Bureau Veritas
Carst And Walker

A Coca-Cola energy drink to compete with partner Monster Beverage?

The Coca-Cola Company is planning to introduce an energy drinks range that will be in direct competition with its partner Monster Beverage.

Monster Beverage’s shares sank 14% on last week after the company said its top shareholder, Coca-Cola, was developing two energy drinks that could compete with its brand in the coming months.

Monster, whose black-and-green cans are a common sight in the hands of skateboarders, motorcyclists and Formula 1 drivers, is currently in arbitration with Coke, the company said. The arbitration story, in fact, leaked the news of Coca-Cola’s plans.

Coke confirmed to Reuters that it was developing two energy drinks and that it had filed for arbitration with Monster.

Coke’s new products may violate an agreement between the companies that restricts Coca-Cola from making rival energy drinks, Monster Beverage CEO, Rodney Sacks, said.

“We value our relationship with Monster. As in any commercial relationship, we will abide by our contractual obligations,” Coca-Cola said in a statement.

Coke also said “Coca-Cola Energy” would be planned to have caffeine from naturally derived sources and guarana extract. “It would be developed as a preferred option for people who want these types of ingredients in an energy drink,” the company said.

Any competition with the world’s biggest beverage company is a major risk for Monster, Wall Street analysts said.

“This reflects the outsize bargaining power Coca-Cola has over Monster,” Morningstar analyst Sofia Vora said in a report. “Monster’s ability to secure shelf space and distribution is contingent on its relationships within Coca-Cola’s vast bottling network.”

Coke’s possible new energy drinks would raise uncertainty around Monster’s business, Wells Fargo analyst Bonnie Herzog said.

Any competition could also mean that Coke — which has a history of building ownership stakes in smaller companies before eventually buying them out — was unlikely to acquire the rest of Monster, she added.

Coke, which has a distribution agreement with Monster in markets including India, has been looking to diversify into health, sports drinks and even coffee, as customers continue to ditch its sugary fizzy drinks.

Coke had indicated that it pushed the proposed launch of its energy drinks until April, Sacks said.

Source: Reuters

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