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Monster Beverages (MNST) Enters Alcohol Space Via CANarchy Buyout

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Monster Beverage MNST recently inked a definitive agreement to acquire craft beer and hard seltzer company, CANarchy Craft Brewery Collective LLC, in a cash deal worth $330 million. The deal, subject to customary closing conditions, is likely to conclude within the first quarter of 2021. However, the deal does not include CANarchy’s stand-alone restaurants. Post the acquisition, CANarchy will function independently with its existing leadership team.

This move will help Monster Beverages leverage venture into alcoholic beverages space with the addition of Cigar City, Oskar Blues, Deep Ellum, Perrin Brewing, Squatters and Wasatch brands to its portfolio. MNST is set to gain from CANarchy’s existing infrastructure, licenses, alcoholic beverage development expertise and manufacturing capabilities in the alcohol beverage space.

Beverage companies are tapping into new categories like ready-to-drink, energy drinks and now alcoholic beverages to drive growth. The current trend of adding alcoholic drinks to their product portfolio, which earlier had only soft drinks, will gradually bridge the gap between the soft drinks and spirits industry.

Prior to this, Coca-Cola KO partnered with Constellation Brands STZ to launch alcoholic cocktails under the former’s FRESCA brand. Through the deal, the companies plan to bring Coca-Cola’s FRESCA brand, which currently is a grapefruit-flavored citrus soft drink, into alcoholic beverages line.

As part of the deal, Constellation Brands will manufacture, market and distribute the new FRESCA Mixed cocktails in the United States. The FRESCA Mixed cocktails are expected to be launched later this year in the United States. The drink will be a spirit-based, ready-to-drink cocktail, in sync with the emerging consumer trends.

Earlier in 2021, Coca-Cola tied up with Molson Coors to introduce Topo Chico Hard Seltzer in Latin America markets and the United States.

Per the Coca-Cola-Molson Coors agreement, Molson Coors manufactures, markets and distributes Topo Chico Hard Seltzer. This marked Coca-Cola’s entry in the hard seltzer category.

Similarly, KO’s rival PepsiCo PEP in collaboration with Boston Beer is set to launch alcoholic beverages under the Mountain Dew brand name in February. This new drink namely Hard Mtn Dew will be sold and marketed by a new entity Blue Cloud created by PepsiCo.

PEP’s latest launch will be developed and produced by Boston Beer. The beverage will contain 5% alcohol by volume with zero sugar.

Coming back to Monster Beverages, the company has been witnessing persistent strength for quite some time in the energy drinks category, which has been driving its performance. For third-quarter 2021, the Monster Energy Drinks segment's net sales advanced 14.3% year over year to $1.33 billion. Sales for the company's energy brands, including Reign, rose 4.3% for the same period.

Management is optimistic about strength in the energy drinks category and significant growth in the Monster Energy brand. It remains on track to launch a number of additional products and product lines in domestic and international markets.

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Driven by these factors, shares of this Zacks Rank #3 (Hold) company gained 10.3% in a year compared with the industry's growth of 7.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

However, logistics issues, including shortages of shipping containers and global port congestions, higher input costs and freight inefficiencies have been hurting gross and operating margins. Monster Beverage continues to witness shortages in its aluminum can requirements in the United States and EMEA, owing to its higher cost of importing aluminum cans and elevated aluminum commodity pricing. The company expects these challenges to continue in the near term.


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