A Billionaire’s Story
Net Worth: $2.1 Billion
Wealth Origin: Energy Drinks
Birthplace: South Africa
Education: Law Degree, University of Witwatersrand
The New “Cigarettes?”
Self-proclaimed “veterans of the tobacco wars,” United States senators Richard J. Durbin of Illinois, Edward J. Markey of Massachusetts and Richard Blumenthal of Connecticut began gearing up for another fight in the summer of 2013. Their next enemy? Energy drinks. According to them, the makers of these beverages were selling unsafe products and promoting an unsafe message to young people.
“Hook ‘em early, keep ‘em for life,” Markey said. “Makes a lot of sense to me as a marketing promotion.”
The debate concerning the dangers of energy drinks grew into a blaze when 14-year old Anais Fournier, who had a malfunctioning valve in her heart, passed away after consuming two 24 oz. cans of Monster in 24 hours. Her death certificate cited “cardiac arrhythmia due to caffeine intoxication.”
“It struck me that we were back into the same problem” with energy drinks as with cigarettes, Durbin said in an interview. Adding that kids didn’t know these products “had never been tested for safety or effectiveness”
The Los Angeles Times documents that the two drinks Anais consumed had 480 milligrams of caffeine, equal to the amount found in about 14 cans of soda and five times the American Academy of Pediatrics’ daily recommended allowance for adolescents.
Citing the teenager’s pre-disclosed heart condition, energy drink makers argue that the caffeine in their products is no more dangerous than that in coffee or tea.
Sacks’ Senate Testimony
Chairman and CEO of Monster Beverage Corp, Rodney Sacks, points out in his Senate testimony, “Monster Energy’s 16-ounce cans, which represent more than 80% of Monster energy drinks sold, contain approximately 160 mg of caffeine from all sources per can. A 16-ounce medium cup of coffee from Starbucks contains approximately 330 mg of caffeine – more than twice as much.”
Senator Blumenthal gives some ground, lamenting, “tobacco kills the consumer…energy drinks can be bad for kids, but they are not as lethal as tobacco. Nor are they as addictive.”
Admitting that the health risks posed to consumers aren’t any more dangerous than a cup of joe sold at coffee shops, the senators go on to express their discomfort with many of the promotional tactics these companies use. Blumenthal explains, “to deny that they’re appealing to children, it’s more than a little disingenuous.”
Buying advertising on youth-oriented networks such as MTV, funding development programs for teenage athletes, and sponsoring concerts, sporting and gaming events that attract adolescents were just a few examples the committee cited.
Sacks, along with the rest of the industry, refutes the idea that they are intentionally marketing to minors.
Who is their target demographic? Let’s find out by taking a look at the origins of Monster Beverages, the energy drink industry, and, of course, self-made Billionaire, Rodney Sacks.
Rodney Cyril Sacks was born to a Lithuanian-Jewish family about 1950 in South Africa. He grew up with two siblings and his father was Johannesburg businessman, Wolfe Harry Sacks.
Rodney earned a law degree from the University of the Witwatersrand and completed a postgraduate higher diploma in tax law. His brother, celebrated art collector Leslie Sacks, attended the same university, where he protested vehemently against apartheid.
Werksmens is a South African law firm with three offices in the country; their most notable practice areas are business, banking, and finance. Sacks was the youngest person to ever make partner, however, after almost two decades with the law firm he relocated to California for a recruiting job in 1989.
Before leaving his native country for America, he met a fellow “Witsie” graduate named Hilton Schlosberg. The pair was determined to go into business together but didn’t quite know what kind of project to get into. While searching for a company to buy, they managed to raise over $5 million from family and friends; all of which they put into a publicly-traded shell corporation.
Hansen Natural was originally founded by Hubert Hansen in 1935. He and his three sons got their first big break when local Los Angeles film studios agreed to purchase their juices. From then on, the business would grow into a modest yet respectable soda beverage producer based out of Southern California.
