Monster Beverage Corporation (MNST) Earnings Call Transcript & Summary

[Presentation]

Good afternoon, everyone, and welcome to Monster Beverage Corporation's Virtual Investor Update Meeting. I'm Roger Pondel with PondelWilkinson, the company's Investor Relations representative. For those of you who we usually see in person in New York for this meeting, this year, once again, we're miss seeing your faces and shaking hands, and we hope everyone listening in today is healthy and remaining safe. Before I introduce and turn the call over to Monster's Co-Chief Executive Officers, Hilton Schlosberg and Rodney Sacks, I want to remind everyone that certain statements made in this presentation may constitute forward-looking statements within the meaning of the U.S. federal securities laws, as amended, regarding the expectations of management with respect to the company's future operating results and other future events, including revenues and profitability. The company cautions that these statements are based on management's current knowledge and expectations and are subject to certain risks and uncertainties, many of which are outside of the company's control, that could cause actual results and events to differ materially from the statements made. For a detailed discussion of risks that could affect the company's operating results, please see the company's reports filed with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2020, and subsequently filed quarterly reports on Form 10-Q. The company assumes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise. And with that, it is my pleasure to turn the call over to Rodney and Hilton. Gentlemen?

Thank you, Roger. Good morning, good afternoon, good evening to everyone, wherever you are. Again, sorry, we're not in New York. It's 67 degrees here in Corona, California. So it's not that warm either. So welcome to our presentation today, and there'll be time at the end of the presentation to ask any questions you may have. So kicking off the first slide, and Rodney is going to interject. I'll do the first few slides, and then Rodney will take over and I'll interject, as we normally do. So we announced this morning our strategic acquisition of CANarchy. As many of you know, we've been evolving a strategy to enter the alcoholic beverage market. And this is our best -- we believe, our best strategy of achieving this objective. Founded in 2015, CANarchy is a disruptive collective of like-minded brewers dedicated to bringing high-quality craft beer and seltzers to drinkers everywhere. The portfolio of craft peers includes offerings from Oskar Blues, Brewery, Cigar City, Squatters, Wasatch, Deep Ellum and Perrin. CANarchy is a top 5 U.S. craft brewery and provides craft beverages throughout the United States and in 20 countries and U.S. territories. Here's a little bit more about CANarchy. I'm not going to go into the specifics because they're here up on the slide: $134 million of sales estimated for 2021, 7 manufacturing facilities, 566 employees.

Thanks. Just one of the things I just wanted to just elaborate a little bit, it is a primarily a craft brewing company, but they do have some seltzer brands, particularly Wild Basin. And that's something that we are planning to focus on and develop. As we've already mentioned in some of the previous calls, we are in the process of developing our own hard seltzer entry. And as we've said before, we just didn't want to go in and just compete without a point of difference. We actually are pretty advanced now in the development of our own seltzer, which is a different brand. We will be proceeding quite quickly now with the development now that we have this acquisition under our belt, and we hope to close it soon. So we will actually continue to develop a strategy in the natural seltzer category and other adjunct categories in the hard alcoholic side. We see that this -- the category has stabilized. It's continuing to grow a little bit. And within the category, we think we are seeing the benefits of some of the brands that are possibly delinked to some of the more well-known beer brands actually continuing to grow. So I'm sure we'll have some questions, and we will expand on the CANarchy acquisition at that time.

So this gives you a little bit of insight into our alcohol expansion strategy and plans. The acquisition marks our entry into the alcoholic beverage industry with a number of high-quality established brands that we intend to build on, and as Rodney mentioned, introduced new alcoholic products. The company, and this is really important, already operates with the people, the distribution network, the licenses the alcohol beverage development expertise, the manufacturing capability and the infrastructure necessary to grow our alcohol business. And we really are excited to build and expand upon CANarchy's existing brands with innovative new products. We're now going to turn -- go ahead.

No. I was saying one of the extra strengths we have is that, as you know, we have our own flavor company that's been providing most of our flavors. But we think that the technology that they have in the flavor side, together with the experience that the existing team have on the alcohol side and the sugar brew side, will enable us and facilitate a lot of development in good alcoholic-based products.

Okay. Now you can see that this presentation hasn't been exactly rehearsed. So -- that's how we play it at Monster. One of our major priorities this past year has been to coordinate our ESG efforts. We've always had a focus on ESG and EDI. It's always been part of the company. And it's the first time that we really set together and codified our policies and where we stand on both these issues. And I'm going to ask Paul Dechary, who's our Senior Vice President and Head of Legal, to talk about ESG and EDI because he's the guy that's really been very much behind it and led our initiatives in these areas. So Paul?

Thank you, Hilton. I would like to highlight a few of our initiatives on the ESG front. In 2021, we published our first-ever sustainability report. Over 95% of the company's products are now in aluminum cans, which are 100% recyclable. We have achieved LEED certification for most of our company-owned facilities. And we now have added our very own recycling symbol on all of our new products, which symbol is being integrated on existing products globally. Some of the company's efforts are now being recognized and reported through CDP and acknowledged through third-party rankings, which you can see on the slide here. Finally, the company continues to focus on its ED&I initiatives through its ED&I Leadership Advisory Group and regional counsels. I would like to hand the call back to Hilton to speak about our recent philanthropic efforts.

