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Introduction A few days ago, we published an article on the global stock price gains over the past fifteen years. Topping the list was Monster Beverage. From $1.36 on August 18, 2004, it rose to $160.78 on August 19, 2016, a gain of 117 times, far exceeding second-place Priceline. Recently, Monster Beverage has also entered China. Today, I'd like to share my understanding of Monster Beverage.
(Monster stock price chart: Xueqiu)
Founded in 2002, Monster Beverage is the second-largest functional beverage producer in the US, second only to Red Bull. I have always believed that world-class beverages often carry an element of cultural export. Coca-Cola embodies classic American culture; if compared to a cartoon character, Coca-Cola is very much like Captain America. Monster's influence, from the start, has been full of violence, akin to the angry Hulk in cartoons. On the Monster can, there is a lemon-green 'M' that looks like a mark left by a claw in the dark.
When mentioning Monster Beverage, one cannot avoid its founder, South African businessman Rodney Sacks. Many think that a cutting-edge product like Monster must have been developed by young people, but it was actually a South African who worked as a lawyer in Europe for many years. After immigrating to the US, he kept looking for good investment opportunities. In 1992, he and a friend acquired Hansen, the predecessor of Monster Beverage, for $14.6 million. At the time, Hansen produced natural sodas and fruit-flavored drinks, had only 12 employees, and annual sales of $17 million. His European experience made Sacks realize that functional beverages were rapidly rising, while the US market was still dominated by carbonated drinks like Coca-Cola. But people were beginning to pay attention to new beverage types. So, after Red Bull entered the US in 1997, Sacks also began developing the functional beverage Monster Beverage.
Differentiated Competition with Red Bull: Positioning as More Robust American Culture
How to compete differently with the leader Red Bull, with a distinction in brand positioning? Monster Beverage's initial positioning was more in line with the "tough" American culture. Its caffeine content is five times that of Red Bull. The monster, with its ultra-high caffeine energy, conquered tens of thousands of young men who value inner strength. "Generally, men really like the refreshing function of energy drinks. For them, drinking beverages containing vitamins and calcium cannot quickly meet their needs. The immediate effect of functional drinks is more attractive to them." In terms of price, Monster Beverage also offers better value. The "monster" provides customers with a 960ml can, priced the same as a 450ml can of Red Bull. In the beverage world, the ultra-high caffeine energy makes high-priced energy drinks more popular in the market. In terms of promotion channels, it is more precise. Red Bull relies on large-scale TV advertising, while Monster Beverage starts with extreme sports, targeting a more segmented audience.
Very clear brand positioning. When Monster Beverage entered the functional beverage industry, Red Bull already stood as a mountain ahead. But Monster Beverage differentiated itself in brand, user, and product positioning, quickly gaining recognition from young Americans.
Rise of Functional Beverages: A Powerful Era Background
Any big bull stock has an era background. Monster Beverage's rise also caught the big tailwind of the US functional beverage market over the past decade. For consumers, sales of traditional carbonated beverages have been declining. I once said that the appearance of Diet Coke was very helpful to Coca-Cola. People are increasingly health-conscious and reducing sugar intake. Especially after the Atkins Diet became popular in the US, people realized that obesity comes from sugar intake, not from eating meat. Reducing daily carbohydrate intake became the most popular way for Americans to lose weight. The growth of traditional carbohydrate beverages has slowed down.
Meanwhile, functional beverages began to rise. The US has a strong coffee culture; consuming caffeine can boost energy, and many people need to consume large amounts of "refreshing" drinks daily. Moreover, Red Bull's entry into the US market also helped Monster Beverage complete consumer education. From 2009 to 2014, sales of functional beverages in the US grew by 50%. Since Monster Beverage targets young people aged 18 to 30, these are the largest consumers of functional beverages in the US.
(US functional beverage growth rate)
Coca-Cola might be a company that can exist for 100 years, but it is hard to maintain continuous growth for 100 years. Over the past decade, the growth of the entire carbonated beverage market has slowed significantly, and more and more people have become health-conscious. They are looking for new alternative beverages. At this time, the demand for functional beverages has surged. It can be said that the changes of the times created the Monster Beverage myth!