According to the Sydney Morning Herald, it was on the advice of a banker that Sacks and Schlosberg purchased Hansen Natural in 1990. At the time, Hansen was doing $17.1 million in sales and operating with a net income of $565,000. The pair of Witsies bought the business for $1.71 million and the assumption of $12 million in debt.
It’s difficult to imagine that Sacks and Schlosberg had the initial intention to transform Hansen Natural into an energy drink powerhouse. While there isn’t much widely known documentation on their earliest years tinkering with the soda company, we do know that it wasn’t until 1996 that they first offered an energy-centric beverage as part of Hansen’s line of smoothies.
Then, a year later, they launched Hansen’s energy drinks in 8.3-ounce cans.”It’s not like the company has been an overnight success,” says BevNet’s Klineman. “They played with a bunch of different formulations. The first Hansen energy drink offering wasn’t well received.”
Despite their initial shortcomings, the team at Hansen was determined to carry on in relentless fashion to get this product just right. A fortune was to be made upon the impending explosion of a whole new North American beverage category.
An Emerging Industry
The Origin of Energy Drinks
In the wake of postwar Japan clamping down on the widespread use of amphetamines, in 1962 a Japanese company called Taisho released Lipovitan D – an energizing beverage sold in minibar sized bottles. According to the New York Times, by the 1980s, “such vitamin-fortified, extra-caffeinated beverages were being regularly consumed by Japanese executives struggling to get ahead.”
Krating Daeng or “Red Bull”
While Thai Billionaire businessman, Chaleo Yoovidhya claimed it was “divine intervention” that led to his creation of the Krating Daeng (translated to “Red Gaur” or “Red Bull” in English) energy drink in 1976, more objective minds may surmise he noticed the growing demand for these beverages being imported from Japan.
Chaleo chose to diverge from targeting businessmen in the city and instead marketed to the rural blue-collar workers of Thailand. His humble beginnings had assured him that the common man, more numerous in existence than the office warrior, had just as much need for an energy-boost in their workday. Chaleo’s unconventional early advertising strategy included heavily popular giveaways to truck drivers, construction workers, and shift laborers.
This expansion into an untapped consumer market paid off. The Independent notes that within a year of launching, “Krathing Daeng’s sales had overtaken all but one of its competitors to reach the second spot behind the Japanese drink Lipovitan-D.”
All things considered, the continental Asian energy-drink industry was moving ahead at full-steam by the early 80s.
Rapid Global Growth
The trend would be poised for global expansion when in 1982 a little known toothpaste salesman who took 10 years to earn his undergraduate marketing degree stumbled upon these beverages while on a business trip in Thailand. Dietrich Mateschitz of Austria was suffering from severe jet lag due to his heavy travel schedule and after trying his first can of Krating Daeng he not only found his cure but also a new business venture.
When 1984 rolled around, Mateschitz approached Chaleo with a business proposition; he wanted to add carbonation to the drink and bring it to market in Europe under the name “Red Bull GmbH.” Chaleo agreed to a deal where both men would equally invest $500,000 into the new company, in addition, each would assume a 49% stake (the other 2% going to Chaleo’s son). Thus, being initially brought to the western world from Austria in 1987, Red Bull as we know it was born.
Without delving into the particulars of Red Bull’s early growth strategies, although they are quite remarkable and will be analyzed in our biography of Mateschitz (now a Billionaire), their grassroots marketing campaigns ignited a powder keg of European demand for such a product. The company even discovered another untapped consumer market: party-goers; hence the “Vodka Redbull.”
Launching Monster Energy
Returning to the main character in our story, Rodney Sacks is half the world away trying to turn around his debt-saddled soda company. Considering Red Bull didn’t officially enter the U.S. market until 1997 and Hansen began experimenting with energy-drinks by 1996, Sacks must have seen the trend approaching somewhat early on.
The beverage that is Monster Energy was first introduced by Hansen Natural in 2002; within ten years the company (since renamed Monster Beverage Corp.) would be generating over $2 billion in revenue. Keep in mind, it took numerous attempts to bring a successful product to market.
