Energy drinks continue to show vigor as the segment fills the gap created by fizzling carbonated soft drink sales. The question is: can energy sales continue to climb?
By D. Gail Fleenor, Contributing Editor
Energy drinks continue to grab more space in convenience store coolers. According to c-store data from IRI, a Chicago-based market research firm, energy drink dollar sales for the 52-week period ending Oct. 4, 2015 rose 11% to $7.8 billion, compared to the same period last year. Unit sales were up almost 8%.
The energy drink category should continue to be popular with consumers and retailers, according to the Mintel Group Ltd, as core consumers encounter “new needs and occasions requiring extra energy.” The category is expected to increase in sales by an estimated 52% from 2014-19, Mintel forecasted.
With carbonated soft drink sales giving ground, energy drinks are projected to reach $14.98 billion in sales by 2019, according to Mintel. As primary players in the packaged beverage category, energy brands are expected to release new products, expand distribution and increase pricing.
Category-leader Red Bull North America racked up $3.25 billion in sales in the same period covered by IRI with a dollar sales percentage increase of 13% over a year ago. Monster Beverage Corp. came in second with $2.98 billion in sales and a 10% increase in dollar sales over last year.
VIM AND VIGOR
“The whole segment is growing, every category segment of energy drinks is growing,” said Jerry Streicher, direct store delivery sales manager for Bowling Green, Ky.-based Houchens Industries. The company operates 40 convenience stores.
Such category growth will continue in 2016 and beyond, Streicher predicted.
“We are looking at our cooler space,” he said, “CSDs are shrinking, and energy drinks need more space.”
Sales of coffee energy drinks like Starbucks Double Shot are strong, Streicher said. The category is a never-ending opportunity for manufacturers to add variety and sales, even adding energy to existing products. AriZona Brands infused four of its successful drinks, Watermelon, Fruit Punch, Mucho Mango and Arnold Palmer, with 120 milligrams of natural caffeine by blending guarana, green and white tea, and green coffee extract.
Cruizers, a 40-store chain based in Chapel Hill, N.C., is watching the flight of energy drinks soar. “Our energy drinks sales are in the high single digits or low double digits,” said John Zikias, the company’s chief operating officer and vendor contact for the division of Holmes Oil. While the company expanded space for energy drinks in 2014, Zikias said it is again looking at space as new products hit the market.
Cruizers’ big sellers are typical of most convenience stores. Red Bull is a standout, Zikias noted. “The company increased its can size from 8.4-ounces to 12-ounces, but it did this without losing sales,” he said. Monster Green is also a strong performer at the c-store.
CONSUMER LIFESTYLE
Hectic lifestyles continue to draw consumers to energy drinks. The growth in energy drinks is attributed by the Mintel Group Ltd to consumer need for extra energy in a busy world. One growing group of consumers is Millennials, according to the research firm.
This demographic is going through life changing events such as obtaining careers, getting married, etc., with all the demands these changes entail. The group has “grown up” with the energy drink category so such loyalty is expected to continue, one study indicated.
Mothers are an important energy drink target, also. Having children increases the need for energy, Mintel reported, and drastically increases energy drink consumption and usage by women. Mothers are much more likely to use energy drinks and shots than women without children, according to Mintel’s research.
Brand loyalty among consumers is not always assured, however. Millennials and younger parents are the groups that will change brands most easily based on advertising and recommendations of family and friends, according to Mintel.
HEALTHY ENERGY
Manufacturers introducing healthy energy drinks and shots have encountered a surprise, Mintel noted. Consumers are not switching from their regular energy drinks for a healthy alternative. Instead, they are drinking both. Older Millennials are the main natural energy drink and shot users.
Reasons for consuming natural energy drinks could be concern for safety and a search for “better-for-you” products in general. In its report on energy drinks and shots, Mintel suggested that consumers may not view the regular options in this category negatively. However, there may be a shift to more healthy energy drinks and shots by Millennials as they age.
Some manufacturers have gone so far as to ensure their energy drinks are created with certified organic ingredients approved by the U.S. Department of Agriculture, according to Chicago-based Euromonitor International.
TOP SHOTS
In the convenience channel, energy shots still add to the bottom line, but sales have lost upward momentum during the last two years. However, the segment continues play an important retail role at c-stores.
“Energy shots are still doing really well, although growth has tapered off,” according to Robin Reeves, purchasing manager for Houchens Industries. “5-hour continues to do well by introducing new flavors to appeal to consumers.” Cruizers’ John Zikias said energy shots have flattened out in sales at his company but are still a very viable product.
According to IRI, energy shot dollar sales at convenience stores have grown only 1.5% compared to a year ago. Sales of energy shots for the 52-week period ending Oct. 4, 2015 were just under $800 million. 5-hour is the category leader with twice the sales of its nearest competitor at $740 million.
The flattening of energy shot sales may continue, according to Mintel, as manufacturers of the product must overcome taste problems and lack of consumer perception of energy shots as a beverage rather than a supplement. New to the category are private label energy shots plus a variety of fruit flavors to counteract a medicinal taste perception.
Some manufacturers are introducing new benefits from shots by marketing shots as helpful with mood and cognition. They also tout products with zero calories and zero carbonation to gain ground against CSDs.
Most energy shot and drink manufacturers also offer decaf alternatives.
Tim Mulrooney, chief operating officer of the Hartley Co. of Cambridge, Ohio, said the company’s Starfire chain of 20-plus stores continues to add space for new energy drinks like Body Armor SuperDrink, but energy shots were not likely to gain much ground.
One of the newest products on the market is hemp-infused energy shots, touted as being healthier than regular energy shots. Retailers will need to decide what benefit shots will bring to their business beyond the current slotting.
Retailers have to be careful when deciding which products to offer in the energy shot category. Reeves of Houchens said his stores had carried a shot-like product said to be a natural pain reliever at one time, but discontinued it.
Perception must be changed in the shots category if sales are to grow, according to data from Mintel. Mintel research indicated that many consumers consider energy drinks as safer than shots. Three out of every five consumers in one survey said energy drinks taste better than energy shots.