A handful of big brands own the market, but they’re not resting on their laurels as new players enter the arena with new flavors and formats.
By Marilyn Odesser-Torpey, Associate Editor.
The company whose name is synonymous with energy drinks worldwide is still showing that it is bullish on the American market. For the first time in its more than 15 years cultivating U.S. caffeine cravings, Red Bull is adding new flavors to its line. The three new flavors or “Editions,” as Red Bull calls them—cranberry, lime and blueberry—were introduced last fall exclusively at 7-Eleven stores, and are scheduled for general national rollout in March. (Red Bull also hinted that other new flavors may follow.)
But the Bull still has a way to go before catching up with the flavor innovations of its two fiercest competitors. Rock Star currently offers its carbonated and non-carbonated energy drinks in 21 flavors. Monster offers 27.
Mintel research firm’s “Energy Drinks and Shots” report released last June revealed that both hit the market hard in 2011 and 2012 with line extensions that are “showing impressive growth.” Among these hot new products are Monster Rehab and Rockstar Recovery aimed at consumers who work out or party hard. And, for those who can’t get enough caffeine, there is even more of it in Rockstar 2X.
“A lot of it is about the ‘wow’ factor; drinking Rehab or Recovery is like saying, ‘look how awesome I am; I had a really tough night,’” said Eric Huppert, president of Team Oil in Spring Valley, Wis.
Image is Everything
Maintaining that cool image is the focus of much of the marketing in the energy drink category. Monster and Rockstar partner with a wide array of sports ranging from NASCAR to monster trucks, snowmobiling to stunt riding. Xenergy, from Las Vegas-based nutrition company Xyience, is the official energy drink of the Ultimate Fighting Championship.
“How do you compete with a company like Red Bull that has the marketing dollars to support a skydive from space or a tightrope walk over Niagara Falls,” said Bob Falkenberg, founder and president of Alpharetta, Ga.-based Beveragepulse.com research. “Few competitors have the resources to overcome the high barrier to entry set by the big players.”
Packaging also plays a major role in capturing consumers. “The manufacturers put a lot of thought and money into making colorful, graphic and even artistic containers. Looking down the beverage cooler set, they immediately catch your eye,” Huppert said.
Huppert noted that he is seeing some major movement in the sugar-free subcategory, especially with Monster Absolutely Zero. But he cautioned, by bringing out too many varieties, the brands may start to cannibalize their own shares of the market.
Market researchers say it is clear that the energy drink market is a money-maker worth fighting for. In a report released last June, Mintel forecasted that energy drink sales would reach nearly $7.3 billion in 2012. The company projected that in 2016, sales will grow to $11.9 billion.
While traditional mainstream beverage sales, including carbonated soft drinks, are flat to down, energy drinks grew 17% in 2011, another 17% during the first half of 2012, with strong growth projected for the remainder of the year, said Gary Hemphill, senior vice president of information services at Beverage Marketing Corp. (BMC), a New York–based research and consulting firm.“It may seem counterintuitive, but in this struggling economy, these premium niche energy drinks are selling very well,” Hemphill noted.
C-stores already account for more than 70% of total energy drinks sales, said Mintel beverage analyst Jennifer Zegler. With their large beverage coolers, they can maintain that lead even though supermarkets are ramping up their merchandising of single cans in addition to multi-packs.
In Mintel’s report, nearly three-quarters of all energy buyers/drinkers said they consider the availability of cold energy drinks to be influential in their purchasing decision.
Huppert said energy drink sales remain stable through the seasons because they are regarded by consumers as more than a source of refreshment. “You would normally think of pop as selling more in the summer, but as it gets cold and dreary outside, people are in more need of energy boosts throughout the day,” he said.
Newer competitors in the marketplace are looking to create health-focused niches for themselves by promoting their all-natural energizing ingredients, Zegler said. She cited Starbucks’ low-cal, fruit-flavored Refreshers, energized with green coffee extract.
Growing sales of category up-and-comers such as all-natural, calorie-free and vitamin-fortified Xenergy also suggest that consumers are looking for extra functional benefits from their energy drinks. Not to be outdone, Monster Rehab teas contain such high-profile good-for-you ingredients as coconut water; quercetin, a natural source of antioxidants; aÇai and goji berries. It has also developed an energy drink that contains 15% protein.
Ted Roccagli, retail marketing manager/business coach for Mansfield Oil, which serves more than 300 convenience stores throughout the country, said he believed that health-oriented products like these are resonating with women. Ditto for zero-sugar, zero-calorie Rockstar Pink and Monster Ultra Pink, which is scheduled for release in the first half of the 2013.
In the Mintel study, consumers said they want the availability of different size containers of energy drinks, Zegler noted. Red Bull alone offers four sizes ranging from the traditional 8.4 ounce to 20 ounce.
Roccagli mentioned that Monster recently announced the introduction of a 12-pack of eight-ounce cans called Monster Minis. In some European countries, Red Bull is available in 33 centiliter (a little more than 11 ounces) resealable PET bottles, Falkenberg said. He noted that, in its advertising, this resealable bottle is often shown in an office setting.
Right now energy drinks are generally equated with consumers under 50, a demographic group likely to remain the source of new consumers who are unlikely to to abandon these quick pick-me-ups as they age, said Thomas Terrono, a former Amoco/BP dealer, now partner at T & S Management Services LLC, a c-store training and consulting firm based in Lee’s Summit, Mo.
“In the old days, nobody bought a soda in the morning. Then they started substituting Mountain Dew for coffee,” Terrono said. “Now many consumers are getting into the habit of choosing energy drinks to start their day and keep them going.”
Retailers should also consider offering ‘two-fer’ deals, not only in an attempt to get the immediate higher dollar ring, but to remind consumers who come in for their morning caffeine “kick” that they are likely to need another boost later in the day, Roccagli suggested.
Mintel found that the Asian, African-American, and Hispanic communities in the U.S. may be increasingly important demographics for energy drink manufacturers to target. Asians, the report said, exhibit the highest incidence of energy drink use, while African-Americans are the heaviest consumers. Hispanics also have a higher-than-average incidence of energy drink consumption and their population is expected to grow by nearly 16% by 2016, compared to the nearly 3% growth projected for the non-Hispanic population.
What could slow the growth of this juggernaut category is concern about potential for negative health effects from large doses of caffeine. Some medical and government authorities, including the Food and Drug Administration and New York Attorney General Eric Schneiderman, are
questioning the marketing and labeling of a number of these products. “Even if it hasn’t come yet, some regulation is expected,” Roccagli said.