Those looking for more clarity on Monster Energy’s plans for Bang during the company’s Q3 earnings call yesterday got only a small taste of how the business is approaching its new acquisition.
At the top of the call, Monster co-CEO Rodney Sacks reported that the $362 million acquisition of Bang Energy and its assets, including a state-of-the-art production facility in Phoenix and existing inventory, had led to a small $7.8 million drag on gross profit margins during the third quarter. However, the transaction also drove a $45.4 million gain in interest and other income.
During the call’s Q&A portion, however, Sacks offered more insight into the company’s vision for its former archrival. Because Bang only launched into the Coke bottling system in September (with some bottlers taking it earlier, in August, and others waiting until late in the month) the rollout has been uneven and it’s too soon to say just how much of a benefit the brand can bring to the overall business.
“This is not a real fair quarter for the capability of what Bang can bring to the portfolio,” Sacks told investors and analysts.
He noted that Monster is starting from behind with Bang, as the brand had lost significant shelf-space during its former parent company’s bankruptcy proceedings, and that both Monster and its Coke-aligned distributors are focused on simultaneously regaining lost ground while also working to keep existing retailers in stock.
“We are as a company making presentations to the large and smaller retailers, both convenience, grocery, mass, and obviously the club channel to ensure that Bang is restocked in their sets,” Sacks said. “So that will take a little bit of time, it doesn’t happen overnight and we are hopeful that we will be able to achieve really very much extended distribution in the new sets as they come out.”
But there is one hard line that regrowth strategy won’t cross, he added: Monster’s sales teams have been told “they are not to compromise” any existing Monster Energy brand shelf space in order to incorporate Bang.
“The Bang brand has emerged as a lifestyle brand and we believe it should be positioned … hopefully in a separate cooler away from the energy beverages,” he said. “That includes the wellness beverages and the performance beverages and that’s the mission that we are focusing on with our sales teams.”
While many questions still remain about how large a role Bang may eventually play in the Monster system – particularly as the company continues to assert that its core focus remains its flagship, namesake product line – some analysts remain optimistic about the acquisition’s long-term prospects.
Goldman Sachs Equity Research reported today that it views the acquisition as “being underappreciated by investors,” stating that its analysis suggests Bang could create an incremental 1.5-2 point increase in top- and bottom-line growth.
BevNET contributor and CPG industry strategist Joshua Schall said that although Monster leadership has remained “relatively hush” about their approach to rebuilding Bang, the call did confirm certain points in the strategy: namely, a “relatively quick rebound” in door count for the brand. However, he cautioned that even the most optimistic outlook for the brand’s recovery is unlikely to reach the heights Bang achieved around 2019.
“This is a different energy-plus competitive landscape now and Monster has drastically rationalized a great deal of the Bang Energy flavors,” Schall said. “I expect the long-term rebuild (if successful) to be authentic, because Monster leadership has instructed the sales teams to not compromise any of the company’s existing shelf space to incorporate the Bang brand.”
While the acquisition did do some minor damage to Monster’s gross margins, Schall said he isn’t concerned about Bang being a drag on margins for long, especially as the Phoenix production facility is fully optimized.
“This facility will help Monster supply a larger portion of its West Coast production needs or about 15% of estimated total U.S. volumes,” Schall added. “So, that increased percentage of self-manufacturing will help to drive costs down long-term, but also the core Bang Energy product has the same margins as Monster Ultra and Reign…which will help further improve margins overall.”
Although it may still dominate the conversation around Monster, Bang is just one piece of the company’s strategy to remain competitive in a fast-changing energy drink category, which has also seen it launch innovations like Reign Storm, which competes more directly with brands like Celsius, as well as putting some more focus behind its Coke-aligned portfolio brands like NOS.
As well, the company is continuing to expand its play in the alcohol sector with its The Beast Unleashed malt beverage line and the upcoming Nasty Beast hard tea launch.
In its analysis, Goldman Sachs was upbeat about the company’s overall performance potential.
“We continue to believe [Monster] has meaningful room to grow gross profit dollars (and improve gross margins) through a combination of incremental topline growth opportunities from strong innovation (including alcohol) & pricing, while moderating input costs provide a clear line of sight to GM recovery, which ultimately we think should serve as a positive catalyst and support a further re-rating of the stock,” the report stated.