Thanks, Paul. So when we look at Monster, we've had Monster Energy Cares, MECares, as our foundation for a number of years. And MECares really accelerated its momentum during 2020 with the advent of COVID. And in 2020, we gave away over 4 million cans to support frontline workers and folks working in hospitals and in other areas to support the pandemic. So here's a little bit about 2021. I'm not going to go into it. The slide is here and it will be on the website. And as we look at MECares, we have an initiative for global expansion. Caring for our own, we assist a global human resource team in aiding employees and brand ambassadors through challenges that affect their lives. We support numerous charities under the platforms that we've established, which are very much focused on military, our athletes, social responsibilities, first responders in education. We have an employee match program and a volunteer day off for our folks to participate in charities of their choice. So now turning to supply chain. In 2021, as we reported on many calls this past year, we experienced a number of challenges as a result of unanticipated increases in demand, which adversely impacted sales as well as operating costs and affected the availability of our products on shelves at retailers. The company has addressed and continues to address the controllable challenges in its supply chain, and the supply chain remains largely intact. In 2021, we experienced shortages in aluminum can requirements, lack of availability of certain ingredients from time to time as well as insufficient canning capacity in the United States and in EMEA. And in EMEA specifically, there was also a shortage of trucking availability. We experienced increased import costs for aluminum cans, ingredients, shipping and freight, labor, fuel, co-packing fees, all of which resulted in increased operating costs. And we continue to implement measures to mitigate such increased costs through pricing actions, which you've seen and will see in -- coming up in Nielsen and on shelf and also reductions in promotions. So what we spoke about on the last call is coming true. Additional can manufacturing capacity in the United States has been secured for 2022, although we will continue to import aluminum cans to supplement our domestic can supply. Why do I say that? Because aluminum cans come at an increased cost due to shipping and transportation. Can capacity in EMEA remains challenging, and same thing, we'll continue to import aluminum cans for at least 2022. Co-packing capacity to meet this increased demand continues to be challenging. And we have and will continue to expand our network to substantially address supply constraints. And one really good factor is our flavor facility in Ireland is operational, producing flavors and blends and is steadily increasing production. And we also look at the feasibility of a juice plant to produce juice product requirements in EMEA. And now I'm going to turn over to Rodney, who's going to take us through the beverage landscape and the Nielsens.

Thanks very much, Hilton.

It's the first time you said that, Rodney.

Hilton. Guys, hello. All measured channels, we're continuing to see healthy increases. But I think that we are seeing the results being very choppy in year-on-year comparisons because I think the sparkling soft drinks, for example, was sort of under a lot of pressure. Last year, that seems to have come back. But the category nevertheless continues to be healthy with an increase of 14.6%. And as you can see, of the overall beverage landscape at all completely, energy drinks now make up 15.5% of the total value, which is -- continues to be a major category. For the latest 13 weeks, the -- on all measured channels, the category is showing a 15.1% increase. Monster's increase is 12.2%. NOS is minus 12.3%, but the brand is -- remains healthy. This is primarily due to supply issues in getting concentrates with the result that we had shortages in -- on shelves and in the trade. But the brand still is healthy and growing. Reign sort of been okay. We also had some supply issues, but they were -- earlier on in the year, but they did tail into the fourth quarter. But again, we're very supportive and positive about the Reign brand continuing to make inroads and to grow. Full Throttle, which was one of the other brands we acquired from Coke that struggled in a couple of -- in past years, is actually showing some nice growth this year. So that is -- one of the other things that wanted to point to in the next slide, which is actually a graph. But it actually, I think, is important because what it illustrates, there have been a number of new brands that have come into the category. But when you look at the brands and you look at where they are in relation to the category and in actual sales, they are all basically very small. And I think a lot of people have placed undue emphasis on these brands and their growth and the growth prospects. So I think they've overestimated that. In unit share, it also shows a closer number in sales between ourselves and Red Bull, but a similar pattern. Finally, if we can go to the convenience snapshot for 13 weeks. The convenience channel during this period actually took the biggest hit. And historically, this channel has always grown more than the average market that sort of reversed in the last 18 months. But we are starting to see some growth again in the convenience channel. The channel is now -- in the latest 13 weeks, it's up 10.9%, and Monster sales are 8.6% up. Otherwise, in general, the snapshot is a similar snapshot and explanation to the overall all measured channel snapshot. In 5 weeks -- actually, a little more interesting in the convenience channel in the last 5 weeks, energy category's growth has increased to 12.5%, and Monster's growth in this category is up at 10.5%. And as you can see, during the last 5 weeks, we've had some of that -- we've sort of rectified some of the supply challenges we've had with Reign, and we are seeing Reign in growth as well as Full Throttle.

And then what I always remind shareholders, we have a nice business in the unmeasured channels, which includes Costco, the online retailers, Amazon and a bunch of foodservice on-premise and off-premise outlets.

