Red Bull, Monster & 5-Hour Energy command the category, but unique & natural brands find ways to grab share in the energy beverages market
As a functional health benefit, energy remains a highly compelling proposition to consumers. In the United States last year, sales of energy drinks rose 15% to $7.6 billion, according to NBJ research. Shots, meanwhile, enjoyed annual growth of 21% to $1.6 billion.
This would be an impressive performance for any category at any time. But in the midst of a global economic downturn, it’s nothing short of staggering, especially as most energy products carry a premium price tag.
The dominant players in the market continued to grow last year. Red Bull, the U.S. energy drinks market leader with a 40% dollar share of the category, says its value sales in the week ending December 31 rose 17.3% compared with the same week in 2010.
In shots, Living Essentials’ dominant 5-Hour Energy brand enjoyed a 29% year-on-year uplift in volume sales in 2011—from seven million bottles a week in 2010 to nine million last year.
Furthermore, according to estimates, there are no signs of there being a slowdown any time soon. NBJ research forecasts 12% sales growth in 2012 in energy drinks and 17% in shots as millennials continue to solidify around the energy beverage as this generation’s soft drink.
According to Julian Mellentin, director of London-based consultancy New Nutrition Business, energy is “one of the largest, most successful and most profitable markets.” He adds: “It’s a market that has proven to be recession-proof and it’s a market that still presents a wealth of opportunities.” New Nutrition Business recently identified energy as its second most important trend for 2012, behind naturality.
Says Mellentin: “The fact that energy has been so successful, and shows every sign of remaining so, isn’t too surprising as it has long been one of consumers’ key needs. In addition, energy is a great example of the marketing power of enabling consumers to ‘feel the benefit’ of a functional product.”
Bad Taste? So What!
James Tonkin, president of Healthy Brand Builders, a specialist beverage consultancy, agrees that performance is king in energy. “The energy drink category has been unique in that it was one of the first ever to grow in spite of being a horrible tasting product,” he says. “Typically, beverages are developed to have good taste and get repeat purchases. Energy drinks broke the paradigm. The benefits people derived from energy outweighed the benefit of good taste.”
This is a view shared by Dennis Wynant, founder of California-based On Point Energy, a military-themed energy shot brand launched on July 4, 2011. “There is a ton of research that says it doesn’t really matter what it tastes like as long as it performs well,” says Wynant. “That is partially true. If it tastes completely horrible, people are not going to buy it. Obviously we wanted to have something that wasn’t offensive to taste. But, at the same time, were we trying to make On Point Energy so that people were coming to it for the taste alone? That wasn’t necessarily a concern.”
Nevertheless, Tonkin says that, as the energy category has developed, manufacturers have started to think more carefully about how their products taste. “What we have seen is a move from a lousy tasting product to what most would consider a much better tasting energy drink. If you look at some of the new entries in the market—especially those that are natural or organic—the taste profiles are markedly better.”
One of these is Sambazon. The organic juice brand markets a range of three natural energy beverages based on Amazon superfruits. Company CEO and founder Ryan Black says fl avor is important to the Sambazon energy drink experience, adding: “We’re using organic fruit juices and things like that. It’s formatted in nature. It’s not formatted in the lab.”
But, according to Mellentin, performance is still key. Get that wrong and you’re already on to a loser. “The benefit these products offer—an immediate energy boost—is the sole and whole reason people buy energy drinks and shots,” he says. “If your energy product doesn’t provide enough stimulation, consumers will be disappointed and they won’t return to your brand.”
Caffeine & Calories
So it isn’t surprising that caffeine—a widely known and proven provider of a fast energy boost—still reigns supreme in the energy category. Caffeine remains at the heart of formulations for leading brands such as 5-Hour Energy, Red Bull and Monster. Says Mellentin: “The majority of consumers are looking for a kick that is only really possible with caffeine, and the reality is that most people are happy with it as an ingredient, as worldwide consumption of coffee and tea shows.”
On Point’s Wynant agrees: “You cannot make an energy drink without caffeine. That is one of the key core ingredients if you are going to be successful.”
The ingredients included in energy drinks and shots—both the stimulants used and the sugar content in these products—are constantly in the media spotlight, with concerns frequently raised about their impact on health. The big players are certainly aware of this trend and are making moves to provide consumers with both choice and reassurance.
In a written statement, Red Bull told this publication: “Red Bull Sugarfree is the fastest growing [Red Bull product] and is for anyone who is looking for an energy boost without sugar/calories. This includes new consumers who know about the efficacy of Red Bull but refrain from trying it because of its calories, and existing Red Bull consumers who appreciate the alternative.”
In April this year, Red Bull will seek to tap into this trend further with the launch of a new variant of its flagship energy drink. Named Red Bull Total Zero, the beverage will be sugar- and carbs-free. Says Red Bull: “Research and business results show consumers are seeking out zero-calorie, zero-carb options in addition to low-sugar and sugar-free choices. Red Bull Total Zero will meet that demand.”
5-Hour Energy, meanwhile, has taken steps to communicate to consumers that its ingredients are wholesome. Company spokesperson Elaine Lutz says: “As you have heard in our commercials, many of the key ingredients in 5-Hour Energy are also available in everyday foods—like broccoli, avocados, bananas and apples. Consumers are very health conscious, and they want more information about the products they buy. We think it’s important to provide them with information about our proprietary blend so they can decide if the product is right for their energy needs.
