Energy Drinks are still growing in double-digit figures, but some retailers feel a little edgy these days because the category isn’t growing at the same exponential rate it has during the past few years.
“Don’t get me wrong, energy is a very big category that puts a lot of money into the bottom line,” said Terri Murray, general manager for Gulf Oil LP. “But I haven’t seen the ferocious growth we saw over the last several years.”
Steady and consistent sales gains don’t have to be ferocious for retailers to profit.
“When energy drinks first came out, I don’t think any of us were sure what was going to happen,” Murray said. “Then, when they continued to grow, we were all in awe. Their strength in the marketplace is still impressive, but they just aren’t growing the way they used to, and it was unrealistic for anyone to expect them to increase at that rate forever.”
However, the sale of energy drinks still proves to be popular, according to a recent report from Packaged Facts Inc., which shows the energy drink segment is growing by 12% annually and will surpass $9 billion by 2011.
“The popularity of energy drinks is a recent phenomenon that is still in the early stages,” the study reports. “Energy beverages accounted for just 2% of all nonalcoholic drinks sold in mass market retail stores in 2006, a figure that was up just from 1% in 2004.”
Slipping sales might just be an illusion. After all, a phenomenal growth rate is impossible to sustain in the long run.
The gains made by energy drinks and sports drinks have come at the expense of carbonated beverages. Since 2002, sales of carbonated beverages have declined about 1% a year. In 2007 alone, sales fell from $13.9 billion to $13.2 billion. By contrast, since 2003, total sales of energy drinks, which were just $1.2 billion in 2002, increased nearly 440% to $6.6 billion in 2007.
Economy a Possible Factor
Consumers’ concerns about a rapidly worsening economic climate may factor into their drink-buying decisions, as well. Anecdotal evidence shows that those dollar stores where nothing sells for more than a dollar are getting more customer inquiries about when the next shipment of energy drinks will arrive.
But Murray discounts the economy as a reason for slower growth rates. Granted, she said, energy drinks cost more at c-stores than at discount outlets, and are more expensive than fountain drinks. But customers at her stores–located along the Massachusetts Turnpike, which boasts New York at one end and a major airport at the other–are unlikely to choose a beverage based on price.
“Most of our customers are vacationing and they are not necessarily cost-conscious,” she said.
Consultant Jorge Olson concurs that the energy category is still growing, but believes there just isn’t much room for new players in this game because all the growth is going to established sellers.
“The problem is when you look close, the only companies actually growing are Monster Energy Drink, Rockstar Energy Drink, Red Bull, Coca-Cola products like Tab and Burn or Full Throttle, Pepsi Cola with Sobe and other large companies,” Olson said.
Distribution is another issue retailers consider.
“You can’t get a new energy drink into 7-Eleven, Circle K or any of the important retail accounts,” Olson said. “Well, you can, if you can pay $100 per store times 4,000 stores for slotting, but that’s $400,000 just to get into the store, and in many cases, that is not even enough anymore.”
Circle K has gone a step further introducing the GazZu line of proprietary drinks, which it expanded in 2008 to include energy shots. It remains very bullish on the category, said Russ Kidd, beverage category manager for Circle K’s Southeast region.
Red Bull, which is supplied by Red Bull North America Inc., is still the 800-pound gorilla holding a 42% market share, making it the top-selling brand in the segment. In 2007, Red Bull branched out of convenience and recorded sales of nearly $272 million in supermarkets, drug stores and discount stores, excluding Wal-Mart Stores Inc., according to Information Resources Inc.’s (IRI) InfoScan Review.
Retailers Remain Optimistic
Depending on how you read them, data may indicate energy drink sales are leveling off, but retailers remain optimistic about future category sales because of the wide array of new flavors and types of energy drinks big producers are funneling into the marketplace. One new type of energy drink appears to be bullet-ing through the marketplace: the energy shot.
Energy shots have become extremely popular with truckers, said Danny Lin, who oversees energy purchases for D&J Markets in Poulsbo, Wash. “You just don’t need as many restroom breaks with energy shots as with energy drinks. Truck drivers, they don’t like to pull over.”
Ephedra and ephedrine used to be very popular with truckers. Now that those substances are banned, truckers have begun to buy energy shots to get that ‘stay awake’ kick that helps them to stay on the road.
However, energy shots’ growing popularity in this chain doesn’t mean that Lin’s energy drink sales are dropping–in fact, he says they’re going up.
“Nowadays, there are lots of energy drinks,” he said, adding that he relies on distributor data and the recommendations of sales reps to stock his stores. “Some I never heard of before, but I’m sure selling a lot of them.”
In contrast, Murray said that energy shots have taken a big bite out of her energy drink sales.
“I sell a ton of energy shots,” she said. “I can’t even tell you how many cases upon cases I sell a week with 5-Hour Energy definitely ruling the marketplace. Now there are other hot products like NOS from Coca-Cola and Hitman from Monster, and they are both selling well, too.”
Quicker, Easier and Growing Fast
Both Murray and Lin are unsure of whether future energy category growth will trend more toward energy shots or drinks. Murray, who brought Monster 32-ounce cans into her stores at the beginning of this year, said the bigger size container isn’t selling well.
“I don’t know if that’s because it’s in the well or whether the price point is stopping buyers,” she said.
On the other hand, those $3.99 energy shots almost fly out of the Gulf stores.
“Customers actually pay more for a little two-ounce shot than they do for an energy drink,” Murray said.
Another factor in energy shot sales growth may be that it’s simply easier to drink a small shot than a bigger drink, especially if what you’re seeking is a quick burst of energy.
“Personally, I think Red Bull is an acquired taste,” Murray said. “If I’m drinking it for energy, am I going to suffer an 8-ounce drink or just take a 2-ounce shot? Let’s face it. We like instant gratification, and you definitely get that with a little shot.”