Online Extra: Fruitful Energy
When Rodney C. Sacks and Hilton H. Schlosberg bought the Hansen juice and natural sodas brand in 1992 for $14.5 million, the business was producing about $17 million a year in sales. In the 13 years since, the chief executive and president, respectively, of Hansen Natural (HANS ) have built it into a $300 million-a-year enterprise with a market cap of some $700 million, landing it at No. 26 on BusinessWeek's 2005 Hot Growth Companies list. And they've done it largely through new-product introductions.
Hansen's biggest success is Monster Energy, a drink in a 16-ounce can that's giving category leader Red Bull a run for its money. BusinessWeek Senior Correspondent Christopher Palmeri recently interviewed Sacks and Schlosberg at their Corona, Calif., headquarters. Edited excerpts of their conversation follow:
Q: What's your background? Sacks:
Q: What's your background?
Sacks:Both of us came from South Africa. I was an attorney. Hilt worked for one of the biggest conglomerates in the country. I decided to emigrate to the U.S. in 1989, and we acquired Hansen in 1992. The business then had five flavors of natural soda and apple juice, and our business plan was to look for growth opportunities in natural beverages.
Snapple had just become a hot new alternative beverage. We introduced flavored iced teas, but there wasn't a real point of difference between our drinks and others on the market, so we changed the strategy to be far more aggressive and innovative.
Q: That's where Monster Energy comes in? Schlosberg:
Q: That's where Monster Energy comes in?
Schlosberg:I was living in the U.K. at the time, and I watched the success Red Bull was having in Europe. We launched our energy drink, Hansen's Energy, in the U.S. in April, 1997.
Q: What happened? Sacks:
Q: What happened?
Sacks:As a public company, we were limited in what we could spend on marketing. Red Bull was a privately owned company that had established their brand in many parts of the world. They spent far more than we could and did a very good job in growing the category.
Q: Did you have some trouble getting your brand established? Sacks:
Q: Did you have some trouble getting your brand established?
Sacks:The Hansen brand had a good-for-you, trusted image. Our consumer was largely female. Energy drink consumers were young males who weren't focused on health and [products that are] good for you. There was always this dilemma of the brands.
So we created a separate brand that wouldn't have any of the constraints of Hansen. We put them in 16-ounce cans -- twice the size of Red Bull -- so you got double the drink [for the same price]. That was the market positioning of Monster -- bigger, more aggressive, more cutting-edge.
Q: And now you're No. 2 in the energy-drink category? Sacks:
Q: And now you're No. 2 in the energy-drink category?
Sacks:Their distribution is still twice ours, but we're growing at a much higher rate [last year, 162% vs. 45% for Red Bull].
Q: You've chosen some unique marketing opportunities, such as paying $1 million a year to sponsor the new monorail in Las Vegas. A:
Q: You've chosen some unique marketing opportunities, such as paying $1 million a year to sponsor the new monorail in Las Vegas.
A:As the first advertiser, we secured the sole vending rights at every station. It lets the consumer try our product. We think we have a good-tasting drink. It's a very unique experience, buying it, tasting it, and riding the train -- which is painted like a giant Monster can. You really feel the brand.
Q: How do you come up with new beverage ideas? Sacks:
Q: How do you come up with new beverage ideas?
Sacks:We don't have any set rules. As things develop, we take advantage of them. The demographics for energy drinks have expanded, and this category has taken off. It grew more than 50% last year, to $1 billion at wholesale. We're betting consumers will want energy drinks on different occasions.
That's why we've launched Rumba, a juice drink with caffeine that's designed to be consumed at breakfast. People are looking for alternatives. These are the new soft drinks of the world.
Q: Should consumers be concerned about the level of caffeine or sugar in these drinks? Sacks:
Q: Should consumers be concerned about the level of caffeine or sugar in these drinks?
Sacks:They've got a high level of caffeine, but [drinking one of these] is still the equivalent of a cup of coffee or Coca-Cola in a Big Gulp cup. We say don't drink more than three per day. People get a boost. It's delivering on its promise. They're not going to pay $2 if it doesn't get them that boost.
Q: Tell me about some of your products that didn't work. Schlosberg:
Q: Tell me about some of your products that didn't work.
Schlosberg:My favorite was Medicine Man, a melon-flavored drink. Very low in calories. It tasted great, and part of the proceeds went to benefit Native Americans.
Q: It just didn't click? Sacks:
Q: It just didn't click?
Sacks:You never know what will work.