Coca-Cola announced today that it has bought a 16.7% stake in energy-drink maker Monster Beverage Corp. for $2.15 billion. Shares of Monster soared by more than 20% in after-hours trading today. It’s a deal that observers have been expecting for years, according to the New York Times, and one that almost happened in 2012.
This is a good deal for Coke; the world’s largest soda maker was already a distributor of Monster drinks, but now it becomes Monster’s “preferred” distribution partner, gets two seats on Monster’s board, and also takes full control of Monster’s non-energy-drink brands, which include Hansen’s Natural Sodas and Peace Tea. In exchange, Coke is unsaddling its flailing energy drinks—Full Throttle, Burn, Power Play and Play, NOS, Mother, and Relentless (has anyone even heard of these?) on Monster.
Coke needs this, an infusion of whatever green juice has been propelling Monster’s sales in the US and abroad this year. While the world’s biggest soda company reports quarter after quarter of grim earnings, Monster is gaining market share in the US and abroad. Americans aren’t as keen on soda as they used to be, but they’re crazy for more energy drinks. So crazy, in fact, that Monster probably doesn’t need Coke’s help at all in the US.
Where Coke could perhaps give Monster a hand is in catching up to Red Bull outside the US, where Monster is weaker. Coke has a short history of investing in non-fizzy drink brands just when their product categories were about to take off: Odwalla at the beginning of the juicing craze, Vitaminwater before the potential of so-called “functional beverages” was fully realized, Zico just when coconut water came into vogue.
But Coke’s history in this field isn’t one of unmixed success. Though it bought a stake, and later full ownership, of Zico, Zico’s rival Vita Coco won the coconut water wars. As the New York Times recently related (paywall), “Coke put up $8 million in 2009 for a 20 percent stake in Zico. The news sounded like the grim reaper’s knock for Vita Coco.” But Zico was too small to get the attention in needed from Coke. “It was the kiss of death, Zico’s deal,” Vita Coco co-founder Michael Kirban told the Times. His company, which subsequently signed a distribution deal with Dr Pepper Snapple, got much more attention and did much better.
However, Monster is much bigger than Zico. And the strength of demand for energy drinks is impossible to miss. So perhaps Coke won’t make the same mistake twice.