The next channel is just to give you a snapshot that we don't need much -- to discuss much about our distribution system around the world and where we actually are selling product. Just a summary, we are now selling Monster in 138 countries. Strategic brands are available and sold -- being sold in 64 countries and territories. Reign, which has started to expand internationally, is now sold -- being sold in 21 countries and territories worldwide. And our affordable energy product, Predator and Fury, which is under the brand name Fury in some countries where we have -- we're unable to use the Predator trade name is now distributed in 25 countries and territories worldwide. So if you look at -- the aggregate is they have -- one or more of our brands is being sold now in over 154 countries and territories. The next couple of slides, again, I'm not going to dwell on. They just give you an actual picture of where our different brands are being sold in different parts of the world. So it's sort of a really nice matrix map to have for reference. They are the part of the slides that are being filed with the SEC, so you can refer to them at your leisure. But this one is the affordable one, which I referred to earlier, which does show some of the expansion that we have in many countries around the world where affordable energy is an important part of the category. There is also -- we believe that Asia is another market where there is a large affordable segment. And so that is a part of the world, an area where we will be focusing the launching of Predator in 2022. This next slide actually gives you a more detailed description by country of where we are planning to target launches of Predator in 2022. And again, this is there for reference in -- if anybody wants to actually look at the actual countries and get a feel of what we are launching and where on our expansion markets. I'd like to just go to the next slide, which is a value share growth slide. We've taken the top 10 markets, basically alphabetically, and just showing where our value share was last year versus this year. So generally, we are seeing positive growth in value shares. But the interesting part is that there are -- while in some markets, we do have some really nice larger shares of the markets, there are still a number of markets that we have still got a lot of room to grow, like Germany, Poland. And there are others that aren't on the list where I think we also have a lot of road ahead of us like Brazil and Italy, et cetera. They're all sort of major markets for us going forward. Just to give you an update on China. China has been a little more of a challenge. We are -- our strategy is to consolidate our brands in China this year on the 4 SKUs that we've got up on this slide to focus on them and to improve distribution and rate of sale. And obviously, we are putting a lot of effort in heading up China. We recently appointed a senior executive from -- who ran the Eastern Europe and Africa, Middle East, for us, in EMEA. He's been appointed to take over and take charge of APAC division. And so he's really getting stuck in, and we are focusing on that part of the world, and we do believe we'll be able to continue to see growth in our brand. So those are important markets for us. Our major sponsorships. We really are continuing to follow the same playbook that we've had in the past. These are the properties that are doing really well for us. Particularly during the time of the pandemic, the UFC stepped up the number of events they had, and the worldwide audience has continued to increase. And so that's been a very important property for us to get our brand out into the world market. Our top ambassadors. We continue to have -- to be very proud of the relationships we've been able to establish and the athletes and the success that they've been able to achieve over the past year. The names that are familiar to all of you are -- we've continued our relationship with Tiger who is sort of trying to get -- make a comeback, and I am confident he will do so; Lewis Hamilton, who is 7 times World Champion and has now won over 100 Formula 1 races; Valentino Rossi, who is a 9-time MotoGP Champion, he's just retired, but he's going to go want to continue to be ambassador for us and continue to own a team; we've got Rob Gronkowski; we've got Chloe Kim and a number of other of our regular athletes. So we're continuing to develop our relationships with them and keep the brand in the forefront of our consumers. We actually were very successful this year. Fabio Quartararo won the MotoGP World Championship. Chloe Kim won the X Games Snowboard Championship. Dylan Ferrandis won the Motocross Championship, and so we can go on with a number of our athletes. But we've had really good success, which is important because I think consumers want to be associated with successful brands and successful icons and their heroes. MMA, we've also been very successful not only in the relationship with the UFC and Bellator, but also with individual athletes and individual fighters that we have sponsored. As I mentioned earlier, Lewis Hamilton was the first -- is the first driver in Formula 1 history to have reached 100 wins, and we have both the relationship with Mercedes as well as with -- a personal relationship with Lewis. And one of our products is -- has been developed in conjunction with Lewis in EMEA, and we will be looking to develop an additional product with him in -- later in 2022. MotoGP was actually not only just did we win the championship, but our athletes took second place in the World Championship as well as third place. So we actually had all 3 of the top places represented. Esports, just to give you a summary of where we are on that, eSports has continued to grow over the years, as I'm sure you're aware, but particularly during the time of COVID. Esports has become very, very popular. We've continued to step up our participation in eSports events and teams, and we are planning to continue to increase our spend and allocation of our resources to eSports and gaming in 2022. Music continues to be one of our standard main pillars of our brand. We had a great deal with Post Malone this year, and we are continuing to obviously focus on a number of events, depending on how many will be held, but also the artists in the music area. Social media, we are continuing to, again, devote more of our resources and allocate more of our spend to social media. It's continuing to become a bigger and more important part of marketing and reaching our consumers. And so the statistics we have in these different -- in the different areas, Facebook, YouTube, Instagram and TikTok, are all listed on the slide, so I don't need to go through them all other than to say that the total amount of impressions that we have this last year has been over 2 billion impressions through our social media reach. So it's been a very active and successful campaign for us. On the promotion -- retail promotional side, we are continuing to promote our products in stores and across the retail market. We are trying to align and propose to align our products, not in the first quarter but in T2 and T3, we will be having programs that will align with the rest of the world. So we're trying to have a consistency throughout the company for -- with those promotions so we can cross-promote at the same time. Developing -- just moving quickly through our additional families, Java Monster, we're continuing to develop. And you'll see -- we'll talk about some of the planned newer introductions. It's continuing to grow, and it's a very exciting subcategory for us. The Ultra family, which is our Zero Sugar family, has been very successful and is also continuing to lead our growth. So we are continuing to develop new products in that family. Juice products have been -- have seen a revival in the last 2 years. And we also have some -- a new product that we're launching this year, which -- in that category. Hydro is an interesting category. That's sort of been a little slower in the growth, but we've sort of focused on putting some marketing spend behind the category. We do believe there is an energy hydration category and a place for it. We're experimenting with different packages in different parts of the world. We're actually seeing some good success in just a can product. And so we are looking at a number of areas because we do believe that this will be a major subcategory of family for us for future growth for Monster. Rehab, as you all know, it's been around a long time, but we've actually redesigned and gave it a complete refresh. It's given it a real lift sales of our original tea and lemonade are up quite nicely in the most recent period, and we are planning to introduce additional products in this line and to continue to revive it. It's being repositioned as a recovery drink. And I think that, that positioning is going to be spot on, and we'll see some additional growth through it. The next slide just covers some of our products. I'll try and go through them quite quickly. There's the Reign product, which as -- you're all familiar with. Our innovation in 2021 was cherry limeade and white gummy bear and also an additional Inferno product, watermelon. You can see from that, we've also changed the packaging slightly on the Inferno line to make it a little more visible and have a lot more impression on shelf to be more -- the white background. It was sort of gray before. And in 2022, what we are planning to do is to launch an additional Reignbow sherbet flavor. True North, we've just launched it. We did a lot of seeding in the last few months. But as from January, it's been distributed and sold by the Coke system. So now it's being rolled out nationally across the U.S. and through all channels. We are very positive about the brand. It has great taste and it's getting great reception in social media and from buyers and consumers. This is the full lineup of the True North brand. Hopefully, most of you have been able to taste it and get a feel from it. But this is our sort of entry into what we are calling the clean or energy category or pure energy category. Innovation, just to switch to that, just a summary of our innovation during 2021 with the pandemic. I think that while we've introduced a lot of these products, I think they haven't yet achieved the distribution levels we had hoped for. We plan to obviously persist with that and to ensure that we can continue this year to secure the additional distribution that perhaps we didn't get last year. So we're looking for additional sales and uplift from our 2021 innovation. 2022, we've got really good innovation still coming. We're going to use in the Ultra line an Ultra peachy keen. In the coffee line, we have 2 cold brew products: a nitro-infused coffee latte and a sweet black product. We also have our juice product, Aussie Star Lemonade, in the juice line and an additional still product in the Rehab line, which is will be a watermelon juice drink. We have 2 additional products that we've got placeholders for: one is an additional Java -- traditional Java product and one is our Monster Reserve. As you know, we've introduced 2 products, Watermelon and White Pineapple this year, and we're going to introduce an additional product in the full-calorie Monster Reserve line later in 2022. Okay? These slides are just some of the innovation that we introduced in our strategic brands in 2021. In 2022, we have continued innovation -- exciting innovation for all of our strategic brands, and we continue to plan to grow those brands. Affordable Energy, we've combined 2021 -- in many countries, we've launched different flavors. And as we roll out into new countries, we will continue to launch the original gold generally, but also depending on the market, they have different flavor preferences. So we're able to launch and we're going to launch different products. One -- I think we should just mention, for example, in Nigeria, we launched the original Predator Gold Strike. And then one of the flavors that is popular there is a nonalcoholic malt beverage. And so we've introduced Predator with a malt beverage in Nigeria. So these are the things that we're doing in order to address local preferences in the affordable category around the world. And we have a robust lineup of flavors that will meet the requirements, we believe, of consumers different benefits to different preferences -- to meet different preferences of consumers around the world. NOS has been around a long time. It's continuing to -- it's a stable, strong product and so is Full Throttle. So we're continuing to put effort behind those brands. I really want to just work very quickly through the other slides. It's relentless. Burn; Live+ Energy; Mother Energy; Power Play; Nalu, which is really in Belgium and Holland primarily; and the Predator affordable energy brand. It's worth mentioning we have a great promotional relationship. We've tied up with Liverpool, which enables us to promote the Predator brand and do consumer promotions in many countries in conjunction with Liverpool around the world. So that's a property that we'll be able to utilize in pretty much every country that we are launching and have launched and will continue to launch Predator. In the end, in conclusion, we have now had 29 consecutive years of increased sales. We've achieved $4.6 billion in net sales in 2020, and I'm sure we're going to cross the $5 billion mark in 2021. We've achieved $1.4 billion of net income in 2020 and achieved $2.64 in diluted earnings per share in 2020. For the 9 months ended September, we've achieved $4.1 billion in net sales. And for the 9 months -- same 9 months, we've achieved $1.1 billion of net income. For the 9 months ended September 30, 2021, we achieved $1.97 in diluted earnings per share. So results have continued to be good for the first 9 months. And obviously, when we release our results at the end of February, we'll be able to give you an update on the full year's numbers. Thank you. I will now turn the call over to the operator for instructions on queuing up for the live question-and-answer session. Thank you.

