It had to happen sometime. Energy drinks, arguably the most popular convenience store product in the early-to-middle years of the decade, have begun to slow their sharp rise.
Call it a correction, perhaps. A report released last month on the category by research firm Mintel showed that while growth in the category from 2005-2010 was 136%, projected growth from 2010 to 2015 is 62%. Mintel senior consumer analyst Garima Goel Lal notes the sluggish outlook is based on clear logic. Concern for health is a drawback, but the main cause for the slowdown is price in the troubled economy of the past two years.
“Energy drinks are one of the most expensive non-alcoholic beverages on the market—the biggest reason non-drinkers don’t consume them,” Goel Lal said. “If I had to pick a reason, then in the last two years the economy has largely contributed to the slowdown.”
According to Mintel, the top reasons non-users cited for their reluctance to purchase energy drinks and shots were: high prices (48%), too much caffeine (43%) and a feeling that they just aren’t good for you (43%).
For the future, the main problem for manufacturers is that its target user group is limited. Mintel noted that the economy has also limited manufacturers’ new-product innovation. Goel Lal said that while the category added 9.3 million new users aged 18 and over from 2005 to 2007, it added just one million from 2007 to 2009.
“The innovative and perceived functional nature of the product led to its popularity,” said Goel Lal. “However, the marketing platform used to promote them appealed to only a small segment of the population—teens and young adults aged 18 to 34.
“Also, the very nature of the product—high amounts of caffeine—is an impediment to drinking energy drinks in high volumes, even among the key demographic groups. Had the product appeal been more universal, we would have seen continued growth in the consumer base,” she added.
Industry Well Positioned for Growth
Convenience store sales and growth remains strong—the channel outperformed all others with the highest dollar gains from 2008 to 2010 ($200 million). Still, retailers are seeing parallels to the Mintel report in their stores—the excitement is wearing off.
“We continue to see growth, though not as steep as in prior years,” said Valerie Thomas, non-alcoholic beverages category manager for Atlanta-based RaceTrac Petroleum Inc., which operates more than 500 convenience stores across the Southeast.
Kum & Go Category Manager Richard Ginther said his 430-store chain’s energy drink sales are healthier than indicated in the Mintel study, but agreed that the category must continue to push innovation to meet customers’ future needs.
“Most new item introductions are similar in taste profiles and marketing strategies, and do nothing to separate their brands from the competition,” Ginther said.
At Open Pantry Food Markets, of Pleasant Prairie, Wis., the goal is not necessarily to have the biggest selection, but to satisfy customers with the most popular brands.
“Is energy a sustainable option?” asked Jim Fiene, chief operating officer of 27-store Open Pantry.“The retailers with a door or two doors of energy drinks should ask themselves if those sales are going to be there in a year or five years. I don’t see a lot of new customers coming to the category, so we’re already focusing on the next big trend, while making sure we’re meeting the needs of our existing energy customers.”
Open Pantry is committed to offering more healthy choices, and as the Mintel report states, 40% of those who don’t use energy drinks think the category is unhealthy.
Fiene said energy growth in his stores comes from three brands: Red Bull, Monster and Living Essentials’ 5–hour Energy shots. Red Bull does not have the most SKUs in Open Pantry stores, but it is the leader in sales/space ratio, he added.
The chain is trying to sell more Red Bull and also prepare energy drink buyers for the day when they might not care for energy drinks by pairing Red Bull with a bottle of Nestlé Waters’ Ice Mountain water.
“The future opportunity is bundling,” Fiene said. “I’m looking to get customers used to secondary products, so that maybe when the promo is off, they might buy (the water).”
Pushing Private Label
The energy drink price conundrum presents an opening for private-label energy choices. Kum & Go’s Ginther has seven 16-ounce options under the store brand Nuclear—two low carbohydrate, three sugar-free and two regular. The chain also has Nuclear in its fountain offer, as a drink and an energy shot.
Ginther said he typically uses two-for or even three-for promotions, and has incorporated e-mail offers and celebrity appearances. He is experimenting with cold-vault doors as secondary placements for energy shots, and said the best bundle item for an energy shot is another energy shot. Ginther has also used in-store sampling, something that Mintel mentioned in its report.
Profiling the Energy Consumer
Mintel found that 74% of adults 18 and over do not use either energy drinks or shots and 69% of those say they are not interested in trying either. That means that 51% of adults will not likely try energy drinks or shots.
The profile for energy shot users includes consumers of all ages with a desire for an energy boost without calories or liquid volume. Because the marketing for energy drinks targets teens and young adults, some of their usage is for image. Because of the size of the energy drink, users are also seeking refreshment, taste or hydration. Energy shot users are most likely to want only the energy benefits.
Fiene fits the profile of an energy shot user. He doesn’t want to drink 16 ounces of sweet liquid to get an energy jolt he can get from 2.5 ounces. As a shot consumer he also knows that selling energy shots in bulk packages is an opportunity. Fiene has observed his local Walgreens moving packages of up to six, and he will try to do the same.
“There is some habit to those bottles,” said Fiene, whose five college-campus stores lead the chain in energy drinks/shots sales.
Open Pantry features eight energy shot SKUs—six of them from Living Essentials. To differentiate, he uses wine coolers on front countertops in 12 of his 27 stores. He knows first-hand that the shots are not so tasty when warm. He puts the top four SKUs in them at 45 degrees Fahrenheit.
“They go down easier cold,” Fiene said.
Energy shots at RaceTrac are displayed by the checkout area only; on counter racks for impulse buys and in shelving under the front counter for larger selection. Single-serve energy drinks are in the cold vault and sometimes in front-end countertop coolers. RaceTrac will display take-home packages warm on a gondola as well.
Thomas said that just as consumers have decisions to make when choosing energy drinks and shots—calories or not, functional only or refreshment as well—retailers have balancing acts, too. They can’t fit all the brands in their stores.
“Merchandising can become difficult due to the numerous energy drink options and an equally large number of can size variations,” Thomas said. “As a value retailer, it is important that we offer the brands that our guests demand, at a reasonable retail. The challenge is informing our guests that you can get the best value for your money at RaceTrac, even for items that tend to have a large basket ring.”