Implications for Investment: Chinese Consumer Bull Stocks Are Expected
Personally, I think Monster Beverage's success is very meaningful for domestic investors. The two most important points for consumer goods are brand and change. Over the past decade, China's nominal GDP growth has been about 10% annually, leading to significant changes in consumption structure. Many opportunities can be captured from this. From the white liquor of the post-70s generation to the pre-mixed cocktails of the post-85s and post-90s. From channel dominance to product, marketing, and brand dominance. Moreover, brands of essential condiments like daily necessities are consolidating.
For value investors, holding companies with the strongest brand moats will inevitably bring returns. For example, Moutai in white liquor, regardless of economic conditions or the white liquor industry, Moutai's demand will always be strong. Because its brand has luxury attributes, leaving other brands far behind. Even if public funds cannot be used for dining, bringing a bottle of Moutai to a personal meal still shows face.
For growth stock investors, look for consumer goods that are changing and fit the new era. For example, Rio pre-mixed cocktails in recent years, and Three Squirrels which is not yet listed. These consumer goods have distinct characteristics of the times and often grow at explosive rates.
Finally, from the perspective of pricing power, Monster Beverage's net margin can reach 15%, showing full pricing power. Coca-Cola and PepsiCo's net margins are only about 12%, while our Master Kong instant noodles have a net margin of only 3%. Behind pricing power is product brand and consumer recognition. Those companies with true moats often have high pricing power.
So, brand strength, pricing power, combined with changes in new consumption patterns—if these can be combined, they will surely produce super bull stocks. I believe that within ten years, China's consumer goods industry will definitely produce super bull stocks similar to Monster Beverage.
Ten years ago, super consumer bull stocks like Yili and Moutai were born. Ten years later? Let's wait and see.
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Source: Dianshi
New Food Era · New Distribution —— 2016 China "FMCG + Internet" Summit Forum ——
This is a grand event focused on how the FMCG industry's channels will transform under the trend of Internet+ transformation
Conference Agenda 09:00-09:30 Registration 09:30-09:35 Host opening 09:35-10:05 2016 China FMCG Industry Trend Analysis Report - Zhao Bo 10:05-10:25 FMCG Enterprise Transformation Strategy and Path - Liu Chunxiong 10:25-10:45 Opportunities and Challenges Brought by FMCG Channel Reform - Liu Zhao, CEO of Waiqin365 10:45-11:25 Alibaba Retail Link All-round Empowerment - Guo Kunkun, Alibaba Retail Link 11:25-12:00 Roundtable Forum - Brand Transformation: Improvement vs. Reconstruction? (Guests to be confirmed) 12:00-13:30 Lunch 13:30-14:00 Distributor Transformation: City Distribution Trend Development - Wang Qi, CEO of Weijie City Distribution 14:00-14:30 Roundtable Forum - Why Should Distributors Do Logistics in Transformation? 14:30-15:00 Detailed Explanation of Zhongshang Huimin's "One Machine, Two Wings" Strategy - Su Xiaoxin, Vice President of Zhongshang Huimin 15:00-15:30 Detailed Explanation of Zhanghe Cloud Factory Strategy - Yang Lixiang, Zhanghe Tianxia (speech content to be confirmed) 15:30-16:00 Supply Chain Finance: The Lubricant for B2B to Drive Traditional Business - Chen Xian, CEO of 51 Order 16:00-16:30 2B Investment Principles and Ideas - Xu Xiaoping, Founder of ZhenFund (guest to be confirmed) 16:30-17:00 Small Retail, Big Opportunity: China's Retail Transformation and Upgrade - Wang Jianfeng, General Manager of E-commerce Department, Yurun Group 17:00-17:30 Roundtable Forum - Who is the King of FMCG B2B Models? (guests to be confirmed) 18:00-20:00 Dinner
For manufacturers and distributors who want to transform, this grand event is not to be missed. Interested friends can long press the QR code below or click "Read Original" to register.
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