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To say that the energy drink category is on fire in the beverage aisle is an understatement of immense proportions. Energy drinks' dollar sales have grown nearly threefold (289.5 percent) since 2003, according to market data provided by The Nielsen Company.
While still dominated by Red Bull, which continues to claim the lion's share of category dollars, the energy drink category's been penetrated by the major soft drink companies, and even beer behemoth Anheuser-Busch; and with manufacturers' DSD systems firing on all cylinders, the category is poised to break the billion-dollar mark this year.
That's truly amazing for a category that didn't even exist a decade ago.
"How many new [beverage] categories have there been in the last 10 years?" asks Kent Raphael, v.p. of merchandising for Village Pantry, an Indianapolis-based convenience chain operated under the Marsh Supermarkets umbrella, which, like many operators, has seen the business take off. "I can think of two: bottled water and energy drinks."
With the entrance of the major beverage companies into the energy game, facings in the supermarket channel have increased exponentially from the early days, when there was Red Bull and -- that's it, really.
Today, Rockstar, Full Throttle, Tab, and Enviga are delivered straight to the shelf from Coca-Cola, which also inherits NOS from Fuze Beverages. SoBe Adrenaline Rush, SoBe No Fear, SoBe Essentials, and Mountain Dew Amp come to you compliments of Pepsi. Dr Pepper/Seven Up, which had been distributing NOS in parts of the country, also has Coolah, a small brand, but has recently added Jolt Energy through its Snapple arm.
Then there's Anheuser-Busch, which has been trying to play the energy game almost from the beginning. After failing with its own energy brand, 180, A-B now distributes Hansen's Monster and Lost brands. Though still transitioning into the Anheuser system, Monster has reached 30 percent penetration among A-B wholesalers, with a goal of 50 percent penetration by midyear.
This mainstream interest in what had for years been a niche has had the kind of impact you'd expect. The dizzying growth of DSD energy brands has led Stop & Shop, the Ahold-owned chain in the Northeast, for instance, to double its number of facings in a year. Virtually all grocers have followed suit. The number of brands entering the mainstream has also had an effect on the packaging options available to consumers.
Drink your meds
One of the most important things to understand is that, unlike virtually every other beverage on the market, energy drinks aren't purchased for refreshment.
"In fact, they don't taste very good," says Raphael. "You have to develop a taste for them. When someone comes in here trying to sell me with the sales pitch of, 'Buy mine because it tastes better than Red Bull,' that just tells me it's someone who doesn't know the category, because it's not taste that's of primary importance."
Rather, it's that amazing shot of "energy," usually in the form of caffeine, that gives the product its rather unique taste profile. "It tastes like medicine," says Raphael.
So why are sports drinks selling like liquid gold? Simply, it's because they work.
While all other beverage categories -- certainly soft drinks, iced tea, and juices -- are sold for refreshment value and taste, energy drinks are truly functional. They either pick you up or keep you going. In fact, they were first introduced in this country as a high-octane on-premise cocktail mixer, one that would allow young adults to party even further into the night.
Young adults and teens soon adopted this new drink category as their own. According to Simmons Research, 31 percent of U.S. teenagers say they drink energy drinks. That represents 7.6 million teens, a jump of almost 3 million in three years.
Indeed, there's evidence that energy drinks are replacing coffee for an entire generation of consumers. While their elders may still turn to hot brew for their caffeine boost -- especially in the morning -- many young drinkers are turning to energy drinks as their primary source of instant oomph.
"Energy drinks can be seen as an evolution of the world's first energy drink: coffee," observes Kaumil Gajrawala, beverage analyst at New York-based UBS. According to Gajrawala, it was only natural to expect consumers to gravitate toward a category that offered the same amount of "energy" (in the form of caffeine) in a more convenient package, and in a far more refreshing form, particularly for dayparts other than the morning.
And the audience for sports drinks, while grounded in what might seem to be disaffected youth riding dirt bikes off cliffs, has grown far beyond that. The entrance of all the major beverage companies into the category has mainstreamed to the point that today the typical energy drink consumer may be a blue-collar laborer reaching for a cold one in his refrigerator after work -- not in search of a beer buzz, but rather the quick boost of the caffeine lift.
