The number of consumers buying energy drinks continues to grow despite a difficult economy, according to Mintel, a leading market research company.
“Energy drinks have quickly become a daily beverage choice,” said Mintel senior new product analyst Krista Faron. “As more people use energy drinks, we’ve seen a rise in products being launched with innovative new ingredients, claims and consumer targets.”
Mintel values the total off-premise energy drink market at $4.8 billion in 2008, exhibiting 440% growth in current prices and 363% growth after measuring for inflation during 2003 to 2008. It forecasts energy drink sales will increase by 63% in current prices and 40% in inflation-adjusted prices from 2008 to 2013.
So what is it about energy drinks that gives the category such explosive growth?
Andrew Baird, vice president of marketing for BP and ampm convenience stores, said smart marketing by manufacturers is the key. As an example, he cited the distinctive packaging and endorsements by leading sports figures for brands like Monster and Unbound.
“When you think about the ampm customer and about the ampm brand, the high-energy feel that Monster generates—through their marketing as well as through their actual drink—fits nicely with what we are about: too much good stuff,” Baird said.
Crowded Cold Vault
Because convenience accounted for 80.8% of energy drinks’ total market sales last year, it’s especially important for c-store retailers to make the best selections from among the myriad energy drinks available from wholesalers and distributors. The fact that energy drinks are the second-priciest nonalcoholic beverages in the market doubles the effect those choices have on retailers’ bottom lines.
Coney Elliot, vice president of marketing at Midland, Texas-based Kent Cos., said that when you look at everything that’s available in the category, the selection is almost overwhelming.
“We really don’t need additional brands, but we’re presented with something new in the energy category probably every two.”
The key to making the best choices is to stay in tune with your customers, Baird observed. “We use our store sales data as well as national syndicated data to define each market’s product assortment,” he said. “In addition to the data, we get feedback from our operations team and, most importantly, from our franchisees who are out there on the front line.”
Coca-Cola is the dominant player in Elliott’s energy-drink market. The pricing leverage the company offers means the more Coca-Cola items a store carries, the better the pricing is going to be. “They have three different pricing levels in our market, and if they have the option to place most of their products in your stores, you get the best pricing,” Elliott said.
If a Coke product doesn’t do well, the beverage company is typically receptive to Elliott’s buying needs. All in all, Kent carries three different Coca-Cola SKUs, a couple of Pepsis, a Dr. Pepper, a few value-priced brands, plus Red Bull and Red Line.
Price Concerns
Even though the category continues to grow, pricing clearly matters more to energy drink consumers now. Indeed, the high price of energy drinks, compared to other non-alcoholic beverages, is the biggest barrier in consumer trial and acceptance, Mintel reported. And although energy drink prices declined 32% to $18.15 per gallon during 2002-07, energy drink prices remain fairly high and represent a 258% premium over fruit juices, the next priciest beverage.
Responding to this trend, Elliott’s company also offers a value-priced energy drink called Rip It, produced by Shasta, which does extremely well, as well as another energy drink called Rush, which is ordered through its grocery distributor.
“We’re bringing in another lower-cost brand because we’ve had so much success with the perceived value brand,” he said. “We’re looking at Old Glory, a brand produced in neighboring Oklahoma we think has a good taste.”
Baird noted that the growth of energy drinks has slowed down partly because of the growth of energy shots, but also
because of the tough economic climate. “We are certainly seeing consumers trading down from the higher retail energy drinks to the less expensive 20-ounce soft drinks,” he said.
Surprisingly, growth in the energy drinks market hasn’t compromised sales of other non-CSD beverages, even those like isotonics, which have been around long enough to seem “old” to some consumers. “Our view is that energy drinks cannibalized sales of other caffeine-based products, in particular soft drinks,” Baird said. “As the economy tightens, though, the pendulum is swinging back and we are seeing some customers shifting from energy drinks back to 20-ounce caffeinated soda.” CSD