The energy shots and drinks market has been on an upward growth trajectory since 2010 and with the improvement in the economy is expected to continue on this growth.
By Howard Riell, Associate Editor
Americans need all the energy they can get their hands on, which goes a long way to explaining the enduring success of energy drinks and shots.
Indeed, the two- and three-ounce energy shot sub-segment has quickly become a dynamic beverage category, offering consumers the same functional benefits of regular-sized energy drinks, but in a more portable, convenient format.
Energy shots notched more than $896 million in sales, up 7.63% over the 52 weeks ended May 13, 2012, according to Chicago-based market research firm SymphonyIRI Group’s InfoScan numbers for the convenience store channel. Major brands such as 5-hour Energy, Monster and others posted solid gains.
Gary Hemphill, a senior vice president at Beverage Marketing Corp.’s information services division, said the core market for energy shots has been younger males, but that appeal is evolving. “Energy is a need that spans both sexes and a wide range of ages,” he said. “So the energy-products consumer has begun to broaden well beyond the original core consumer, and companies have begun to market their products accordingly.”
As the category has evolved, convenience store operators face the challenge of finding space for new products and core SKUs.
Amer Hawatmeh, president of St. George Oil in St. Louis, operator of six Coast to Coast convenience stores, said that energy shots took their position front and center on his stores’ counters several years ago when his people took tobacco off.
“It’s an impulse buy, so we started putting everything you can name up there,” Hawatmeh said, adding that the choice of products for that prime real estate was an easy one. “The nice thing is that when these products came around they automatically earned a spot on the counter because they are high margin. You’re making 50% on them and they sell. People are obviously looking to buy that product line.”
As with any hot category, companies have flooded in to try and capture their piece of the pie. “There is a ton of product out there. We probably have tried most of them to gain on the category momentum, but 5-hour remains our top-seller, as it is throughout the industry,” Hawatmeh said.
Several of the newer brands are also seeing surges from customer trial. “The $1.99 product lines that have come out get space on my front counter because they sell at that price,” Hawatmeh said.
Always a shrewd observer of the categories that make up his sales mix, Hawatmeh pointed out that 5-hour’s marketing is what helps set it apart from its competitors.
“If you look at the way 5-hour is promoting itself in commercials or online, they are going after the coffee business,” Hawatmeh suggested. “The marketing push on the line is pretty powerful right now. They’re spending a lot of money, which means people are paying more attention to it.”
But as the category climbed to unprecedented heights over the past three years, Hawatmeh fears that shots may be nearing the end of its meteoric climb. “I don’t know if the category has a lot more growth to it. We saw it with traditional energy drink sales—huge initial growth and then sales subsided. I think that when you look at energy shot sales overall, they will fall in line with full energy drinks,” Hawatmeh said. “I think it will continue to be an enormously important and stable category, but this double-digit sales growth won’t continue forever.”
Hawatmeh likened the category’s place in people’s lives to that of coffee. Coffee has been around for centuries and continues to be an important part of customers’ daily lives. “The bottom line is that energy is becoming that important to consumers,” Hawatmeh said.
Selling more in the months ahead, Hawatmeh insisted, will mean managing the category closely and effective local store marketing—something retailers should already be doing.
“Obviously, shots need to be placed right on the front lines. They are an impulse product: you put them on the counter, tired customers come in looking for a quick pick-me-up and they buy it,” Hawatmeh said. “Retailers, he advised, can go still further. “Do what all the big boys are doing. Look for the refrigeration units and look for ways to differentiate your offering.”
Operators should also depend on promotions to move still more product. “My favorite promo is two-fers. If you’re selling one for $3 take it up to $3.19 and sell two for $5. You’re still making the margin and you’re moving twice as much product,” Hawatmeh said.
Energy shots showed remarkable growth in 2011 and are on the same meteoric rise that energy drinks experienced four years ago. Part of this growth is that shots also appeal to different demographics. That was the uplifting news in a 2011 report on energy shots from Chicago-based research firm Mintel International.
For example, the largest consumer group of 5-hour Energy, the leader in the category, is the 55-plus demographic compared to energy drinks, which most appeals to teen and young adult consumers, Mintel reported. One reason energy shots continue to resonate with an older demographic is that they are perceived as safer than energy drinks, as well as lower in calories, sugar and caffeine. They also don’t come with the crash usually associated with energy drinks. Consumers who don’t want energy drinks, but are looking for the functional benefit of an energy boost are gravitating to the shots.
Energy shot sales are expected to continue growing in 2012 as the economy continues to improve. Energy shots are expected to grow 98% in sales between 2011 and 2016, according to Mintel. In 2011, the energy drinks and shots category brought in about $7 billion combined and Mintel is expecting to see an 11-12% annual increase in the combined categories until 2016.
“The energy shots category is really consolidated at the top with 5-hour Energy being the lead brand by far,” said Gary Hemphill, managing director of Beverage Marketing Corp. “It’s very directly marketed to that need state of energy, and we continue to see growth there. 5-hour Energy has well over half the market.”