Carabao's strong promotion but weak distribution, and Monster's strong distribution but weak promotion, prove with their losses that aggressive marketing carries risks and that having distribution doesn't guarantee market success.

In 2018, the energy drink market remains volatile, and these two international giants, once highly anticipated, are reported to be in the red.

Compared to the energy drink boom of 2013, the category now faces higher competitive barriers and costs in terms of competition forms, marketing tactics, and consumer acquisition. In other words, the era when energy drinks could gain market dividends through aggressive marketing and strong distributor recruitment is over, and the experiences of Carabao and Monster in China confirm this.

Carabao: Aggressive Marketing No Longer Works

Carabao, a major Thai brand, entered the Chinese market as early as 2014, evolving from an initial national distributor to localized operations. However, in a report on November 27, 2017, Chaiyatorn Sricharoen, an analyst at Thailand's Bualuang Securities Pcl, wrote that Carabao's sales in China seemed to fall short of earlier expectations, with 2017 sales expected to reach 150 million cans against a target of 170 million.

According to sources close to Carabao, last year's sales revenue even failed to cover marketing expenses, which may be a key reason why Carabao's operator Huang Qinjian and his team collectively exited in March this year.

Despite the backing of being "Southeast Asia's No.1 energy drink," Carabao's performance in the domestic market was subpar. For Huang Qinjian, who had nearly two decades of experience as a senior executive at Red Bull Guangzhou, and his Red Bull-affiliated team, it certainly wasn't due to "localization issues."

"After two years of localized operations, Carabao once set a strategic goal to split the market with Red Bull, which led to aggressive brand promotion strategies," noted an industry insider. "In 2017, Carabao frequently sponsored various sports events and invested heavily in TV and radio advertising, a play that seemed almost 'regardless of cost.'"

According to incomplete statistics from FBC reporters, in March 2017 alone, Carabao sponsored multiple sports events including the Tianmen Mountain "Step to the Sky" World Parkour Competition, Yichang International Downhill Race, and the Freestyle Football World Cup, with over a dozen sports sponsorships reported throughout the year.

"As an energy drink, it's understandable for Carabao to use sports marketing to build its brand image, as it's a common practice for Red Bull. But if the brand hasn't established a firm foothold in the market, sports marketing has limited impact on sell-through," a former Red Bull Guangzhou regional manager told FBC reporters. "Red Bull's early growth benefited from being a first mover in the energy drink category, gaining market dividends, and then using sports marketing to elevate brand height after establishing consumer mindshare."

According to this regional manager's understanding, sports marketing is a means to enhance brand value, not a strategy for launching new products. Therefore, although Carabao gained attention through sports marketing, it still failed to effectively solve the sell-through problem.

Mr. Sun, a Carabao distributor in Wuxi, Jiangsu, said, "To seize market share, Carabao guided distributors to adopt the 'three closeness principles' for outlet distribution: channel expansion close to Red Bull, ensuring Carabao is wherever Red Bull is; market displays close to Red Bull standards and larger than Red Bull's display space; and pricing close to Red Bull, with terminal profit per can about 0.5 yuan more than Red Bull."

Despite Carabao's preparation for a close fight with Red Bull, its overly aggressive marketing, combined with Red Bull's dominant position in the energy drink market that is hard to shake in the short term, amplified the execution weaknesses of Carabao's marketing team, which had been established for just over a year, in managing the national market.

According to the International Financial News, some distributors reported that "after cooperation in July last year, the market team lacked execution and basically didn't develop any new clients; we had to rely on ourselves to expand and extend."

Another regional distributor revealed that distributors had advanced a lot of money, and when market stagnation issues were raised with Carabao's China headquarters, although verbal promises of support were made, they were never implemented.

"In many places, they're already doing buy-two-get-one-free promotions, and many distributors haven't reordered after their first shipment. It feels like a bumpy road ahead," said the distributor.

It's understood that Carabao has now restructured its marketing team, with a new leader from the Wahaha system, who also has rich beverage operation experience. However, the challenges remain significant: "Carabao must first appease existing distributors, resolve historical issues, restore their confidence, focus on channels, increase channel profits, and maintain channel vitality to seize opportunities in market competition," said an insider familiar with Carabao's situation.

Monster: Having Distribution Doesn't Guarantee Market

"He who has distribution has the market" was once an unspoken rule in the beverage industry. But in today's energy drink market, this rule is gradually losing its "truth" halo.

For example, Carabao largely failed due to weak distribution network construction, while Monster, another foreign giant, leveraged Coca-Cola's powerful distribution system but failed in brand promotion.

In September 2016, Monster Beverage, a well-known American energy drink brand (named "Monster" in China), entered the Chinese market through Coca-Cola.

Coca-Cola's partner, COFCO's China Foods, handled Monster's distribution, while Swire and COFCO, the two bottlers, provided localized production, giving Monster strong support in both distribution and production capacity. Deutsche Bank noted in a March 2017 research report that China Foods' functional "Monster" drink had strong sales in the Asia-Pacific region, and management was optimistic about its growth potential in China.

But dreams are beautiful, reality is harsh. In early 2018, Monster Beverage announced at a Wall Street analyst meeting that its combined operating losses in India and China for Q4 2017 were approximately $9 million (about 57.15 million yuan).

Although the Chinese market was not separately disclosed, CEO Rodney Sacks mentioned more than once that losses in China dragged down the quarter's results.

Mr. Yang, a distributor handling top beverage brands like Red Bull, Wahaha, JDB, and Mizone, attributes Monster's failure in China to two factors: first, the carbonated taste has low consumer acceptance; second, there's only display, no advertising, so products lack pull at the terminal.

FBC reporters learned from multiple distributors that Monster "really doesn't sell well" in the market. Some Coca-Cola system salespeople even complained: "They think too highly of themselves—high price, little advertising, and new flavors without market cultivation. If it weren't for the high bonuses for sales staff, no one could push the initial stock."

Meanwhile, personnel from competing manufacturers believe, "Monster is carbonated and canned, so it's hard to finish quickly after opening, leading to a poor consumer experience."

In fact, taste issues may be subjective, but Monster's minimal brand influence in China is probably something Coca-Cola executives didn't anticipate.

CICC noted in a research report that although Coca-Cola's partners provide production and distribution support, Monster's marketing and promotion are still handled by its own team, which apparently doesn't understand the Chinese market well.

It's understood that Monster's marketing focuses on four pillars: "music, extreme motorsports, video games, and hot girls" to attract consumer attention. Some argue this strategy is too niche and unconventional.

"There's no TV advertising, and online ads are scarce. Without mainstream media support, communication is limited to small circles like hip-hop and rock scenes, which is too narrow. Although the target consumers are clear, they aren't necessarily the main energy drink consumers," said an industry insider.

Monster's strength in social media promotion via Twitter and Instagram in Europe and the US also faces "localization issues" in China. "In fact, Monster's foreign social media presence is like an internet celebrity, similar to Durex in China, but due to special national conditions, this online promotion method can't penetrate the domestic market," analyzed Zhu Danpeng, an FMCG marketing expert. "Compared to Red Bull, Monster is more youthful, so it has a certain consumer base, but given the current industry landscape—with Red Bull squeezing from the top tier and Lehu and Dongshen Te Yin stabilizing the second and third tiers—Monster won't form a consumption climate in the short term. Targeting first-tier cities as its main sales channel, Monster will need a longer market cultivation period."

From this perspective, Carabao and Monster, these "brothers in distress" in the domestic energy drink market, might learn from each other before challenging Red Bull.

Source: Food Business Observation (ID: fbc180)

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