Sharing a tip on relentlessness, Sacks told Beverage Industry, “One of the most important things is knowing that you’re going to make mistakes and you may have to change.”
He continues, “You have to be prepared to change the packaging, change the flavor, change the ingredients and sometimes walk away from a product. You’ve got to be able to do that quickly without excessive costs sunk into the project. If you can do that, you will be able to continue to innovate and develop different products until you hit upon a successful product.”
At the time of Monster’s development, Harold Taber, renowned Coca-Cola Executive, sat on the board of Hansen Natural; he got a birdseye view of the entire process. In a Biola University lecture uploaded to YouTube, he explains that after putting together the correct recipe, they needed to determine how they’d compete against Red Bull.
Taber recalls a similar David vs. Goliath story that occurred years ago in the soda industry, he says, “Pepsi came out with a 12oz bottle for the same price as a 6.5 oz Coke bottle; the same price.” Attempting to increase value for the consumer, the team crunched the numbers and found they could release a 16oz can with limited damage to the profit margins of the product. Taking into account Red Bull only offered a slim 8.5oz can, making this move could only benefit their competitive advantage.
Next, Taber talks about packaging and focus groups, he says, “We spent $50,000 on focus studies” just to determine what the container should look like. They had all kinds of glass, plastic, and metal cans and bottles available for their age demo of “15’s to 34’s” to try. One review, in particular, struck them, as a young man gazed at all the various packaging options, he bluntly stated, “I don’t know about everything everybody else is seeing but that [16oz] can down on the end is a Monster compared to the rest of’em!”
Taber tells the class he’s teaching, “Brian just named the product…that’s how Monster was named.”
Hansen ultimately decided their market would be 18 to 36-year-olds – primarily young men. In order to better understand their consumer, Taber says, “We go down to Newport Beach, Malibu, and San Diego; we go to beaches. We start talking to this group and you know what they said back to us? They want their own brand. They don’t want mother and dad’s Coca-Cola.”
On another note, Taber adds, “by the way, we learned that group has more money than anybody – the 18 to 36’s. They can buy anything!”
Sacks needed to turn Monster into a lifestyle brand for young adult males. The slightly aggressive logo and can labeling do the trick on first impression, however, the selective marketing tactics used to grow sales may have played an even more pivotal role.
While describing Monster’s marketing practices to the U.S. Senate, Sacks explained, “Like many other popular food and beverage companies, the Company sponsors a variety of athletes, music artists, events, tours, and shows to promote Monster. The Company’s primary marketing involves motor sports that are aligned with Monster’s brand image, such as NASCAR, Supercross, Motocross, MotoGP, off-road truck racing, Formula 1 racing, and the Dakar Rally.”
Notice that the majority of events, artists, and athletes sponsored by Monster are geared towards young men. In turn, the beverage was able to seamlessly integrate itself into their lifestyle.
The company’s former senior Vice President of Marketing, Marianne Radley, told alistdaily in a 2017 interview, “We almost never do above-the-line media buys. We’re not a brand that does commercials.” Focusing on fatefully exceptional marketing opportunities rather than blasting ads everywhere keeps the brand spirit potent, meaningful, and trustworthy to loyal consumers.
“We do very well in experiential marketing and fan engagement activations at events.” Radley says.
She continues, “It’s not just about the drink, it’s about the unique experiences, it’s about the energy, the emotional connection to the brand and learning from that. It’s getting yourself out there. We take them on a learning journey, and they become believers in the brand.”
Planning and Execution
The wonders of not only developing a great strategy but executing it properly along with maintaining adaptability all the way through. Combine 2000, 2001, and 2002 and Hansen’s Natural generated just over $300 million in gross sales. By 2005, with the successful launch of Monster energy drink, they were doing $349 million in a single year; come 2008, sales flew past a billion dollars.
2011 saw Sacks confidently declare to Beverage Industry, “we believe that Monster has the potential to be an international brand and to be the real challenger to Red Bull around the world…we believe that we are the only brand out there today that can effectively do that.”
Monster Energy Growth
A point of note, Hansen Natural Corp changed its name to Monster Beverage Corp in 2012.