[Operator Instructions] While investors are queuing up, please enjoy this brief video commemorating the upcoming 20th anniversary of the Monster brand launched in April of 2002. [Presentation]

[Operator Instructions] Our first question will come from Dara Mohsenian with Morgan Stanley.

With the acquisition announced today, can you just discuss the potential to bring Monster brands into alcohol now that you have the infrastructure and manufacturing on the beer and seltzer side? Is that something that's a particular near-term focus? How do you think about that? How do you think about the extendability of Monster brands into that space? And then second, could you just comment on interest and share repurchases now that you put this money used from an M&A standpoint? Are there other uses you're looking at? Or will share repurchases be a focus going forward.

Rodney, you want to start off or I can?

All Right. Okay. I think that -- let me take the last part of your question about brands first. We are very protective of the Monster brand. We think Monster stands for a -- has a particular brand proposition. It has its personality. And we've got to be very careful to take the Monster brand into too wide an area. There is also concerns on mixing or having a single brand with both alcohol and nonalcoholic products. I know that some of the competitive product of our competitors have started to put their toe into that, but we are a little more concerned about that. And so I think there is a relationship, and I think there is a way to -- that we will be able to build on the Monster reputation and family but not under the Monster brand as such. So I think that we want to be clear -- I don't think we want to say never. But I think at this point, Hilton and my view on that is that we shouldn't be using or extending the Monster brand into alcohol. That doesn't mean we can't leverage the relationship and other goodwill and aspects of the Monster product and our company. So I think that is the one point we wanted to make clear. But we have had a strategy to look at alcohol. We've developed products. We've developed liquid. We're in the process. We have some names. We've already done some design. So we are pretty close to deciding to launch our product in the alcoholics, basically hard seltzers line. But now that we have this acquisition, obviously, this will be roped into that. And the idea would be to utilize this whole organization headed up by Tony Short, who I'm sure you guys will remember from Anheuser-Busch, is a very experienced executive in the alcohol industry and knows the industry well. And so I think Tony will continue to head that up and look at that expansion. So the strategy is to look at their brands, to try and improve their brands and develop their existing brands, but some of the brands we will create into -- through their system. And then there will be opportunity to develop other brands and other products in alcohol, whether it's spirits, fruit-based and other products that we will look at going forward now that we have a platform. Hilton, would you like to add something on to that?

