Last week, Coca Cola, the world’s largest soda company, paid $2.15 billion to buy a minority share in the energy drink maker Monster Beverages, the Number 2 energy drink maker in the United States. The deal, which also includes a trade of brands between the two companies, provides a useful illustration of what happens when big companies get worried about falling revenues. The Wall Street Journal called Coke’s purchase of a 16.7% stake in Monster “a risky bid to jolt sagging sales”, noting that “Coke badly needs some big new ideas” after a third straight year of sagging global sales.
What makes energy drinks so attractive? Last year Monster’s revenues rose 9% to $2.2. billion and its deal with Coke may allow it edge out Red Bull, the nation’s largest energy drink maker. The stake in Monster gives Coca Cola a chance to become dominant in another part of the drinks market, a sector that until recently was expanding even as soda sales fell. In recent months, Coca Cola has struggled to change its image. As Businessweek noted recently, “Coke (has been) on the wrong side of just about every consumer lifestyle trend.” The new head of Coke’s North American division, Sandy Douglas was hired to reverse Coke’s declining sales. His goal is to refocus the company on the one thing it does best: sell bottles of Coke. This is the beginning, he says, of “what I might call the phased relaunch of Coca-Cola in the U.S.” But will buying Monster contribute to that goal?
In buying a stake in Monster, Coca Cola risks adding to its reputation as one of the world’s leading contributors to obesity, diabetes and other diet related disease an additional set of health concerns. A 2009 article in Drug and Alcohol Dependence warned that caffeinated energy drinks present growing health problems—include caffeine intoxication and dependence and a gateway to dependence on other drugs. A 2014 report from the CDC shows that energy drinks contain caffeine that ranges from 50 mg to 500 mg per can or bottle and other ingredients that claim to boost energy. Used in excess, they can lead to elevated blood pressure and dehydration because of their high caffeine content. The American Academy of Pediatrics in 2011 recommended that because the stimulants in energy drinks, they should never be consumed by children or adolescents. Earlier this summer, the Center for Science in the Public Interest released a report showing that the FDA had learned of 276 adverse events related to energy drinks since 2004, including 34 deaths. Eleven of these deaths were linked to Monster drinks.
In choosing to buy a stake in Monster, Coca Cola stakes its future on dominating beverage industry sectors that contribute most to global health problems. Faced with a choice between products that have the potential to hook customers and healthier, less addictive or habituating alternatives, food and beverage companies—like tobacco and alcohol corporations– have consistently chosen to invest in products that keep their customers coming back for more.
In a society where government agencies fulfilled their mandate to protect public health against private profit, Coke’s strategy could be risky. But history shows that Coca Cola’s optimism that regulators will not dent their profits is based on experience. In 1981, reports Leonid Bershidsky in Bloomberg News, it was Pepsi Cola that convinced the FDA that caffeine was a “flavor enhancer”, not regulated by the agency, rather than a psychoactive ingredient which could have been regulated as a drug. Now Coca Cola spends $4.8 million a year on lobbying, more than twice as much as Pepsi, to make sure Congress heeds its regulatory and other concerns.
The bottom line is that Coke’s decision to invest in Monster connects it to another product associated with premature death and aggressive and deceptive marketing. For those who wonder whether Coca Cola’s decision to improve its image represents a public relations ploy or a serious effort to scale back its damage to the health of the world’s population, the decision to invest in Monster provides a clear answer.
Calories, sugar, sodium and caffeine in Coca Cola and two Monster Beverage products, Peace Tea and Monster Energy Drink.
|Product||Size ounces||Calories||Sugar gms||Sodium mgs||Caffeine mgs||Ingredients|
|Coca Cola||20||240||65||75||58||Carbonated water, high fructose corn syrup, caramel color, phosphoric acid, natural flavors, caffeine.|
|Monster Peace Tea||24||150||33-39
|60||60||Brewed natural tea (pure filtered water, tea), sugar, apple juice concentrate, lemon juice concentrate, citric acid, natural flavors, sodium citrate, sucralose.|
|Monster Energy||16||200||54||360||160||l-camitine, glucose, caffeine, guarana, inositol, glucronolactone, maltodextrin|