Monsters tie-up with McDonalds in several US states could be the start of something big

Monster's tie-up with McDonald's in several US states could be the start of something big

This month, Ray Rowlands turns his attention to the recently-reported link-up in the US between Monster Beverage Corp and the McDonald’s fast-food chain.

So, McDonald’s and Monster have begun a trial union, testing out the latter's energy drinks in a score or so North American fast-food outlets, sprinkled across five eastern US states - Florida, Georgia, Illinois, Michigan, and Ohio. Two variants are reported to be on offer, Monster regular and a no-calorie variant, Zero Ultra.

For McDonald’s, the move comes at a time when the fast-food chain is attempting to revitalise its US business. This follows a slump in sales, which have been on a downward slide for seven consecutive quarters. In response, McDonald’s is aiming to provide customers with more natural, healthier menu choices, in order to address declining consumer satisfaction.

I'm not quite sure how Monster fits in with this approach, but other tentative suggestions include a buttermilk chicken sandwich and sweet potato fries.

For Monster, the trial opens up a whole new arena for its energy drinks and potentially strengthens its homeland position in the fight against Austrian arch rival Red Bull. Both brands are dueling for lead position in the US.

It has also “done good” for the company’s share position after it reported dismal earnings during the first half of 2015 in August. Monster's share value rose significantly following disclosure of the deal amid speculation that the test, if extended across the US, could add in the region of US$1bn to the company's top- line.

This marriage, if it survives beyond the honeymoon period, could also prove a major watershed for McDonald’s. The addition of Monster to the McDonald’s drink list should be especially popular with younger customers, who have been defaulting to fast-food rivals. A McDonald’s spokesperson has stated that the move is “generating incremental revenue and traffic”, with some customers coming in just to buy Monster: And no wonder, at a cost of just US$1.50 for a 47cl can, when purchased as part of a value meal deal, and a little over US$2 as a standalone purchase (or two cans for US$4). US$1.50 is close to the brand’s retail price and even US$2 is still a lot cheaper than in most other on-trade outlets.

Internationally McDonald’s sells a number of Coca-Cola Co brands in-house. In the US, these include its fountain soda range, Dasani bottled water, Minute Maid juices and Powerade sports drink. This follows a partnership between the two companies that began in the mid-1950s.

In June, Coca-Cola bought a 17% stake in Monster, so it seems a logical follow on to add Monster. But, this is not the first time that McDonald’s has tested an energy drink. For a time in 2006, the chain sold Coca-Cola’s Full Throttle in some of its Texas-based restaurants, although this brand has never achieved anything like the charisma of Monster.

The addition of Monster also comes at a time when consumers are turning away from sodas as they seek to vary their beverage repertoire. Whilst CSD sales are falling, soft drinks still feature as an important component of on-trade visits. According to independent research, consumers order a drink seven times out of ten when visiting foodservice outlets, though actual serving sizes have declined.

McDonalds has neither confirmed nor denied that the distribution link up with Monster will go national, or international. However, such an arrangement would provide enormous sales opportunities for both parties. McDonald’s long-standing relationship with Coca-Cola certainly suggests a strong possibility of the deal spreading. Also, the offer of an all-day breakfast, which currently applies only to the US, is similarly expected to be rolled out across McDonald’s entire operations. So, the US could be the launch pad from which other innovations - if successful - will also go global.

Monster is currently the number one energy drink sold in the US. Its volume sales here are gradually approaching 1bn litres annually. Unlike Red Bull, however, the US brand has not yet penetrated the international arena to any great extent, with the exception of West Europe. It has hardly any presence at all in the large and expanding Asian market. 

McDonald’s is arguably the most well-known fast food chain in the world with more than 36,000 outlets spread across more than 100 countries (14,300 are in the US but a further 10,000 are located in Asia, the Middle East and Africa). These would provide a ready-made on-premise base for expanding Monster’s presence across Asia, a region that is responsible for almost half of all global energy drink volumes. Successful co-operation with McDonald’s could also lead to additional on-trade partnerships for Monster.

However, the union is not without its downside for both parties. The image of Monster could be seriously tarnished from its link-up with a fast-food chain, especially in connection with value meal deals and giveaway prices. Meanwhile, the move is unlikely to enhance McDonald’s progress in attempting to project a healthier image: It already suffers from negative press linked to obesity issues. The sale of Monster can only attract the wrath of public health authorities and other groups who are trying to stamp out the sale of high-caffeine energy drinks to younger consumers. Full-blown co-operation between the fast-food giant and Monster would also provide access to energy drinks around the clock in 24-hour McDonald’s outlets. That won’t go down well, either.

Still, it is early days. The deal may well come to nothing but, looking on the plus side, it could be just the boost that the Monster energy drink needs to expand its international presence and eventually take global category leadership away from Red Bull.