Yes. Sure. I actually am vehemently opposed to putting a brand that's a strong consumer brand onto an alcoholic product. I think it's just opening up for major issues down the road. I can have this vision of kids being stopped and they claim that they were in -- they thought they were drinking a nonalcoholic product. I think it's a very much of a slippery slope, and I think we have to be really careful. We're really excited to enter the alcohol category not only domestically, but we also have the opportunity to do that internationally. And I just want to make that point as well. So on your point on share repurchases, the Board is very aware of the cash that the company is holding at this time and is continuing to evaluate the best method of returning cash to shareholders, which we've always believed should be through share repurchases. So I think that's about all I can say on that point.

The next question will come from Bonnie Herzog with Goldman Sachs.

I actually wanted to I wanted to if you guys could share a little more color on some of the pricing actions you put into the marketplace. So just curious to hear what the early feedback has been from both your retail partners and consumers. And also, I think you've implemented some actual rate increases in a couple of channels. I'm curious to hear feedback on that and if you might be able to implement more rate increases this year.

So Bonnie, we have -- as I said earlier in the presentation, we have evaluated and continue to evaluate promotional allowances, pricing opportunities. And you can see that coming through the Nielsen, and we expect it to come through strongly as we move through 2022. As you know, many of the -- many of our retail partners adjusted pricing at the beginning of the year. And the Nielsen numbers that we showed you today were at the end of December -- the first day of 2022. So you'll see or should see the improvements coming through, and you'll see them on your shelves. I mean I know what the retail pricing is in most of our chains, our convenience chains, our retail chains, and they're all going up. You can see that. So instead of announcing a price increase, we have done that through selected promotional -- cuts in promotional allowances and what we call market development funds. So that's coming. And we will have -- April 1, we will have an increase in our 24-ounce products, but that will be a market-wide increase.

Just to add on that. If you look at the latest -- you've got Nielsen, but in the latest 1-week numbers on all measured channels, our average pricing is up about $0.08 per unit; whereas if you look at Red Bull, they're down $0.03. So that's really where we're seeing the difference and the effect is it quant kick in down and will continue to be as we develop our programs going forward.

And look, a few chains took up their pricing in 2021. The majority go up in 2022.

Yes.

The next question will come from Nik Modi with RBC Capital Markets.

Just following up on the pricing question. I just -- I wanted to ask about airspace strategy. But on the pricing, you talked about reduction in promotional activity. You talked about the 24-ounce can going up in April. My understanding is that is a cost-driven increase given pricing is going up on that particular package from the manufacturer. Can you just confirm that? And also, we picked up in the market that you've taken actual list pricing on single cans and packs. If you can just provide some context there. And then my broader question on the strategy is, could you do spirit-based innovation through CANarchy? Or would this have to be a partnership with another outside partner?

Okay. So let me address your first question, and I'll get to the second question. So there's no real increase -- a specific increase in 24-ounce cans that's coming to us other than the usual. The inflationary indices that we have with our can companies, the cost of aluminum, which I'm -- I sit back every day and I kind of get shocked. And it's hard to say you get shocked, but there's been a lot of developments, as you all probably know, in the last couple of weeks. And we're looking at aluminum -- forgetting about the Midwest Premium, but we're looking at aluminum now up 58.5% since January of 2021. And I mean that is pretty hectic. So there are increases in the system. We haven't been shy about them. We've told you about them. And the 24-ounce can, we -- there's no specific increase other than what we're seeing in aluminum and normal inflationary factors. So it is our intention to run our alcoholic products through this new division, which makes a lot of sense. We will be classified as a Tier 1. In other words, we will be manufacturing alcoholic products and distributing alcoholic products. So we don't have to go through the same structures that some of our competitors are employing. And it makes sense. We'll have a separate division called CANarchy that will -- or we'll rename it suitably that will develop and grow the alcoholic part of our business.

Just to elaborate a little bit more on your question. We have ideas and plans in mind to look at the spirit-based, ready-to-drink products in addition to basically the seltzers that are there now using a sugar base or a malt base. The system that they've got is really a system of beer distributors. In many states, you can take spirits products through the beer distributors. And in those states that you can't, we will obviously go to the liquor wholesalers, where they have some -- some of them, in many cases, have existing relationships as well or will develop them. So there'll be a hybrid system ultimately for any spirit-based products, and whether it's -- we are looking at -- it's -- we have a complete blank chalkboard. I mean we can go into spirits, we can go into spirits-based ready-to-drinks. All of those things we will develop as we continue to put together a strategy on the alcohol side through CANarchy.

The next question will come from Kaumil Gajrawala with Credit Suisse.

A couple of questions all around CANarchy, of course. First, if you could just briefly how the brands performed in 2021. I think we've got some -- an idea of their size for 2020, but just generally how they performed? And then if you could help a little bit with profitability. Are they a 20 margin, a 30 margin? Are they making any money? Is there something you can bring to the table to kind of move those margins? And then finally on spirits, which you mentioned multiple times. I feel like I recall you have a distillery in Hawaii. And just curious, are -- do you plan on distilling, manufacturing and being involved in the full of the process? Or is it -- or you think is it likely to be third-party manufactured and you primarily will be a branding organization?

So CANarchy is actually manufacturing. They have 7 breweries that -- small breweries that they manufacture from. And to answer your other question, Kaumil, about profitability, yes, they are profitable. And our intention is, obviously, to go on that, to use -- there's various synergies we're going to bring to bear, cost synergies, as well as growing the existing brands and introducing new products into their system. In regards to why, that's very much premature. We're in the middle of starting -- finished plans. We're starting to construct a facility there, but that's really too premature to talk about on this call. And that's a partnership we have with Mark Hall.

Yes. Just to say that, that -- the contemplation is a number of products that we're contemplating, developing and utilizing that facility using that as the beachhead for some coffee-based products, but a whole lot of other price both alcoholic and nonalcoholic. So it's very premature to look at what we're going to do there. As Hilton said, we're just finishing some plans. We're going to put up some tasting rooms as well as some production there as well. But a lot of that will develop over the next year or 2. So that, again, it's sort of partly into the CANarchy strategy but partly also just into different strategy for some potentially nonalcoholic products as well.