Coca-Cola is doing a good job at courting both younger and older targets with different products.
"Full Throttle is targeted at mid-20s to early-30s males who will have it before they go to a construction site, or a plumbing or carpentry job, instead of coffee," observes Gajrawala. "Rockstar, on the other hand, goes straight for the younger consumers. My guess is that Full Throttle does not get mixed with a lot of vodka, and Rockstar does."
Best of both worlds
When the category first came to be, in the mid 1990s on the back of Red Bull, then an Austrian import, it consisted of a solitary SKU: 8.3-ounce cans, sold cold.
But given the unprecedented success of Red Bull, competition soon ensued, and that drove packaging varieties. Four-packs were followed by 12-ounce, 16-ounce, and 24-ounce cans. Today the packaging incarnations are nearly as diverse as soft drinks, with the exception of one- and two-liter PET.
Many people assume that the energy drink category came as a natural extension of sports drinks, but the two serve different functions and are absolutely not related to each other. Whereas energy drinks offer quick "shots" of energy with large quantities of ingredients such as caffeine, guarana, taurine, or ginseng (or all of the above), sports drinks are all about replenishment of nutrients and muscle recovery after strenuous workouts, offering electrolytes and carbohydrates toward that end.
That could be changing, however, as more and more energy drinks are turning toward fruit juice and juice blends as a core component, to boost their taste profile and overall nutritional image with consumers.
"You're seeing flavors expand into more traditional juice flavors," notes David Bishop, director at Willard Bishop, a Barrington, Ill.-based retail and CPG consultant. "SoBe Essentials is being positioned as a better-for-you energy drink, and the flavors that it's introduced of late are more characteristic of the juice category -- orange and berry pomegranate."
Other brands are following suit, says Bishop, as the category morphs into a fusion that offers all the pick-me-up benefits of energy drinks plus the taste and good-for-you characteristics associated with so-called "New Age" functional beverages.
With so many options available, how does the retailer choose which brands make the shelf, and which don't?
"The retailer's strategy is the same as with any other new product," continues Bishop. "Perhaps the most important element to consider is, 'How is this item different from what I already carry?' This is where the innovation comes into play. If it's simply a me-too imitation of a product that's already out there, the only point of differentiation would be a lower price point."
And the retailer would, at that point, need to bring margin shrinkage into the equation.
According to Bishop, the other key component the retailer must consider when making a decision on what to carry is support behind the brand given by suppliers.
"A lot of fly-by-night manufacturers that aren't committed to a long-term business plan aren't going to be successful, because retailers are going to look at what their commitment is relative to building demand for their products. In other words, how are they going to drive demand in stores?"
Many leading brands in the energy space are extremely active in supporting their products, particularly with image marketing targeted at their core consumers.
Red Bull, which, according to IRI, generates nearly 40 percent of all supermarket dollars in the category, was an early leader in image marketing, building its brand by being where its young audience was -- at beaches, concerts, and events, with Red Bull cars giving away product for all to sample. As the brand grew, so did its marketing budget.
"Today, we have a major NASCAR Nextel Cup sponsorship with Team Red Bull, featuring driver Brian Vickers in car No. 83, and A.J. Almendinger in car No. 84," says Red Bull spokeswoman Patrice Radden.
Red Bull's sponsorships are many -- virtually all motor sports, including NASCAR, IRL, Champ Car, and Formula One -- as well as motocross and dirt biking, which are normally associated with energy drink sponsorships.
But Red Bull's biggest coup may be its name sponsorship of a Major League Soccer team, the New York Red Bulls. "It's the first of its kind in North America," says Radden. "Soccer teams have had corporate sponsors in Europe and South America, but this is a first over here."
SoBe, which began as a renegade brand before becoming part of the mainstream Pepsi portfolio, has been involved with these kinds of sponsorships from the beginning, and continues to maintain a prime presence with signage and sampling at extreme-sports events of all sorts -- motocross, BMX biking, and winter sports -- including name sponsorship of the No Fear Moto X America Tour.
