Monster Executives Open to More Alcohol Acquisitions.
Company’s Future Alcohol Offerings Unlikely to Carry Monster Branding Amid Alcopop Risk.
‘Great Potential’ for Alcohol Overseas, CEO Says. Plan for Now is to ‘Walk Before We Run.’
Monster Beverage executives are intent on entering the hard seltzer market after all. While company leaders have talked since mid-2019 about a possible entry into the category, they have also repeatedly expressed concern since that the category was saturated. To enter the category, executives have said they want to develop a differentiated hard seltzer offering, such as an all-natural product. Last week, Monster announced it had agreed to acquire St. Louis-based Canarchy Craft Brewery Collective, which owns craft beer brands including Cigar City and Dale’s Pale Ale. As non-alcoholic beverage companies push their way into the US alcohol market (returning the favor of beer companies that have crossed into non-alcohol), Monster has chosen a path in contrast to Coca-Cola’s and PepsiCo’s. Coke has licensed select brands to brewers for the creation of alcoholic extensions. PepsiCo has become a beer distributor to handle the launch this year of Hard Mtn Dew. “Working with someone else to distribute an alcoholic product, we could have done that years ago,” Monster Co-CEO Hilton Schlosberg said during a Jan. 13 call with investors after the Canarchy announcement. “We chose not to do it.” During that call, Schlosberg and Co-CEO Rodney Sacks made it clear what was on their minds for Canarchy. They see the brewing co-op as a vehicle to speed up development of Monster’s own natural hard seltzer brand. Canarchy has the expertise. The brewer already markets a hard seltzer nationally called Wild Basin that has promise, Sacks and Schlosberg said. The executives want to “focus on and develop” Wild Basin to help bridge the company’s learning gap. More broadly, Monster executives said in a statement that Canarchy provides a “springboard” to enter the alcohol market and develop a range of alcohol beverage products, including spirit-based versions.
DETAILS. Monster will pay $330 million in cash for Canarchy in a deal that is expected to close by the end of March. The company will operate as a standalone entity with its existing management team led by Tony Short, who became Canarchy CEO after a 33-year career at Anheuser-Busch and the brewer’s US distribution network. The Canarchy deal includes seven breweries and various distribution relationships nationwide. “The acquisition will provide us with a fully in-place infrastructure, including people, distribution and licenses, along with alcoholic beverage development expertise and manufacturing capabilities in this industry,” Schlosberg said in the announcement. Brands including Cigar City and Oskar Blues (including Dale’s Pale Ale) have strong national distribution and are well respected in the craft beer industry. The business generated revenue of about $134 million in 2021 and has more than 550 employees.
DISTRIBUTION REACH. MORE ACQUISITIONS POSSIBLE. Canarchy provides Monster immediate access to potential alcohol distributors. The collective’s US distribution mix is 50% Molson Coors wholesalers, 30% Anheuser-Busch wholesalers, and 20% independents, according to Schlosberg. Those wholesalers include the beer distribution arm of Reyes Holdings, which also is a major US Coca-Cola bottler. (Coca-Cola, meanwhile, owns a 19% stake in Monster Energy and is the company’s global master distributor). Canarchy isn’t necessarily the end game for Monster. Sacks and Schlosberg said they are open to further acquisitions in the alcohol beverage market, large or small. “We’re looking at all avenues and all opportunities,” Sacks said. Added Schlosberg: “We’re a growth company and we want to remain a growth company.” As of last year’s third quarter, Monster had plenty of room for deals, almost $3 billion in cash and short term investments, according to the company’s balance sheet. The Canarchy deal represents about a tenth of that capacity. Media rumors late last year that Monster was in talks with Constellation about a potential merger have since fizzled.
BEWARE THE ALCOPOP. During the same investor call, Sacks said he and Schlosberg believe they “shouldn’t be extending the Monster brand into alcohol.” Sacks said company leaders are “protective” of the Monster brand and weary of extending it too widely. “There are also concerns on having a single brand with both alcohol and non-alcoholic products,” Sacks said. “There is a way that we will be able to build on the Monster reputation and family, but not under the Monster brand as such.” Schlosberg was even more pointed. “I actually am vehemently opposed to putting a brand that is a strong consumer brand onto an alcoholic product,” he said. “It’s just opening up for major issues down the road. This vision of kids being stopped, and they claim that they thought they were drinking a non-alcohol product. It’s very much a slippery slope and we have to be really careful.” Ten years ago, a brand called Four Loko and others like it drew negative attention from federal regulators and activists because the sugary, fruit- flavored, and high-alcohol malt beverages were attractive to young people and underage drinkers. Monster’s leader’s may also be sensitive to regulatory scrutiny following past accusations that the company’s sugary, caffeinated drinks were dangerous to kids, even though they contain no more caffeine that a comparable sized cup of Starbucks coffee.
COKE PARTNERSHIP, INTERNATIONAL OPPORTUNITY. Sacks said the Coca-Cola system has a right of first refusal to distribute Monster’s alcohol products overseas. He also believes Coke’s bottling system outside the US, where lines between alcohol and non-alcohol distribution are less rigid, would be an ideal distribution partner for alcohol products from Monster. “But that’s a little bit more into the future,” he said, adding that Monster’s focus
for alcohol will be in the US for now. “We’re going to need to walk before we run.” Sacks said alcohol sales internationally has “great potential for the future.” Schlosberg added that he’d want to be sure that sales teams overseas didn’t get distracted from Monster’s core non- alcoholic products.
WALL STREET REACTION. Wall Street analysts were largely positive about Monster’s pending acquisition of Canarchy and plans to enter the alcohol market. Credit Suisse Analyst Kaumil Gajrawala called the acquisition “groundbreaking” and said “access to US alcohol, a $250 billion industry, could fundamentally change the trajectory of this premium energy drinks business.” Consumer Edge’s Brett Cooper said the real future value of the deal “will be determined by Monster’s ability to leverage the infrastructure of the asset to create a sizable and scalable alcohol asset.” He added that Coke’s push into alcohol globally by way of its bottling system means that Monster’s success in alcohol in the US “has direct potential international implications.” Bonnie Herzog at Goldman Sachs said the risk of distraction for Monster was limited by the fact that Canarchy’s management team was retained. JP Morgan’s Andrea Teixeira called the deal a “landmark” and said it gives Monster more “flexibility and independence” over its alcohol strategy. “The flip side is that will likely take longer to reach critical mass,” she said of the decision to forego partnering with a much larger alcohol player.
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