That's correct.

The next question will come from Mark Astrachan with Stifel.

Just a few follow-up questions in...

I thought the guy said you could only ask one question.

These are follow-ups, Hilton. They don't do the full question. You have to easily you add them up.

Okay.

Right. You asked -- so international for alcohol, I believe you have an obligation to put anything in front of Coke. So maybe talk about how that potentially works. You had discussions with Coke about putting new products through the distribution where applicable and are they open to that? And then just secondly, I'll put 2 questions into 1 for you. So gross margin, given what you said about supply chain, given what you said about aluminum, given what you said about pricing, how should we be thinking about it? I get you don't want to give guidance, but I do think it would be helpful for folks on the call just to kind of hear even puts and takes without giving specific color around where you end up in '22 given where we are, I think, at least to reset or to set expectations in a reasonable way it might be helpful. So anything you can say on that would be appreciated.

Yes. Mark, it's really difficult. We had our third quarter call early November. We are covered. Part of our aluminum requirements. As you would expect, for 2022, there's part that's not covered because that's the way our hedging strategy works. So we are having pricing increases, and you've seen that coming aboard. And I really don't feel comfortable talking about margins on this presentation. We spoke a little bit about that in the last quarter call. We'll talk probably a lot about that in the next call, which will be at the end of February. But you can see the environment. You could see the environment. You can see what's happening with our own pricing. And it's a mixture of costs, as you well know. I filled up my car the other day, and it was $5 a gallon in California. I don't remember it ever being $5 a gallon. So there we are. We've got inflationary pressures all around. We've got inflationary pressures in stores at retail and are leading ahead with pricing through the mechanisms that we discussed earlier. But we do have these cost increases, and we're very aware of the cost increases. And if we have to make further adjustments on pricing, I said that on the last quarter call, we'll do that. We're just monitoring the situation, and we'll do what we have to do. But the continuation of the margins that we had historically, I think are going to be not going to be sustained. And I said that and I'll continue to say that, in 2022, however some of these cost increases may in fact be transitory. I mean we're paying now to get a container of product from Asia to the West Coast of the United States is now 3x what it was a year ago. That's $15,000 a container versus $5,000 a year ago. So there's cost pressures and inflationary pressures all around.

I can just -- I'll address the other part of your question, Mark. We have an -- obviously, we have an agreement with Coca-Cola, and they have a right of first refusal on products. The bottling system both is a distinction between the system within the U.S. and the system internationally. The system internationally don't have the same limitations, and there isn't the same hard line division between alcohol and non-alcohol and what they can and can't and licenses. But those agreements will continue. And so once we look at what we're going to develop, we will obviously bear that in mind, respect that. And in fact, we think it would be complementary and we'd be very happy to actually ensure that -- or try and make sure that we try and distribute some of our products internationally in the alcoholic side through the bottles. But that will be dependent on Coke, their view of it, the Coke bottler's view of it, whether it's -- they find an attractive. And if they do fine, then we have a great distribution partner. If they don't, we'll find other partners. But again, I think that's a little bit more in the future. We need to -- at this point in time, I guess where we are with the business principally, although they do a little bit of sales out in other countries. The business is primarily a U.S.-based business, I think certainly North American, and that's where we would focus developing their products and repositioning them and growing them and then layering some of our ideas and products over theirs. And then I think we're going to need to walk before we run. And then we will start to look at where do we grow from there and how do we do that. And there is -- that's one of the opportunities and great potentials we have for the future is being able to develop alcoholic products internationally and to do so in partnership with the Coke -- with Coke bottlers in certain areas. I think that is -- it's there, but it's a bit of way off in the future at the moment.

No question. We have 1,000 people overseas that would love the opportunity to sell alcoholic products. And we'll have to be careful to ensure that they don't distract from their work on the Monster and the strategic brands and the affordable brands. But we have the infrastructure to be able to accommodate international sales when we deem it appropriate to do so.

The next question will come from Chris Carey with Wells Fargo Securities.

So my question is around U.S. market share, which has been a key debate. Clearly, innovation has been a good story for a while and will remain important, but that has been the case. And I guess I'm just wondering if you think you need to make any additional investments into the sales force or otherwise to get behind the products, say, improved distribution, ACV, whatever you think matters most? And perhaps I say that especially in light of some pricing that is coming through the system at a time when your key competitor is in pricing. So just any perspective on broader plans on U.S. share and whether you think more investment might be needed?

We -- on that note, we're significantly increasing our field execution teams. We have a significant number of -- and I won't mention the exact number, but we have a significant number of folks that we are recruiting into that team. It's been a little bit difficult with COVID and guys not wanting to work. But our intention is to, and I use the word significant and I mean significant, to grow that team, which will focus on field execution and supporting the bottlers in those accounts where the bottlers don't call on as frequently as they should. So that's something that we're really focused on to improve the distribution and the availability of our product on shelf. Unfortunately, given where we were with demand and the fact that we couldn't meet demand to the level that was expected of us, some of our products on shelf did suffer, no question. And we also focused on our major lines at the expense of the lines that weren't the major lines, so that would have the production capacity to be able to meet demand on the leading SKUs. So there were a number of products that we took out of production and now with -- in 2022, we've been able to put back into production because of -- we've got the cans, we've got the availability of co-packing. Things are expanding for us. So we're moving in, I believe, a good direction in supply chain. But it's been tough. 2021 was a tough year.

Yes. And I think that being said, I think that if you guys look at the Nielsen, you'll pick -- you'll come to your own conclusions. We did suffer some sort of reduction in the -- some of our distribution levels of a number of our products. And we think that we need to fix that and we're focusing on that, and we're obviously going to work together with the bottlers to do that this year. And I think that on its own all well for the fact that if we can get -- improve our distribution numbers, it will obviously reflect, we believe, in increased sales. So that's something that we are aware of and we are taking a lot of effort and focus to rectify and improve this year.

