Dive Brief:
- Monster Beverage is working to offset ballooning freight costs by sourcing more in the U.S. and repositioning finished inventory across its distribution network, CEO Rodney Sacks said during the company's Q1 earnings call.
- The energy drink maker added two aluminum can suppliers in the United States last quarter, which the company expects will "decrease our reliance on the use of imported aluminum cans," Sacks said. Monster expects procurement shifts to help lower costs beginning in the second half of Q2.
- Monster is also redistributing finished inventory across U.S. distribution centers "to reduce excessive cost of long distance freight," Sacks said. Freight costs dragged down Q1 profits by $6 million.
Dive Insight:
Aluminum constraints last year had pushed Monster to import more from cans from abroad. However, relying on more imports brought other challenges: port congestion, a lack of shipping containers, and "significant increases in domestic and international freight costs," Sacks said in August.
Monster is now focused on positioning production closer to customers, adding suppliers and rebuilding inventories within the U.S. Sacks said last month adding the two suppliers, which are now operational, should help Monster decrease its reliance on imported aluminum cans.
Still, rising aluminum prices continue to present headwinds for the company. Monster saw a "dramatic increase in aluminum prices," with costs soaring 65% YoY in Q1, President Hilton Schlosberg said.
Although Monster has added more suppliers and co-packing capacity in the U.S., the company is still relying on imports to meet demand. The company estimates $46 million in costs were the result of operating inefficiencies "including the importation of aluminum cans," Sacks said.
Beverage can makers are facing similar pressures and are looking to up production in the United States as a way to lower costs. Ball Corporation, which has also imported more aluminum to meet demand, is investing in new ways to increase production in the U.S.
The company expects to announce new investments in 2022 "to support domestic U.S. production of aluminum can sheet to further enable long-term growth," President and CEO Dan Fisher said in the company's Q1 earnings call.
"We're starting to see investment in the aluminum supply chain in North America," said CFO Scott Morrison. "So I think that's encouraging."