Sacks and co. steadily ate into Redbull’s massive initial dominance. TIME Magazine cited Euromonitor International in a 2015 article as revealing that Redbull “enjoyed” a 43% market share while Monster had carved out a considerable 39% share. Checking Monster’s 2014 annual earnings report, we can see that the company hauled in over $2.8 Billion in gross sales.
Employing simple mathematics and using the numbers above, one can find that the “energy drink market” must have been worth (at least in terms of gross sales ability) around $7.2 Billion; with Redbull accounting for just over $3.1 Billion of that figure (Again, that’s assuming the TIME Magazine article is correct).
Fast forward to Monster’s most recent 2019 annual earnings report to find that the companies growth has continued to surge to the tune of over $4.2 Billion. The document divulges Sacks’ grander ambitions. Apparently, the “Energy Drink” market is no longer big enough, he now has his sights on a broader category known as “Alternative Beverage,” which boasts approximately $58.6 Billion in value!
**Monster’s understanding of the “Alternative Beverage” category being, “non-carbonated, ready-to-drink iced teas, lemonades, juice cocktails, single-serve juices and fruit beverages, ready-to-drink dairy and coffee drinks, energy drinks, sports drinks and single-serve still waters (flavored, unflavored and enhanced) with “new age” beverages, including sodas that are considered natural, sparkling juices and flavored sparkling beverages.”
In comparison, Redbull, whose financial numbers are fairly difficult to come by as they are a privately owned company, discloses on their website sales of 7.5 Billion cans along with “Group Sales” of 6.067 Billion euros. All in all, the energy drink market has procured some of the most steadily incredible gains of any industry throughout the past decade.
Hansen maintained an innovative spirit throughout its lifetime. Having begun with juices, they later launched sodas, Hubert’s Lemonade, and Peace Tea. Of course, there was also the aforementioned period immediately after Sacks and Schlosberg purchased the company when they released various “energy beverages” in anticipation of the burgeoning trend.
Following their Monster concoction’s success, they began experimenting with the brand in order to access untapped consumer markets. Take for instance how Java Monster led the companies charge into the “morning coffee” category. Sacks highlights the story of California gas station Owner, Isa Bahu, saying, “[Bahu] sells Monster like he started Monster!”
Bahu tells Beverage Industry that 80% of his morning sales are Monster products. He says, “In the morning, we just keep filling our displays…It’s the coffee for people in their early 30s. I see more young people buying two Monsters in the morning than coffee.”
When analyzing Monster’s purposefully different variations of their product, it’s pretty easy to tell who’s business they’re going for. For example, Monster Muscle is an energy shake filled with 27g of protein – one can discern this is them reaching their arm into the workout industry.
Then there’s Monster Rehab, the party-goers hangover cure. Sacks describes the drink’s success, “We planned to have a single [Rehab] product for at least a year before expanding to allow us enough time to get the product into the market, build up distribution and create awareness.”
He continues, “But the response to Rehab has been so good we’ve been getting a lot of pressure from our distributors to expand the line, which is unusual. People have continued to say to us, ‘When are you coming out with the next Rehab product?'”
Coming Up With Ideas
“When people say, ‘How do you come up with new products?’ We listen to the younger guys,” he says. “A lot of them are internal. What are they doing? What do they like? When we test our packaging and promotions, we run it by the younger guys. The key to finding the right product or packaging for the right demographic is hearing what they say and understanding them in their own environment as opposed to trying to figure out what an artificial focus panel says.”
That open culture has bonded employees, athletes and fans to the Monster brand, explains Sacks. “Part of that is making sure that your company, your employees, your team, everybody, lives, breathes and dies by the brand…It’s not just a job, you don’t come here simply to work; you come here because you feel good about yourself and what you are doing.”
“If you talk to our guys, and our athletes, they generally have that same spirit,” he continues. “I talk to athletes, and deal with a lot of them personally, often at different events. They are particularly loyal. On many occasions I have heard them remark that they will not endorse another energy drink even if they are no longer sponsored by Monster; that loyalty makes us very proud of the reputation we have been able to build.”
