As consumers tighten their belts, cutting out extra energy drinks has become an easy cost-saving measure. This trend has hit Monster Beverage (MNST, Financial) hard, as shown by its disappointing Q2 results, marking its slowest sales growth since a 0.9% decline in Q2 2020 during the pandemic.
- Sales of Monster Energy drinks fell by 3%, leading to overall sales growth of just 2.4% to $1.9 billion, missing analysts' expectations for the fourth time in five quarters. MNST attributes the weakness to an industry-wide issue, citing reduced convenience store foot traffic and a shift towards dollar store channels.
- Monster is not alone in this struggle. Starbucks (SBUX, Financial) also reported disappointing Q3 revenue and a 3% global comp decline on July 30, due to a slowdown in store traffic, especially from occasional customers.
- Competitive pressures are also affecting MNST's sales. The company reported that its market share in the energy drink category in convenience and gas channels fell to 34.7% from 35.7%, according to Nielsen. Competitor Celsius (CELH, Financial), seen as a "better-for-you" energy drink, reported a 23.4% revenue increase on August 6, with its market share at 7.9%.
There are some positives, though.
- MNST's margins are improving as aluminum can and freight costs decrease and pricing actions take effect. For Q2, gross margin expanded by 110 basis points year-over-year to 53.6%. MNST plans to raise prices by 5% for its core brands and packages in the U.S. on November 1 and is reviewing opportunities for price increases in international markets.
- MNST is also rolling out less expensive energy drinks, like Predator and Fury. The company is pleased with the initial rollout and aims to expand its affordable energy drink portfolio.
Overall, it was a disappointing quarter for MNST as cost-conscious consumers cut back on discretionary spending like energy drinks. However, MNST's strong market positioning and brand power should benefit it in the long term as household penetration in the energy drink category grows.
