Monster Beverage Corp. confirmed its intention to raise prices by 6% this September at its biannual shareholder meeting on Tuesday.
Speaking just a few weeks after the energy drink maker’s Q2 earnings report, Monster president and chairman Rodney Sacks said the price increase will kick in on September 1, coming on the heels of incremental hikes in late 2021 and early 2022. The move will put Monster in line with chief rival Red Bull, which communicated to retailers that it will raise pricing by 7.6% (about 10 cents per can) on the same date.
“Just every element of contemplation really required us to increase our pricing, irrespective of what trade war we’re doing,” Sacks said. “I learned from one of our competitors who’s also a major shareholder in this company that historical elasticity models have been proven wrong. So it’s quite an interesting comment. But we think that the price increase will stick. It’s something we have to do, obviously — it’s good that it’s supported by what Red Bull is doing as well — but irrespective (of that), we were going to go along.”
That increase is a symptom of Monster’s global supply chain challenges, with Sacks highlighting issues such as lack of adequate shipping containers and port congestion, as well as ingredient shortages that forced it to find alternative suppliers. The cost of aluminum has somewhat stabilized, boosted by new pacts with two U.S. based manufacturers, though fuel and transportation continues to weigh on the balance sheet and are expected to “linger for longer than anticipated,” according to Sacks.
In spite of that, Monster’s innovation pipeline appears primed to continue fueling the market. Sacks noted that new products introduced earlier this year “continue to gain additional space and volume increases with new flavors and new packages.” He described the company as “satisfied” with the performance of its 12 oz. cans in the convenience channel and confirmed plans to introduce 6-packs in grocery, as well as a 12-count variety pack of Monster Ultra in 16 oz. cans to encourage trial.
“We are currently well positioned with sufficient inventories of the majority of our portfolio including our major SKUs,” Sacks commented during the call. “However, we are continuing to secure additional co-packing capacity to meet increased demand for certain of our products. The company also completed the purchase of certain real property pieces, plant and equipment in Southern California, and anticipates utilizing the property as a manufacturing facility for certain of its products.”
Craft beer maker CANarchy, which Monster acquired earlier this year, is also part of its innovation plans. Sacks said the company is planning to introduce three to four brands over the next few quarters, some of which will use brand names acquired from CANarchy and some that will be developed in-house. That slate, however, may not include hard seltzer, as Sacks sees the company playing in the broader flavored malt beverage (FMB) space and, potentially, spirit-based RTD canned cocktails.
“It doesn’t help to just follow the existing brands and blindly follow hard seltzer, but in the flavored malt beverage category, which I’d rather describe as a broader category, there is opportunity to distinguish ourselves and all brands that we will be looking in those categories,” he said. “It’s not to say we won’t do anything in a seltzer-type brand, but that will only be maybe one of a number of flavored malt beverage brands that we actually do launch.”
During the meeting, shareholders declined to approve a proposal for the company to issue a report regarding its plans to reduce greenhouse gas emissions.
Bonnie Herzog of Goldman Sachs Equity Research said the firm was “encouraged by management’s broadly constructive tone” during the meeting.
“Given the strong underlying demand and favorable pricing environment, we remain optimistic that margins should improve in (second half of 2022), especially given a line of sight on cost pressures easing (i.e aluminum costs continuing to fall), further aided by price increases mentioned previously.”