How Hansen's Natural created a MonsterNovember 5, 2012: 11:38 AM ET
The energy drink brand consumed its parent company, Hansen's Natural. What does it mean to shift from "natural sodas" to caffeine-charged beverages?
FORTUNE -- Energy drinks are hot right now. The market is global, growing, and young. Brands plaster their logos on arenas and extreme sports gear. And while Red Bull dominates the world market, Monster Beverages is catching up, account for a third of the energy drink market in the United States.
The public also has Monster (MNST) on the brain because the company is being sued. The mother of a 14 year-old girl who died in December after having consumed a couple of Monster drinks is claiming that the beverage played a part in her death. Monster denies any wrongdoing.
Monster has unlikely roots for what it is today -- giant, massively profitable, and peddling a controversial, caffeine-heavy product. Before this January, Monster Beverage was known as Hansen's Natural. And while most big companies with several different brands under their umbrella are distancing their main name from the limelight, Monster Beverage is claiming its sub-brand as the company identity.
Over the past 20 years, big brands have started to consolidate and contain many sub-brands with conflicting identities, says Gavan Fitzsimons, a professor of marketing and psychology at DukeUniversity. "Sometimes it works great, sometimes not so great," he adds.
Procter & Gamble (PG), for example, has tried to manage its sub-brands by playing down the P&G name, Fitzsimons says. P&G peddles a bevy of brands including Tampax, Gillette and Swiffer. It chooses to let each stand on its own instead of trumpeting the connection between them – men might have a problem, for example, buying a razor from a company identified too heavily with Swiffer or Tampax.
Those brand consolidations that fail do so, in part, because of the cognitive dissonance customers feel when a sub-brand doesn't seem to line up with the parent. Sara Lee, for example, accumulated a wealth of brands in the 1990s, including Jimmy Dean, Haynes, and Wonderbra. The idea was that the products, though different, could reach the same consumer. But customers ultimately had trouble reconciling their bra-maker with their sausage links, Fitzsimons says, and the strategy crumbled. This summer, it spun off its coffee and tea business, D.E. Master Blenders, and renamed the company formerly known as Sara Lee as Hillshire Brands (HSH). Hillshire Brands still sells Sara Lee desserts, Jimmy Dean links, and other big packaged meat brands such as BallPark hot dogs.
Any branding shift could confuse customers. In Monster's case, the Hansen's customers are in the minority, since Monster drove over 90% of the company's revenue before it changed names.
Still, Hansen's Natural's was about as far from Monster's extreme games and girls in bikinis rager image as a brand could be. Hubert Hansen and his three sons started the company in the 1930s -- they sold fresh fruit juices in southern California. In the 1970s, one of Hansen's sons introduced natural soda to the business, and the drinks had pretty cans with pictures of fruit on them. Business was profitable but modest by 1992, when its current CEO Rodney Sacks bought the company for $14.5 million.
Then, in 2002, Hansen's created a Monster. The company's revenue from drink products skyrocketed from $50 million in 2003 to $1.7 billion in 2011, according to an October analyst report from Morningstar. The jump was all thanks to Monster. So analysts cheered when this January, Hansen's Natural announced that it would change its name to Monster Beverage. There's a pure financial angle here – the company wanted to identify closest with the brand that generated the bulk of its revenue.
But Monster also generates the bulk of the risk. Energy drinks aren't considered food but dietary supplements, which aren't regulated by the FDA. The regulation situation, or lack thereof, doesn't look like it will change in the near future, but analysts do consider it an industry risk. For now, Monster Beverage seems smart to capitalize on the brand strength of its spooky neon energy drink instead of quietly raking in Monster profits under a Hansen's umbrella.
Yet, should energy drinks ever shuffle into the food and drink category, Monster may have a problem on its hands that a fruit-juice and natural soda company never would have faced. And now that the transformation to Monster is complete, there's no going back.