The next question will come from Kevin Grundy with Stifel -- excuse me, with Jefferies.

Question on the CANarchy deal. Multipart question, I'll apologize ahead. But just maybe put a finer point on the 2 to 3 biggest priorities that you have now in the alcohol space over the next year. Maybe a better sense of the scope of the innovation and brands that you have in mind that made this -- that made CANarchy the right path or deal structure as opposed to more of a single brand, asset-light sort of partnerships that we've seen announced? And then just lastly, touch on assurances you'd offer investors that your pursuit in the alcohol space does not become a significant distraction or significantly dilutive to margins.

Rodney, you want to give Kevin your thoughts and I'll continue?

All right. I think the point is that -- let's just start with CANarchy. I mean we've looked at other alternatives. In many of those cases, they were regional. If it was a single brand, they were sort of more regional and didn't quite -- they were in the craft space but didn't have distribution right across the U.S. And we looked at what was available, and some of them had transacted recently and some of those brands weren't available. When we looked at the overall company, there is a collection of a number of brands here. And obviously, there are some stronger and some weaker ones. But there are some very key brands. The Cigar City brand is a very strong brand. It's growing and it's a -- we think that's a brand that's got a lot of legs nationally. Oskar Blues is a good brand. And even if you look at Deep Ellum, which is one of the main alliances is Dallas plant, but they've got some brands in those different packages or different sort of areas that we think actually have a lot of potential to grow and redevelop and grow out of very, very small basis. So we think there is a broad base of brands that we can pick and choose some really what we think are winning brands or winning positioning, and we can utilize the existing system. And by having all these brands, they do generally have a footprint pretty much across the U.S. There are some brands that are regional, but other brands are national. But if you add it all together, they've got a good system network of distributors, and we thought that was important. They also have quite a big network of employees and staff and sales. So we thought this was a good base for us to utilize and to focus on. It's just too soon at this time to say what's going to be the top 3 things we're going to do. We obviously are going to look at focusing on growing the craft beer business as such. They've got some real niche products there. We were looking at taking the seltzers products with theirs and ours, and then also using that as a platform as we did say earlier on the call that's really the benefit. And we don't think this is something that will detract the whole benefit of buying the business with their existing team headed up by Tony. They have some good people in management. And we believe this will operate independently and won't detract from what we're doing on the -- simply on the actual developed product, development and marketing side. We think that's why we have that capability to work with them and assist them. But on the sales side, particularly, it's going to be independent and that won't -- our sales team are going to stay absolutely focused on Monster brand. That's clearly where -- that's important for us.

Also a more sophisticated model than the competitors are utilizing because what they're doing is taking a brand that they have in-house and partnering with an alcohol or beer company like Samuel Adams or Constellation to produce and distribute a product through their system. This is a much more sophisticated approach to entering the alcoholic space in a -- really in what I would regard in an extreme way will be manufacturing, will be selling, will be marketing. And these will not be -- as we spoke earlier, there will not be our consumer brands that we will just be working with someone else to distribute an alcoholic product with. I mean we could have done that years ago, and we chose not to do it.

The next question will come from Andrea Teixeira with JPMorgan.

In terms of the aspiration in alcohol -- and congrats on the deal, by the way. When you think about aspiration in the medium to long term, would you think you're going to grow organically with those brands and/or you will continue to look for other brands in the spirits category to roll up or even the craft side? And just a fine point on that, the last comment that Hilton was making, were these brands distributed by the ABI wholesalers or the Gold network? Or were they independent? And you see -- you foresee any disruptions there?

So 30% of the CANarchy brands are distributed by Anheuser-Busch distributors, 50% through Molson Coors distributors, and 20% are pure independents. So that's your distribution percentages. And the opportunity is to -- as we spoke earlier, is to build on the CANarchy brands that they have and to introduce new alcoholic brands, whether they be in beer, in seltzers, in mixed cocktails, in spirits. We have an open playbook to be able to launch a business and develop business in the alcohol space.

And I think the other point is that we won't rule out -- we shouldn't rule out. We will develop existing brand. We have new brands like what we're planning in Hawaii to do from the base up and create and develop our own brands in these different areas. But it also doesn't rule out the fact that we might look at small acquisitions or some acquisitions, they don't have to be smaller. We have no preconceived plan or strategy in that regard. So I don't want people to say it's only going to be smaller, only going to be large. But there's no reason why once we have the base of the organization and it settles down -- and we settle it down and we're comfortable that we wouldn't be able to look at potentially acquiring brands and then, again, developing those brands. So there's a very broad range of opportunities for us to develop. We think it's exciting, and we think it just gives us a lot of scope. And we just haven't got any predetermined path mapped out at this point in time. We're looking at it, and we're looking at all avenues and all opportunities.

Yes. And I think from stockholders' perspective, we're a growth company and we want to remain a growth company.

The next question will come from Laurent Grandet with Guggenheim.

I've got a question regarding True North that you are launching just right now, new subcategory as well. So I'd like to understand if you can share some results from the test. Any more granular information would be helpful. And will that be merchandised in the Energy category, Energy shelves or in sparkling water? So -- and finally, any indication of level of profitability versus, let's say, [indiscernible]?

The True North brand, I think it's got good margins because of the fact that you don't have a lot of sugar and things of ingredients like that in the product or even other sweeteners. The branded -- our strategy is to take the brand and roll it out. So as we said, we've been getting some nice and anecdotal input. We don't have any -- a lot of hard facts because of the fact that a lot of the listings have only recently been granted in Sprouts and a couple of the smaller and health food chains. We are taking the product out. It's now been listed in Walmart and Kroger and on Amazon. The plans that we've got, we have commitments from really the major retailers in mass, drug, convenience retailers, supermarkets and some foodservice to take the brand. So it's going to get quite extensive distribution in the main channels. It is a sort of a seltzer brand. So it's going to be -- it's going to have to work its way up and give it a chance to grow. But we are quite excited about it, and we think that the margins will be good. I think that's all I sort of probably want to say at this point on the brand. It's just too premature. But I mean, as I said, initial responses have been very, very positive both to the taste and the content and positioning.

