So, who benefits from Monster Beverages product reclassification?

So, who benefits from Monster Beverages' product reclassification?

Earlier this month, Monster Beverage said it would reclassify its namesake energy drinks range from being a dietary supplement to a “conventional food”. Ray Rowlands, director of beverage research company Drinksinfo Ltd, investigates the proposed change and considers whether the changes merely serve the interests of the brand owner with no real benefit to the actual consumer.

Monster Energy has come a long way since it was first launched in the US by Hansen Natural back in 2002. Since that point Monster Beverage Corporation, the new name adopted by Hansen a year ago, has emerged as one of the front runners in the international energy drinks category. It took Monster Energy just five years to usurp Red Bull as brand leader in its home market and today it is one of the top three best selling energy drinks on the world stage.

Like other energy drinks the brand has sailed close to controversy. Between 2004 and 2012, the US Food and Drug Administration (FDA) received reports of numerous ill effects plus five actual deaths allegedly occurring after consumption of Monster Energy. This included the death of a 14 year old girl in late 2011. Although the reports did not provide proof that the actual drinks caused any of the deaths, the latest incident, at least, had a damning effect on company share values which fell 14% last October following legal action by the schoolgirl’s parents.

In response to this episode, and to fend off negative issues linked to energy drinks in general, the company announced earlier this week that it is changing its product labelling. In future, its energy drinks will not be considered as dietary supplements, as is currently the case, but instead will adhere to FDA guidelines for conventional foods. In essence this means that Monster Energy labels will provide “nutrition facts” instead of the current “supplement facts”. The new labels will also show how much caffeine is in the drinks. Currently caffeine levels do not have to be shown because caffeine is not a nutrient but a natural chemical. If caffeine is added to a food, however, it has to be included in the ingredients list.

Dietary supplements, which include vitamins, minerals and herbal remedies, come in many guises. They can be bought as pills, capsules and liquids and are widely available from retail stores, through mail order and also online. They are generally taken for health reasons and as such are considered by consumers to be good for them. But, the FDA does not regulate dietary supplements in the same way that it regulates medicine. Under the Dietary Supplement Health and Education Act of 1994 it is the manufacturer who is responsible for ensuring that a dietary supplement is safe before it is marketed. In general, companies are given more leeway in the ingredients that can be added to a dietary supplement. When a product is considered as a “food”, it falls under the Federal Food Drug and Cosmetic Act and companies are allowed to only use the ingredients that have been approved as food additives or have been generally recognised as being safe. By accepting FDA regulations, the onus could be said to shift from the Monster Beverage Corporation to the FDA. As another plus for the producer, conventional foods do not have to report serious adverse effects; something that supplements must do.

A further potential advantage to Monster Energy is an improved competitive stance against Red Bull, the number two energy drink brand in the US, which is already sold as a 'conventional food'. Red Bull is exempt from sales tax in certain US states due to its 'conventional food' status, and can even be bought with food stamps (vouchers that are issued by the Government to those on low incomes which are exchangeable for food).

Although guidelines vary from state to state, non-alcoholic beverages are eligible to be purchased with food stamps, and the consumer is required to pay the applicable sales tax. I guess that’s at least one more benefit of product reclassification. 

Monster Beverage has announced that it has recently joined the American Beverage Association (ABA) which also favours the proposed labelling change. As an industry lobbyist which spent a record US$19m in 1999 on behalf of its members and, incidentally, has actively been involved in the defeat of numerous attempted tax increases on soft drinks, the ABA is a useful ally to have. So, there is another plus for Monster Energy.

One area to consider is that, as Monster Energy is currently classified as a dietary supplement, it is not restricted to the FDA's conventional food product ruling that “caffeine can only be used as an additive for use in soft drinks in concentrations of no greater than 200 parts per million”. However, according to the FDA's brand checklist, Monster Energy only contains 160 mg of caffeine per 16oz can. This is well within the set limit, so the new labelling should not pose a problem in respect of its caffeine content. That said, it is still twice the caffeine level of Red Bull.

At time of writing no date has been announced for the labelling changeover, nor is it clear if it will apply solely to the US, which represents around 80% of Monster's sales. But, what will the actual outcome achieve? According to a statement from the firm, the ingredients of Monster Energy are not changing, so unless there is a rebalancing of ingredients, the brand will still contain one of the highest caffeine levels of any energy drinks currently on the market.

In effect, the benefits of the labelling change are solely to the advantage of Monster Beverage Corp, with no tangible gain from a consumer point of view.