very, very quickly, that their advertising has been different to other traditional drinks companies. The fact that they have zero debt on their balance sheet is absolutely amazing. amazing in the current environment. But one thing I found really interesting was, you know, Mark was kind of hinting at this, but it was the way the street approached the company. They didn't really understand it. Monster was kind of unique in the sense that it was a public company, but it acted a bit like a private company. And I suspect also, Mark didn't go into this directly, but I suspect that there is also a little bit of, I guess, like, arrogance or classism towards the product.

Like, Monster was always the blue collar product for a less well-off market, I suppose, whereas Red Bull was the sort of white-collar one. And I wonder how much of that fed into people's investment decisions or analysis. Yeah. There's just no question. Like, if I have to, in my mind's eye, and again, it's my own. own biases and judgment and but like in my mind's eye you know like if i have if i imagine someone drinking a red bowl it's like some like euro guy who's like six foot one wearing a white shirt and a club and you know like super fit and if i imagine what i would have just assumed as like a monster drinker it's like someone playing video games in the u.s and florida and having a headset

on talking, you know, like whatever game they're playing and with a baseball cap backwards and everything. Like, it's just like, I hadn't, I hadn't, you know, in my mind, it's like, oh, yeah, they're competitors. But then as soon as you said that, it's like so clear to me, like, how I've long, like, stereotyped the two, uh, the consumers. So, but I guess it's kind of you're going to get a lot of angry, uh, monster fans coming after you now. I know, but you are definitely, uh, the Red Bull demo, Tracy. I, I would not like to put myself in that category. I support it because Austria has very, very few things of which to be proud, and probably our most famous export is something that you wouldn't want to take credit for.

So, you know, we latch on to what we can, and Red Bull is one of them, even though, as Mark pointed out, the actual recipe came from Thailand. But I'm going to convert. Or at least I'm going to try a monster. I'll try to find it in Hong Kong and, you know, we can talk on Twitter or somewhere else about how we feel about it. Do the review. Sounds good. I'm looking forward to our review. I'll take that selfie when I'm, you know, on the roof deck drinking some sort of monster-based cocktail. Post it to Instagram. Okay. This has been another episode of the Allotts podcast. I'm Tracy Allaway. You can follow me on Twitter at Tracy Alloway. And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. Follow our producer, Laura Carlson.

She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today. And check out all of our podcasts at Bloomberg, onto the handle at podcasts. Thanks for listening. Hi, I'm PJ Vote. My podcast search engine has a new two-part series for you. Of all the new technologies coming out of AI, the most transformative one might be driverless cars. They're already on the road in 10 American cities, and they're quickly coming to more.

We tell the story of how we got here. The secret team at Google that spent 15 years building what might be the same. safest vehicle on the road, and we cover the fights brewing in blue cities, where unions and politicians are working to keep those cars off the streets. Listen to search engine wherever you get your podcasts. What separates good leaders from transformational ones? I'm Jessica Chen, and in season two of Leading By Example, we'll sit down with executives like Grace Chen of Bertie Gray to find out. It's important to understand where you spike, but also really acknowledge where you don't and find people who can fill those gaps.

Listen to leading by example, executives making an impact on the IHeart radio app, Apple podcast, or wherever you get your podcasts.