Look in any convenience store and a new trend in energy is obvious. Coffee or a Mountain Dew are no longer the only options for customers seeking to refuel. Those seeking a liquid pick-me-up can choose from energy juices, teas, shots, coffees, colas, or a host of other energy-beverage formats. Most c-stores offer eight to 10 brands of energy drinks in 20 to 30 varieties. And this year, BevNET.com included 228 brands in its “2008 Energy Drink Guide,” almost 40 more than in 2007.
The success of energy drinks comes down to the kick they offer consumers. According to the American Beverage Association, a 16-ounce energy drink has about 160 milligrams of caffeine versus the 60 milligrams found in a soft drink of the same size.
The energy-drink segment is dominated by a small number of successful brands and a large number of smaller brands that appear and then disappear from the market almost on a monthly basis. “[Energy drinks] are generally defined by products that have ingredients like caffeine and taurine, generally carbonated, and generally sold in cans,” says John Sicher, editor and publisher of Beverage Digest.
The segment attracts entrepreneurs because it is a highly profitable business. As its popularity increases, the industry has consolidated into a small number of powerhouse brands that have the distribution, shelf-space, and consumer awareness to keep the smaller brands at bay. At the top is Monster, which recently took the top spot from Red Bull, with Rockstar, Full Throttle (Coca-Cola) (NYSE:KO), and AMP (Pepsi) (NYSE:PEP) rounding out the top five.
Beverage Digest pegs the 2007 energy drink market in the U.S. at $6.2 billion. Sales in that market grew by 29 percent last year on top of 56 percent in 2006. By way of comparison, Beverage Digest’s “Top-10 Carbonated Soft Drink” report notes that the carbonated soft drink (CSD) market volume dropped 2.3 percent, the third year in decline. Coca-Cola Classic, Diet Coke, Pepsi, and Diet Pepsi all declined in sales volume.
Despite the volume decline, dollar value for the CSD market increased 2.7 percent partly because of growth in premium-priced energy drinks. Three energy drink companies—Hansen Natural (Monster Energy), Red Bull, and Rockstar—are ranked in the Top-10 CSD companies.
“The energy drink category continues to outpace all other major beverage categories in terms of growth,” says Red Bull spokeswoman Patrice Radden.
That growth, Sicher says, has been fueled by the functional aspects of energy drinks. The prospect of an energy boost and perhaps more importantly the instant gratification that quick-fix energy drinks provide have sparked consumer demand.
A Place in Quick-Serve
“The question is: Is this an acceptable alternative for [other] carbonated soft drinks?” says Vice President of NPD Group Harry Balzer.
Balzer’s group found that only 0.7 percent of quick-service meals were ordered with energy/sports drinks for the year ended April 2008. That’s up from 0.4 percent in April 2004, but 323,000 servings is nowhere near the 15.5 billion servings of carbonated soft drinks sold over the same period.
“There’s a lot of upside potential simply because it’s a small market,” Balzer says. But there are factors that temper that potential. If energy drinks can save consumers time or hit a price point that consumers feel is a value, the market will continue to grow. If not, the drinks will remain a novelty.
On the time end, energy drinks are easier to carry and can be consumed faster than coffee. On the monetary side, energy drinks sell in c-stores for about 50–60 percent more than a 20-ounce soft drink and about the same as a large McCafé latté or tall Starbucks café latté. So, the case can be made that consumers will recognize the value of energy drinks.