“Our product has no sugar, no herbal stimulants like guarana or ginseng and has four calories—an important distinction from other energy products. 5-Hour Energy ’s proprietary blend of B vitamins, amino acids and other nutrients, in addition to caffeine, together play a critical role in providing an energy boost and a sustained feeling of alertness.”
‘All Natural Amazon Energy’
With health such a major concern to consumers, some expect to see the concept of “natural energy” coming to the fore. Mellentin says this could help bring in new consumers outside of the young people and blue-collar workers who currently make up a high proportion of energy drink and shots buyers.
“Huge swaths of people can’t identify with the existing brands and don’t like the sound of the ingredients found in energy drinks and shots,” Mellentin says. “As a result, many companies are now focusing increasingly on developing products which offer a natural energy benefit. Creating a product that offers natural energy ingredients, as opposed to those based on chemical-sounding ingredients such as glucuronolactone, which account for almost 100% of the market, is on the list of ambitions of almost every major company.”
At Healthy Brand Builders, Tonkin echoes this sentiment. “Health and wellness is very much a part of the American psyche today and I do believe more healthful products are going to come to market,” he says. “The energy companies are mandated by consumer preference.”
This will be crucial, in particular, to appeal to older consumers, says Tonkin. “I think at my age , there is absolutely no reason why I could not have an energy drink in the afternoon. I get just as tired as everybody else. But I am not going to drink the stuff that is on the market today. I wouldn’t even think about popping a Red Bull or a Monster in the afternoon. I don’t want all that sugar. But even in a no-sugar, zero-calorie product, I am not interested in the rest of the ingredients.”
Sambazon’s range of three energy drinks is targeted squarely at consumers who, like Tonkin, would scarcely even consider buying most existing energy drinks. Dubbed “All Natural Amazon Energy,” the beverages each contain 80mg of natural caffeine and a blend of natural ingredients such as açai, acerola, guarana and yerba mate.
Sambazon CEO Black refers to purchasers of the leading energy drinks as “angry males”—typically young men—whom he considers an irrelevance for his brand. His company is interested instead in “healthy people that are looking for energy but aren’t going to buy a Red Bull or a Monster or a Rockstar because that doesn’t fit with their dietary habits.” Such consumers could be soccer moms or even former angry males who have grown out of such brands.
Building Critical Mass
Black says many Sambazon stockists place the brand’s energy drinks with the juices in the range, over by the fresh produce aisle rather than with other energy drinks. “It’s a good thing for our product and for introducing the type of consumer that we are trying to attract—the type of consumer that currently buys our juices,” says Black. “They don’t go over and buy Red Bull or Monster. They are not that sort of consumer.”
But even Black concedes that natural energy is at an early stage in its market development. “If we did not have our regular juice business I’m not so sure we’d be surviving on natural energy drinks alone at this point in time,” he says. “There is not yet that critical mass of demand. It’s definitely changing. On paper, it makes perfect sense but in the marketplace, it is not quite there yet.”
Tonkin agrees, but is optimistic for the future of healthier energy products. “Some of the entries that have come into the market in the energy space are just kind of crawling at this stage, but they are going to gain some momentum,” he says. “The player that is able to get enough verve behind it to break through the cloud deck with a healthy version of energy drinks can win the game long-term.” Mellentin concurs: “Whoever figures out how to succeed in natural energy will reap huge rewards and may yet create the natural alternative to Red Bull.”
Protecting Critical Mass
Notwithstanding this, Red Bull is extremely confident about the prospects for the energy category, stating: “Red Bull has ambitious plans for growth and is well-positioned to continue the momentum that has led to the brand’s dominance of dollar share within the category.
“Energy is the fastest growing category within beverage, and Red Bull is delivering the most incremental dollar sales to the energy drink category, and investing more into the category than any other player. The energy drink category and Red Bull have a bright future as the category is still in its infancy.” NBJ forecasts $11 billion in energy drink sales by 2015, 50% growth over 2011 levels.
But with the big brands so dominant in energy, how can upstarts grab a piece of the action? Price differentiation is one way. 5-Hour Energy’s Lutz acknowledges that there has been an influx of cheaper energy shots into the market attempting to undercut its top-bracket price positioning, but argues that this strategy is in vain.
“We are seeing rival energy shots enter the market promoting pricing options as low as 99 cents,” she says. “5-Hour Energy was introduced to the market in 2004 as a premium product, which allowed us to establish our brand and a growing, loyal following. Consumers understand why 5-Hour Energy is priced at a premium, and they view low-cost options as inferior products.”
How to Differentiate
Brand differentiation—such as that embraced by Sambazon—is another approach in the face of more competing natural products from the entrenched leaders. On Point Energy’s Wynant says the fact his company donates 40% of its profits to charities that work with servicemen and veterans provides a unique selling point for his energy shot.
Says Wynant: “If I have two different products to choose from and they both do exactly the same thing, but one of them takes 100% of the profits and lines their pockets with it and one of them takes 40% of their profits and gives it back to organizations that support troops and veterans, it’s an easy choice.”
Mellentin agrees that differentiation is the way forward. “Go after women and older consumers, not the over-served young male market,” he says, adding this warning: “Don’t make your product look like a classic energy drink or shot. Remember that the people you are targeting are rejecters of that category, so why would you give them visual cues for a product type they don’t want?”