Monster’s “upbeat and constructive” tone during its annual shareholder meeting yesterday has boosted confidence among Goldman Sachs analysts, per a report issued late last night. Here are the highlights
- Monster’s pricing strategy appears to be working – consumer demand remains strong after multiple price increases since last year to fight persistent inflation. Further hikes could be coming, but so will increased promo activity this summer.
- Innovation is working, too – as noted in its most recent retailer survey, new products like Zero Sugar, Ultra Strawberry Dreams, The Beast Unleashed and Reign Storm have all performed well, with healthy repeat rates and accelerating sales.
- Predator, Monster’s affordable energy line, is touted as a potential pathway for growth in China, where lower-cost options are more popular.
- Some input costs (aluminum, transportation) are falling, while others remain stubbornly high, but the company “broadly speaking” has sufficient inventory to meet current demand levels.
The Beast Gets Nasty
The brand’s first beverage-alcohol product, The Beast Unleashed flavored malt beverage (FMB), has “met initial internal expectations” and is currently distributed in around 40% of the country. The company plans to leverage that success to launch a hard iced tea called Nasty Beast – 6% ABV in four flavors – by the end of the year, and didn’t rule out more alcoholic options in its future pipeline.
The move puts Monster in a high-growth segment within FMBs; hard tea increased dollar sales +38.7% YTD, to nearly $385 million, now accounting for 2.3% share of total beer dollar sales in NIQ-tracked channels. Across all outlets (on- and off-premise), dollar sales for hard tea have improved +31% YTD versus 2022, according to data shared by Bump Williams Consulting (BWC).
The company’s Alcohol Brands segment — comprising The Beast Unleashed and various brands acquired through its 2022 purchase of the CANarchy Craft Brewery Collective — grew net sales 204.4% ($46.3 million) year-over-year, with $20.5 million coming in Q1 2023.
Margin Dip Coming
Per Goldman analysts, management “sounded cautious” on Q2 gross margins, noting that certain SKUs are being distributed outside of their orbits, and promotional activity is expected to seasonally step-up in Q2.
Gross margins are projected to shrink slightly in Q2 to around 52.5%, but analysts expect that to rebound to around 54% towards the end of the year. “We expect the healthy and continued roll-out of recent innovation,strong pricing and international demand should be enough to offset potential margin pressures,” the report noted.