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    Retailers Anticipate Challenges During Monster Transition

    Recent survey indicates the 'bumps should not be big.'

    NEW YORK — The first half of the year could bring some hiccups to Monster Beverage Corp.'s performance as its previously announced pact with The Coca-Cola Co. takes hold.

    According to a recent Wells Fargo Securities LLC Beverage Buzz retailer survey, more than 50 percent of respondents indicated they expect some level of disruption or potential challenges during the transition to Coca-Cola distribution. However, the majority suggested these would be "normal transition disruptions" and the "bumps should not be big."

    The survey reached retailer contacts representing tens of thousands of U.S. convenience stores.

    As part of the deal, Atlanta-based Coca-Cola will acquire an approximately 16.7-percent ownership interest in Corona, Calif.-based Monster and will have two directors on Monster's board of directors.

    In addition, the two companies will amend their current agreement in the United States and Canada by expanding into additional territories and entering into long-term agreements. Coca-Cola will become Monster's preferred distribution partner globally and Monster will become Coca-Cola's exclusive energy play, as CSNews Online previously reported.

    As a result, Monster will transition nearly half of its distribution from the Anheuser-Busch system to the Coca-Cola system in the first half of this year.

    Of those retailers surveyed, approximately 20 percent currently have exclusive distribution from Coca-Cola bottlers and will therefore see no change. Of the remaining 80 percent, roughly half have exclusive relationships with A-B, with the other half receiving deliveries from both Coca-Cola bottlers and A-B.

    "While we remain very confident that ultimately distribution through one partner will be positive, 'bumps' will inevitably occur in the short-term that could negatively impact Monster's sales in the first half of 2015," said Bonnie Herzog, managing director of beverage, tobacco and convenience store research at Wells Fargo Securities.

    According to Herzog, of those retailers receiving distribution from both Coca-Cola bottlers and A-B, many suggested that A-B generally has better levels of service.

    "Based on retailer comments, we expect those stores that don't currently sell beer [approximately one quarter of all c-stores] will likely see improvements following the transition," she said. "For those stores that have exclusive relationships with PepsiCo Inc., our expectations are for lower level of service or potentially retailers removing Monster altogether."

    As for deliveries of Monster, the survey found that the bulk of retailers indicated they receive one to two deliveries per week, split fairly evenly, with stores generally receiving delivery once a week and high-volume stores getting twice-a-week deliveries.

    "Interestingly, at least one retailer suggested sales could be 10 percent higher if Monster products were kept in stock — a potential opportunity for Monster if Coca-Cola is able to improve existing out-of-stocks, which average zero to 5 percent across our surveyed stores," Herzog noted. "Several retailers suggested Coca-Cola delivery frequency is higher, which supports lower out-of-stocks."

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