Even smaller brands, such as BAWLS Guarana, have also shown a willingness to invest in the image game. The Miami-based company is showing its continued support for BMX bike racing by becoming the "Official Energy Drink" of the American Bicycle Association, as well as the newest partner of the National Bicycle League, and sponsor of several BMX racers, teams, and tracks in the United States.
So just where is the market headed? Anywhere, it seems, but down.
"Whenever you see this level of activity in a segment, especially relative to new entrants, it's just a very clear signal of the attractiveness that the segment offers to both manufacturers and retailers in terms of growth and profit potential," observes Bishop of Willard Bishop. "Right now it's one of those segments that offers both. It's an incredible category that hasn't even come close to maturing. Not only do energy drinks offer stronger margins than any other product in the packaged beverage business, they allow manufacturers to generate incremental revenue on a product that they may or may not already distribute."
And when retailers see this kind of investment from manufacturers, it amounts to a "win-win" situation.
Furthermore, as volume declines in two less profitable segments, CSDs and juice, it continues to increase in energy drinks, which have begun to offer attributes of both.
"Sometimes it's even merchandised as a juice," says Bishop. "The amount of resources being deployed against it at the manufacturer level clearly indicates that manufacturers see the value and attractiveness of this segment. It's hard to think that this category will do anything but continue its upward trajectory for years to come."
EXCLUSIVE WEB CONTENT:Innovate or burn out
Innovation is the name of the game in the energy category, and energy brands are always trying to find ways to differentiate themselves from the competition. New flavors, line extensions, relaunches and guerilla marketing campaigns are just some of their tactics.
"Red Bull did an excellent job creating the market and creating consumer demand, which is what retailers look at all the time when introducing a new brand," explains David Bishop of Barrington, Ill.-based Willard Bishop Consulting. "They want to know how the manufacturer is going to help sell the brand beyond getting it on the shelf."
According to Bishop, Red Bull was able to ultimately gain control of the market, not just by being first, but also by creating a unique buzz behind the product. "They got a lot of people interested in it," says Bishop. "What really locked it up was the solid, fundamental retail proposition they offered: high transaction rings and stronger penny profits."
Since Red Bull created the market in the 1990s, quite literally hundreds of brands have attempted to recreate that success, including brands from all the major soft drink companies. Today most retailers are involved with private label initiatives in the energy category.
Here are just some of the recent developments in the energized energy marketplace, which presage much more activity as we move into the peak spring and summer selling seasons.
Red Bull: The king of all energy drinks hasn’t gotten to where it is today by resting on its laurels. And so Red Bull has decided to play the "bigger is better" game by launching a 12-ounce cam for both its flagship and sugar-free varieties. A new four-pack of 12-ounce cans of both regular and sugar-free Red Bull is rolling out nationally in the supermarket channel.
BooKoo: BooKoo Beverages claims several "firsts" in the category, including the first brand in both 24- and 5.75-ounce sizes. The latest innovation from the Dallas-based company is Jugo. Introduced in January, Jugo is an energy-juice fusion, containing 99 percent juice. The product's "superfruit" formula consists of papaya, white grape, orange, guava and passion fruit. Jugo is positioned to fill in the energy drink gaps of the morning and evening time slots -- the greatest category growth opportunities. The Jugo name was selected because of its appeal to both Hispanic consumers and the general market.
Full Throttle: Coca-Cola's latest effort is an extension of the Full Throttle brand: Full Throttle Blue Demon. Targeted at males age 20 to 30, Blue Demon is named after Mexican masked wrestler Alexander Muñoz Moreno, who wrestled in the 1940s and '50s under the moniker "Blue Demon" and went on to star in many action, horror and science fiction films in the '60s and '70s.
SoBe Essentials: Pepsi's SoBe brand has introduced SoBe Essential Energy, a new line of juice-based energy drinks made with ginseng, guarana, yerba mate, and real fruit juice. Marketed as a good-for-you energy drink, SoBe Essential Energy is available in Orange and Berry Pomegranate flavors; contains zinc and vitamins B6, B12, and C; and is available nationwide in 16-ounce single-serve cans and four-packs.
