Our nation is in the midst of an energy crisis. And it has nothing to do with the price of oil. Sleep-deprived and overworked, Americans crave anything with the word “energy” on the label.
By Howard Riell, Associate Editor.
Energy drinks are of course wildly popular, but energy shots—those two-ounce packages loaded with concentrated doses of caffeine, B vitamins and amino acids that were all but unheard of four years ago—have emerged as the hottest category in the country.
In fact, SymphonyIRI Group Inc. said it expects sales to nearly double to about $700 million for 2012 when the final sales figures are available.
“Shots are widely popular because they have the same if not better effect as a regular energy drink, but in a much smaller size,” said Matt Hieb, category manager for Gate Petroleum Co. in Jacksonville, Fla. “For consumers, there is no need to drink 16 ounces of a beverage that tastes bad to get an energy kick. I think the shots are much more effective, and don’t have the caffeine crash that comes with most energy drinks.”
Hieb, who said 5-hour Energy is among the top-selling brands in Gate’s 225 convenience stores, also credited portability as a chief reason for shots’ success. “The small packaging allows customers to carry them around with ease.”
Not only are more people discovering and willing to try energy shots, said Andrea Myers, executive vice president of Kocolene Development Corp. in Seymour, Ind., but product quality is still on the climb.
“I think the taste has gotten better over the years,” said Myers, who operates 12 Fast Max convenience stores and nine Smokers Host tobacco stores in Indiana and Kentucky. “For example, pink lemonade 5-hour sold very well nationally. As a result, what was supposed to be an in-and-out item as a breast cancer awareness promotion is going to be a permanent item for 2013.”
Buzz in a Bottle
While there has been some negative press surrounding the category in recent months, the negative buzz is unlikely to put much of a crimp in the category’s growth. According to InfoScan numbers collected by Symphony/IRI Group, the overall energy drink category saw sales of nearly $5.7 billion in convenience stores during the 12-month period ended Oct. 7, 2012—a 14.7% increase.
“The user base is anyone and everyone,” said Hieb, who added that shots are a category that customers trust. “We see more middle-aged people buying the shots, but that’s not saying young people aren’t buying them as well. I think of shots more as an energy drink for adults. How could anyone in the professional world take a person wearing a suit and tie seriously when they’re holding a 16-ounce can of Monster in a boardroom? Shots allow consumers to be much more discreet.”
As such, shot marketing and advertising is clearly aimed at older customers. “The profile of energy shot consumers is constantly expanding to all ages and demographics,” Hieb said. “We see people from 15-75 years old drinking these things.”
The demographic profile of energy shot consumers, according to Myers, is also widening. “I think it used to be kind of a young-person thing. Now I see anyone from young kids trying to study for a test to older truck drivers trying to stay awake all night,” she said. “I think this is a substitute for some people who don’t like coffee, so it can be a pretty wide demographic. To see an energy shot in just about anyone’s hand doesn’t turn heads anymore.”
Unlike other categories in a c-store, there isn’t much competition at the top with 5-hour, which is clearly the market leader. Is there a brand threatening to overtake 5-hour? “Not a chance,” suggested Hieb. “There is a barrage of manufacturers out there fighting tooth and nail for the other 10% of the business. Not one shot or program has come across my desk that has proven to be successful.”
Surely there are great-tasting and cheaper items out there, according to Hieb, but that begs a question: “Why would you cannibalize a growing category with lower rings and less margin dollars?” he said. “WORX and Redline are two brands that have provided some differentiation in the category, and hopefully there continues to be more products that help keep 5-hour honest about their business.”
Hieb also said he refuses to price this category down in the short-term, unless it is an up-sale opportunity. Two-, three-, four- and five-bottle promotions tend to be the best way to support growth for the category. A pre-priced product would not be a wise move for the category, he suggested.
“Customers know they will be paying $2.99 and up for this product, so why give the margin away? Sure, retailers may pick up a bottle or two from their neighbor across the street in the short-term, but this is a rapidly growing category that spins off very rich margins we all desperately need,” Heib said.
Instead, he recommended stacking the product at the register and “keeping the price high and watching it fly. There are not many categories to which we can apply the same philosophy.”
Gate aims to get shots right in the customer’s face at the checkout to maximize sales opportunities. Its stores utilize counter cutouts and three- to four-tier racks at the primary register, and sometimes place them at two registers.
“Make sure your people can see all of the products on the rack. The category is quickly becoming one that customers self-serve and choose not to pay for it, so it’s best that you keep your eyes on it,” said Hieb, who also recommended against displaying product behind the counter. “Those who shop the category want to see what you have, and not ask four or five questions at the checkout on what flavors or types you have. Keep the merchandising simple, but don’t let it out of your line of sight.”
Not only are consumers getting more accustomed to the idea of downing an energy shot, they’re also accepting that they are more than a one-time impulse item, and are willing to save money by buying them in four-packs.
“The four-pack, especially from 5-hour, is gaining momentum,” Myers said. “I think five years ago who would have bought a four-pack of energy shots? Now it’s not so unheard of. We didn’t even merchandise four-packs until last year. Now they sell consistently.”
According to Hieb, the amount of opportunity to grow this category has yet to be fully understood. Retailers, he insisted, must make sure to track sales movement and order diligently, and take advantage of deals or shippers even if they are not merchandising them on the sales floor.
“It’s great to earn a little extra margin when buying them on a deal, and it also ensures you have some extra stock in the store,” Hieb said. “Expand on the multi-pack offerings. If customers will pay a premium for a case of them at Costco, I can assure you they will come off the hip for a four-pack in your store.”
The primary mistake that Hieb sees retailers making is trying to grow this business with a lower-priced product. “Chains by no means have hit a wall with growth in this category, so why start cannibalizing your premium shot business with something that has a lower price? This does the retailer or their competitors no favors in the shot biz,” he said. “Always be apt to try new shots, regardless of your 5-hour business. There are always customers out there with different pallets, and something other than 5-hour may suit them. Give them a choice.”