Yes. I'd echo that. The major shelf resets for True North will take place from mid-February onwards. So mid-February through March, you'll see sets -- the major sets taking place at the various mass convenience supermarket groups. And we're currently in 2,000 locations, which is not a heck of a lot, but the results, we believe, have been good. And we've kind of monitor Spin's data just to ensure that the health of this brand, and it looks like it can be very healthy.

Where it will be positioned? I think that hasn't -- that's still an open question. There are some retailers who want to position it within energy. Others are looking at -- looking in the sparkling or premium water or we've really got a new set, which is really a subset of what we are calling the performance, clean energy set. So there are other energy drinks in that set. So it may end up in a few. We're trying to see where we get better sales velocity. So that will -- the strategy will develop as we launch it and as we develop the brand.

The next question will come from Peter Galbo with Bank of America.

I just want to circle back actually to Chris Carey's question around market share. And 2 of the subcategories, I guess, that we haven't really talked about or where maybe some of the biggest share gainers are in both performance energy and maybe to a lesser extent in hydration. Can you kind of give us an outlook there of what's being done to repackage or rebrand Reign as well as some of the hydration products and just where you see those 2 subcategories going in '22?

On the Reign product, I think what happened with the performance category was there was a sort of -- a couple of the players [indiscernible] were really dealing with independent distributors. And they were able, because of that, to launch limit unlimited numbers of new brands all over the place at different times, ad hoc, got a trade. I think as the category has sort of matured and as the brands are going to bigger distribution groups, you just can't function like that. You can't just keep on launching products all over the place at a different odd time. So I think everybody has had to take sort of an orderly rationalization of the category. And that's one of the things that we've done. We've looked at a number of SKUs. We've actually cut back some of the SKUs that weren't the highest selling ones. We've got a lot of new SKUs that -- and so we have a strategy now of a core number of SKUs in both the basic core Reign brand as well as the Inferno brand. And so we have a strategy going forward to have a tighter number of SKUs to put behind the brand. And I think that's what you're seeing with some of the competitive brands as well that initially, while they were small and independent, they sort of -- everything was just being thrown at the market and -- but once you get into the bigger distribution network, they just can't -- and the retailers just can't handle all these new products coming in at different times. And so actually, there is some rationalization, but we do think that it is a good subcategory and that it will continue to grow and develop.

The next question will come from Rob Ottenstein with Evercore ISI.

So 2, one follow-up, if you will, and then the real question. I've been pinged by a lot of investors, just to kind of go back to you on the pricing realization question. And maybe I'll try to ask it this way: in terms of what you have in the market now and what will be in the first half of the year or first quarter or so, would it be fair to say that it's, on average -- it's different everywhere I get it, on average, around 3% and roughly 50-50 headline price and promo? So that's the follow-up question. And then the other question is in terms of CANarchy, it seems to me that this could also help you go into CBD and perhaps even THC when the regulatory environment -- if and when the regulatory environment allows that. So I'd love to get your thoughts on the potential of both CBD- and THC-infused products. And if this was part of your thinking here, you're -- they're very big in Colorado, which is an interesting state along those lines. So that seems that, that could be quite interesting.

Just on the product development side, perhaps Hilton will address the margin side, that is one opportunity. But again, as a national beverage company, it's a little -- we've sort of steered away from it until we just get some more clarity on where we go. We don't want to have regional brands. And I think even from the CANarchy side, that's not sort of going to be sort of first and foremost on our focus. It doesn't mean that we won't try it. Again, it's premature because we've not really -- just not really sat down and strategized and addressed it. But I think the point is they're little different. And the point is that if we have an alternative system, there may well be some products that we develop in the future that are nonalcoholic that just don't really warrant going through the Coke system. They're just too small, they need time and attention, and they need to be nurtured. And so those products may well -- it may well be suitable and sensible to take those products through this alternative system. And that is available to us and that's an opportunity. It's got to be always subject to our contractual commitments and our agreement with the Coke bottlers. But they can't take everything, and obviously, in many cases, don't want to take things that are too small or niche. But those could be good adjunct brands to add into this system. And that will -- we have that availability, whether it's CBD or other things, that is -- that would be available.

So on your earlier question, Robert, at the end of the day, we will achieve our price increase through a reduction in promotional allowances, and we will take price. So -- and/or we will take price, I should say that. I think from your perspective, it shouldn't really matter where it comes from. We have a revenue growth management group, and we work with them very closely to see where we can achieve price increases to help mitigate our cost increases. So you can talk about 3% plus, and I'd be very happy about that because obviously, that's our objective. But where it will come from, it's really -- and I've told you -- we've told you guys that some of it will come from reductions in promotions. We will -- we're looking at selective price increases like in 24-ounce, and we're looking for other pricing opportunities with other customers. So 3% plus, yes. And where it comes from, we're working at that equation.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Sacks and Mr. Schlosberg for any closing remarks. Please go ahead, gentlemen.

Thank you, operator, and thanks to all of you for being with us today and for your support. I would like to wish you all the best for a healthy 2022. Please stay safe. And hopefully, when we have our next annual shareholders meeting, we actually will be able to have that in person in June. In the meantime, we'll be back to you when we release our full year results at the end of February. Thanks very much.

Yes. Thanks, everyone, and thank you for your continued support and look forward to working with you guys as we go down 2022. Stay safe, no more COVID, and let's get together in June at our shareholders' meeting.

Thank you very much. Bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.