Monster Pricing Spineometer: 3 of 5 Vertebrae

Monster Beverage Corporation, a global beverage company, had a positive Q2 2024. Revenue rose 2.4% to $1.9 billion and earnings before interest and taxes rose 0.6% to $524 million over the same period last year.

A review of Monster’s August 7 Q2 2024 earnings call and associated financial reports provided insight regarding the importance of pricing on performance.

Management gave much attention to market share and pricing.

Hilton Hiller Schlosberg, Vice Chairman and Co-CEO, spoke to recent sales volume declines in the United States. He stated, “[H]istorically, we’ve seen declines in quarterly year-over-year volumes, really only during the financial crisis and COVID lockdowns in the U.S., and they particularly significantly impacted foot traffic. The current situation in the U.S. is actually relatively unprecedented, and we haven’t seen inflation levels… and interest rates for one heck of a long time. And we believe that those have contributed to the slowdown.” And added, “[W]e are a blue-collar brand. And our consumers are more hard pressed than consumers in other categories.”

Despite these challenges, a price increase is anticipated.

Rodney C. Sacks, Chairman and Co-CEO, stated, “[W]e will be taking an approximately 5% price increase on our core brands and packages effective November 1, 2024, in the United States. We are continuing to monitor opportunities for further pricing actions. The company continues to have market share leadership in the energy drink category for all outlets combined in the United States for the 13-week period ended July 2, 2024.”

Hilton Hiller Schlosberg, Vice Chairman and Co-CEO, clarified the reasoning behind the November price increase. He stated, “[I]f you look at our pricing, where we are relative to other beverages that we would regard as kind of comparative. … [T]hey’ve dramatically expanded their price. We’ve passed the price index to Monster products. And — we still see it as an opportunity. The extent is not that significant. We still will retain a very competitive price for consumers.”

Pricing and sales volume are clearly on the minds of the Co-CEOs at Monster Beverages. How are they managing price?

Industry benchmarks suggest Monster Beverages to have 15 to 75 professionals dedicated to pricing and revenue management. Areas where they would support management decision-making can easily be defined.

1. Monster Beverages has been slow to increase prices compared to its industry peers according to Co-CEO statements. This implies price reviews and proactive price improvements have not kept up with the opportunity.
2. Monster Beverages is investing in innovation and acquisitions. New product development drives a need for pricing research. Given its consumer product nature, conjoint analysis would likely be useful and affordable.
3. Once in the market, elasticity studies are likely to be useful in guiding promotion strategies.
4. And, since Monster Beverages doesn’t sell directly to consumers but rather through channels, we need to consider the business-to-business negotiation side of pricing. Here, pricing analytics to deliver meaningful price guidance for sales negotiations is useful as well as profit-aligned to reduce the principal-agent problem has been proven to improve performance.
5. Monster Beverages operates globally and pricing practices and commercial policy vary by country. This creates a higher need for pricing expertise beyond the minimum industry benchmark.
6. Macroeconomic factors impact performance and are country-dependent. Applied economics would likely help management navigate country dynamics.

Research into the investment by Monster in pricing yielded underwhelming results.

1. The number of professionals dedicated to pricing at Monster Beverages is below expectations.
2. The pricing and revenue management professionals were dominantly in the United States, which is unaligned with their global footprint.
3. Roles of manager and director of revenue management could be identified. This implies that revenue management at Monster Beverages is more of a job function than a career path.

Given the importance and capability of pricing at Monster as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of August 2024.

Monster Pricing Spineometer: 3 out of 5 Vertebrae. Management acknowledges the importance of pricing and revenue management at Monster Beverages and has made some progress in developing that function, but there is much opportunity for improvement to be seized.

MNST (Monster Beverage Corporation) fell from 51 the day prior to their earnings call to 47 a few days later. FY 2023 revenue of $7.1 billion with a 27% operating margin and P/E ratio near 28.

For FY 2023, a 1% improvement in price would yield a 3.7% improvement in operating profits holding all else constant at Monster.