Study

http://www.gurufocus.com/news/175109/monster-beverage-corporation-yale-investment-thesis

Sales and Distribution Opportunities

Typical metrics for evaluating sales and distribution including numbers of stores, store penetration, shelf space, dollars spent on promotional activity by store or region were not appropriate for analysis of Monster’s performance due to a lack of publicly filed data. Monster sells directly to DSD distributors as customers. Monster therefore does not have robust information regarding secondary sales made by DSD customers. Monster’s public filings reveal only sales to general DSD customer types as the company does “not have complete details of the sales of [its] products” by full service distributors and distributors’ respective customers. (Given the DSD customer model, this lack of data is not inconsistent with other major players in the space. This is not necessarily a sign of poor management oversight.) Gross sales to full service distributor customers have ranged from 65 to 69 percent since 2005. 

Given the nature of Monster’s DSD-dominated distribution model and, as noted previously, the limited tracking data, we believe that Monster may have opportunities to improve its inventory management. (Inventories reported on balance sheet have increased by 388 percent from 2005 to 2010.) Unlike many competitors with broad and deep product portfolios, a single energy drink brand dominates as the major source of Monster’s revenue. Furthermore, given the fact that management acknowledges that keeping up with consumer preferences is important to maintaining brand identity and market share, we are surprised that more robust data tracking is not in place.

To better understand point-of-sale dynamics of the company’s major growth brand, Monster Energy, we conducted field research at 24 sites on the East and West coasts: eight gas stations, eight convenience stores and eight grocery stores. Monster Energy was more widely available on the West...