Beer distributors widely anticipate Monster Energy to enter the hard seltzer category as early as next year, according to a survey conducted by Goldman Sachs Equity Research.
Nearly 85% of distributors in the “Beverage Bytes” survey, representing feedback from over 80 distributors and approximately 180,000 retail outlets that sell alcohol, think that Monster will or potentially could launch a hard seltzer product. Of those, 55% are expecting a new launch, while 30% note it as “a distinct possibility.”
Speculation around a potential Monster product launch in the non-energy space has been bubbling in recent months. During the a recent earnings call, Monster CEO Rodney Sacks acknowledged that the company’s registration of certain product names — including Pure North, Real North and True North — helped spark rumors about a potential move into alcohol, but that the company was still evaluating both alcoholic and non-alcoholic extensions and that “some of those names may well be used by us for an alternative brand within the energy space.”
In separate reports, Goldman Sachs analysts have registered their belief that Monster will likely enter the category sometime soon. The firm estimates a potential Monster hard seltzer could reach $1.3 billion in retail sales by 2025.
“Bottom line, we are incrementally more positive on the potential opportunity of a MNST hard seltzer based on our priority beer distributor survey and we believe this could represent an incremental growth engine for MNST,” analysts wrote, reiterating guidance as “buy.”
Should Monster make the leap into hard seltzer, distributors and retailers broadly believe it could become a player in the fast-growing space, according to the survey. More than 20% of distributors think a Monster hard seltzer launch would be successful, while an additional 40% think a potential product may be successful. Respondents noted several factors in its favor, including significant overlap between energy drink and hard seltzer consumers, strong brand recognition with 21-25 year olds, and the brand equity to take a different approach, such as higher alcohol content or aggressive-themed marketing.
In contrast, around 26% of those polled said it would fail. That group noted that Monster is targeting a category that is quickly becoming more crowded and competitive; in the last month, both Talking Rain and Topo Chico — owned by Monster’s distribution partner, Coca-Cola — have announced their respective intentions to launch hard seltzer products. Several distributors responded that the brand may face challenges in maximizing its brand equity because of restrictions on selling caffeinated alcoholic beverages, with others noting that the format was outside of Monster’s core manufacturing competencies. Furthermore, some questioned the energy drink maker’s ability to take share from both category newcomers and well-established names like White Claw and Truly, brands with first-mover advantage that have invested heavily to protect their market positions. Those two brands, notably, are also exploring higher alcohol versions.
What would a Monster hard seltzer look like? In terms of packaging, distributors and retailers believe the energy drink brand will commit to selling 16 oz. single cans, likely using bold colors and edgy themes, with an eye towards building a presence in convenience. Respondents were divided on how the brand will approach formulation, with theories ranging from adding caffeine to increasing alcohol content to taking a better-for-you positioning with less calories and antioxidants.
As for distribution, the feedback from respondents was broad. Some hypothesized that Monster could move hard seltzer through beer distributors — possibly Reyes or Anheuser-Busch InBev (ABI), Monster’s former partner on energy drinks pre-Coke — liquor houses, or use a hybrid model, but much is dependent on whether the beverage is malt-based or spirits-based. Around 48% of those surveyed saw ABI as a likely fit: partnering with Monster could help it make up ground in the category on Molson Coors wholesalers, distributors of White Claw and Truly. In addition, many major non-ABI beer distributors could be restricted from making deals due to existing agreements with Red Bull. Some suggested that Reyes, which has expertise in both alcoholic beverage distribution and a strong presence in key markets like California, may be a strong alternative to ABI, to which Goldman Sachs analysts concurred.
Many agreed that the company’s route-to-market strategy will be the most important factor in the product’s potential success, and that decision may be coming soon. Around 75% of respondents expect that launch to come early next year, meaning a formal announcement could come soon in order to secure placement for spring 2021. Considering the category’s rapid growth and the time-consuming process of navigating state alcohol ordinances, timing will be critical, analysts said.
Yet despite strong indications that Monster will confirm its intentions to launch a hard seltzer sometime soon, some survey respondents noted the brand could seek opportunities in other categories — with around 44% speculating a CBD beverage was likely forthcoming. Sacks recently noted that the company has been developing such a product, but is waiting to move forward until the regulatory environment is better defined. Other respondents suggested the product could take the form of a flavored malt beverage, hard coffee or tea, or a canned cocktail.
The survey also showed that distributors and retailers are having mixed reactions to Coca-Cola’s announcement of Topo Chico Hard Seltzer last month. On the positive side, respondents noted that Topo Chico’s strong brand recognition, particularly amongst Hispanic consumers, could help the brand as it moves into the alcoholic category. However, many distributors were skeptical about the company’s ability to truly scale the brand: including Reyes, they noted that Coke has only a handful of alcoholic beverage distributors in its network. Instead, some suggested — and the analysts agreed — that Coke will opt to distribute the product themselves.