Money Matters - Simplified

Monster Beverage Corp. confesses about a probe regarding their flagship product

Monster Beverage Corp., a U.S. maker of energy drinks, disclosed Thursday that it received a court order from an unnamed state attorney general in July as part of an investigation into its flagship product.

The enquiry involves the "advertising, marketing, promotion, ingredients, usage and sale" of the Monster Energy drink brand, the 'Corona', Calif.-based company reported in a regulatory filing with the Securities and Exchange Commission.

"As the investigation is in an early stage, it is unknown what, if any, action the state attorney general may take against the Company, the relief which may be sought in the event of any such proceeding or whether such proceeding could have a material adverse effect on the Company's business, financial condition or results of operations," Monster added in its Form 10-Q quarterly report.
A company spokeswoman declined to comment beyond the filing, which didn't disclose the name of the state attorney general.

The energy drink market
Energy drinks, which contain caffeine and other stimulants such as taurine, represent one of the fastest-growing beverage categories. U.S. retail sales reached $8.9 billion last year, up from $7.7 billion in 2010, according to Beverage Digest, a trade publication and data service. Monster and Red Bull GmbH, an Austrian company, dominate the U.S. energy drink market.

But the rapid growth also is drawing more scrutiny. Senator Dick Durbin (D., Ill.) asked the Food and Drug Administration in April to investigate energy drinks after expressing concern about high caffeine levels "and potentially dangerous ingredients." The senator also alleged such drinks are being marketed to young people.

In the U.S. market, Monster and Red Bull GmbH claimed volume shares of 34.8% and 29.5% in 2011, respectively, according to Beverage Digest. But Red Bull has a larger U.S. market share in dollars and is a larger player globally.

PepsiCo widely distributes closely held Rockstar, the distant No. 3 energy drink brand in the U.S., in addition to its own energy drink AMP.
Coke markets its Full Throttle and NOS energy-drink brands in the U.S., in addition to distributing Monster.

Larger beverage rivals such as Coca-Cola Co., the world's biggest beverage company and a Monster distributor, have been approached in the past about potentially acquiring the company. Such a move would give it a much-bigger exposure to the rapidly growing energy category at a time when traditional soda sales remain slow in the U.S.