Staying in Your Lane
Sacks warns, however, that venturing into too many markets can prove detrimental to the brand’s image. He explains, “If you had your wish list, you’d want one brand name and you’d want it to be everything to everybody…So you’d take that brand and its marketing and extend it to many different categories and different use occasions. I mean, everything, beverages for working out, going to sleep, waking up, etc.”
“The market is too specialized,” he continues. “You can’t do it. Brands that are credible have a particular meaning to consumers. The moment that you go too broad, you tend to dilute that meaning and the credibility is diluted.”
In 2006, Hansen partnered with Anheuser-Busch to distribute Monster along with other beverages throughout most of the United States. Two years later, they added a distribution contract with Coca-Cola; Coke took on deliveries to the remaining U.S. locations that Anheuser-Busch couldn’t reach and would begin delivering Monster to Canada and six western European countries.
“I think that each of the different partnerships brought different strengths to the table,” Sacks says. “While the number of accounts covered by Coke bottlers may be broader than, for example, Anheuser-Busch distributors, on the other hand, Coke bottlers are generally more focused on traditional grocery chain accounts and mass merchandisers, whereas Anheuser-Busch distributors are really focused on the convenience and gas channel, which is our sweet spot.”
Focusing on Coke and Monster’s relationship…things got a little complicated. For starters, Coke started trying to sell their own line of energy drinks and Monster wasn’t too happy about that. Coke had reason to believe it’d be okay considering Monster got to sell juices and tea’s that directly competed with their products. The classic, “if you can do it then why can’t I?”
The two got together and talked it out. They decided that Coke would acquire a 16.7% stake in Monster and the companies would swap competing brands. Monster received ownership of Full Throttle, NOS, and others while Coke was given Hubert’s Lemonade, Peace Tea, and others. Their partnership would continue in holy matrimony.
That is, until, Coca Cola started foolin around again. They recently launched Coca-Cola Energy – a whole new line of energy drinks! What a slap in the face to Monster; after all they had been through – all that progress! “Everybody is fighting,” Rodney Sacks tells Business Insider, adding “The coolers aren’t rubber. They can’t expand.”
Don’t worry, they’re going to court and getting everything squared away. Because that’s what usually happens in court, right?
Sacks discussed the dynamic of Monster’s 2011 three-man Executive team with Beverage Industry, saying “What’s interesting is that each of us have very different disciplines and strengths.”
“We’re very, very different people. We’re fortunate that we’re able to put our heads together and ultimately achieve a good balance between us. Some of our ideas are very aggressive but through having worked closely with each other for so long, we are often comfortable with moving ahead with ideas that conservative management wouldn’t go with. On the other side, the other members of the team will pull you back when you go too far. We really have a nice blend of many styles between the three of us.”
“We have a small, but extremely competent executive management team who are all intimately involved throughout the business,” he says. “We’re all players. We don’t have any formality. We don’t have any politics. Everybody is able to share their views and make recommendations from the most junior guys up. We think everybody should be able to express their views and they should be respected.”
Rodney Sacks did not become a Billionaire alone; neither did his business partner, Hilton Schlosberg for that matter. Teamwork flows throughout the entirety of this man’s story. Remember when he borrowed money from friends and family when all he had was this yearning to own a company – he didn’t even know what he wanted the company to do at that point!
Then there came the Hansen board which included legendary members like Harold Taber who helped the company weave its way through the trials and tribulations of launching a new beverage product. Strategic partnerships with other companies, innovative employees, enthusiastic gas station owners like Bahu, dedicated consumers, loyal athletes, etc.
At first, I couldn’t help but wonder how there was so little known in regards to the personal life of the Billionaire Founder of a brand like Monster. Now it’s a bit easier to grasp. Maybe Rodney Sacks is giving a silent nod to everybody who played their individual, potent, and absolutely necessary role in creating Monster by staying out of the spotlight.
He knows the brand represents so much more than himself.