Tab Energy: One thing about energy drinks is the pervasive image of some skateboarder dude jumping off a mountain, or maybe some BMX dude popping a 360, or some motocross dude revving his engine -- the point being, it's almost always a dude. But girls need energy, too, and leave it up to Coca-Cola to take a venerable soft drink brand that had been aimed at the distaff audience, Tab, and relaunch it as an energy drink targeted at women. The lightly carbonated, pale-pink beverage is, like its predecessor, sugar-free, but sweetened with a blend of sucralose and acesulfame potassium (as opposed to saccharine). Each 10.5-ounce can (packaged in Tab's signature pink, of course) offers just five calories, and is available in single-serve and four-packs. Tab Energy joins Full Throttle and Rockstar in Coca-Cola's ever-growing roster of energy drinks. (Rockstar has been distributed via the Coca-Cola bottling system since 2005.)
Guaranexx: One would never suspect a brand as blatantly testosterone-driven as Bawls Guarana to show a soft side, but that's precisely what the Miami-based company has done with the introduction of Guaranexx, targeted at women in general, and fashionistas in particular. To promote the new brand, a spring consumer UTC promotion will offer a grand prize of a VIP trip for two to Los Angeles to attend the 2007 Gen Art Fresh Faces in Fashion show at Smashbox Studios, along with a mini shopping spree at Metropark, the Los Angeles-based specialty fashion chain. The winners will also be awarded a one-year supply of Bawls Guaranexx, a sugar- and calorie-free extension. And just so there's no confusion with the flagship brand, Guaranexx, the newest supporter of the Parsons New School for Design, is the "Official Energy Drink" of Gen Art's Fresh Faces in Fashion, Portland (Ore.) Fashion Week and exclusive events at select Macy's stores. Guaranexx has also commissioned San Francisco-based designer Bacca Da Silva to create a couture bottle tote for fashion VIPs at some of this year's hottest shows.
Enviga: In January Coca-Cola and Nestle extended their Nestea partnership into the energy category with the national rollout of this brand. Positioned as a true functional beverage, Enviga is a sparkling green tea containing green tea extracts, calcium, and caffeine, formulated to increase the metabolism, and therefore the calorie-burning process. Available in three flavors -- Green Tea, Berry, and Peach -- Enviga comes in individual 12-ounce sleek cans as well as six- and 12-packs.
Jolt: Jolt Cola, the original energy drink with an extra punch of caffeine, came on the scene in 1985 as a refreshing alternative to coffee. Today it has extended to an entire line, all positioned as "energy drinks." Produced by Rochester, N.Y.-based Wet Planet Beverages, Jolt inevitably lost some of its volume to the energy category as it grew and grew and grew. So in 1985, the company's president decided that if you can't beat 'em, join 'em, and Jolt was repositioned as an energy drink. The line was expanded from the flagship Cola flavor to include Blue (blue raspberry), Silver (lemon-lime), Cherry (cherry cola), and Ultra (no-calorie), packaged in 16-ounce "battery cans" as well as 8.4-ounce "quick cans." All include ginseng, taurine, and B vitamins -- like most other energy drinks. Another shot in the arm for Jolt is its distribution arrangement with Snapple. Jolt replaces Hansen's Monster brand, which used to be carried on Snapple's trucks, but switched over to Anheuser-Busch in 2006.
M-80: Just out of the box from Hansen's is M-80 (as in the firecracker). The can features the familiar yellow Monster "M" and the "80" represents 80 percent juice content. It's being marketed as "a radical juice-Monster hybrid with explosive favor." Monster is also introducing eight-packs of 16-ounce cans to the supermarket channel to save its heaviest users a trip to the club channel. Also new from Hansen's: Java Monster, a Frappuccino-type drink that launched in April. Poised to take on Pepsi-Starbucks, the brand is available in 16-ounce cans in three flavors: Big Black, Mean Bean, and Loca Mocha.