Energy Drinks Losing Power
August 29/Atlanta/The Atlanta Journal-Constitution -- Energy drinks are easy to stereotype. Some of the biggest brands, such as Monster, revel in the macho imagery of extreme sports and are clearly marketed to young guys. Energy drinks have been used as vodka mixers in bars and clubs, and as part of the college survival kit. Their heavy doses of sugar and caffeine helped students stay up, party and study.
With their expanded reach into the blue-collar and white-collar corners of American society, energy drinks have become one of the most profitable segments of the U.S. beverage industry. Sales are growing again after a flat 2009.
The industry's main challenge now? Persuading the large swatch of American consumers who turn up their noses at energy drinks to give them a try.
Energy drink sales rose by 136% between 2005 and 2009, according to research group Mintel. Sales plateaued in 2009 as traffic dropped off in convenience stores, the key channel for energy drink sales.
Sales of energy drinks rose 9% to $3.54 billion through August 8, according to SymphonyIRI Group, a Chicago-based market research firm.
The growth is slower than the blistering rates of a few years ago. One trend is striking: The big brands, especially Monster, Red Bull and Rockstar, have grown by more than 10% this year, while some of the smaller ones -- including brands owned by Coca-Cola and PepsiCo -- have slipped.
The biggest brands are "really gaining share at everybody else's expense," said Michael Bellas, CEO of Beverage Marketing Corp. "It's very hard right now to replace a Monster or Red Bull. Those two brands are pretty much everywhere. When you look at Coke and Pepsi, they have so many other products. But Monster and Red Bull, these guys are 24/7.
"They're out there in the market, and they're focused," Bellas said. "And they're good."
Red Bull and Monster dominate the energy drink industry. Red Bull had $1.36 billion in sales through August 8, with Hansen Natural Corp. (owner of the Monster brand) coming in at $1.08 billion. Rockstar, the No. 3 brand, claimed $381 million in sales. Those three brands account for about 80% of the market.
Some small brands have had a rough go, even when they are backed by the resources of the world's largest beverage companies.
PepsiCo's AMP brand, a sponsor of NASCAR driver Dale Earnhardt Jr., has seen sales drop 9% to $87 million this year, according to SymphonyIRI. AMP has diversified into sugar-free offerings, which are selling well.
Meanwhile, sales of Coca-Cola's Full Throttle brand fell 23% to $101 million. In November 2009, Full Throttle introduced a new formula called "No Choke" and new graphics inspired by classic automotive design elements. Coca-Cola says the brand has seen improvement since the relaunch and is committed to the brand.
NOS, which is also owned directly by Coca-Cola, is having a much happier 2010 than is Full Throttle. Its dollar sales are up about 14% this year, exceeding $128 million.
In parts of the country, Coca-Cola bottlers carry Monster, the massive brand owned by Hansen Natural Corp. of California. However, bottlers who do not have the rights to distribute Monster have clamored for help. (Coca-Cola bottlers are responsible for formulating and distributing soft drinks, using concentrate made by Coca-Cola Co. They can also sell third-party brands such as Monster.)
In response to its bottlers' lack of Monster in some territories, Coca-Cola plans to bring a U.K. brand called "Relentless" to the U.S. in mid-September. The company says the brand is aimed at white-collar professionals -- designers, inventors, entrepreneurs, programmers and architects -- instead of extreme sports aficionados.
"We're going to roll it out slowly and methodically, using grass-roots marketing as our key driver of awareness," said Coca-Cola spokesman Scott Williamson.
Energy drinks got clobbered by the recession because they were much more expensive than competing beverages. The average retail price of an energy drink is $2.54 this year, according to SymphonyIRI. In the tight economy, lots of fans either cut back their consumption of energy drinks or switched to soft drinks to save money.
Monster and Rockstar draw much of their sales from blue-collar workers. When construction workers got laid off in the Southwest and elsewhere, traffic to convenience stores tailed off, and energy drinks fell in turn.
Beverage companies, such as Coca-Cola and PepsiCo, are eager to persuade new drinkers to try energy drinks, since the category is richly profitable. A manufacturer can sell a case of the stuff for $25, far more than a case of soft drinks.
"No one wants to kill the golden goose here," said Bellas. "The supply chain makes a good bit of money off this."
However, manufacturers of energy drinks and shots are having trouble attracting new customers. Nearly three in four respondents to a recent Mintel survey said they do not consume energy drinks or shots, and 69% of those say they are not interested in trying them. They cited high prices, an overabundance of caffeine and a belief that the beverages are not good for them.
Energy drinks grabbed 9.3 million new users in the middle of the decade, but managed to add only 1 million new consumers, ages 18 and older, between 2007 and 2009. Concerns about sugar, calories and caffeine seem to be having an effect.
From the August 30, 2010, Prepared Foods E-dition