As energy drink growth declines in the US, new flavours may be the key to maintaining growth amongst a maturing consumer base.
Energy drinks have been the rock star of the US soft drinks category over the past ten years. What was once a niche product in 2001, with barely more than 110 million litres in retail has grown to almost 1.4 billion litres sold in 2011. However, despite such a meteoric rise, growth has actually slowed tremendously since its zenith in the middle of the last decade and has shown signs of maturity over the last five years. To curb this decline, many manufacturers have begun to move away from the bad-boy reputation of the beverage – focusing instead on mature fruit and tea flavour profiles to reach new consumers as well as an aging “Energy Drink Generation.”
Health and Wellness has slowed growth
In the US, soft drinks have been hit particularly hard by both the global recession and health and wellness concerns. While carbonates are targeted due to concerns over high fructose corn syrup, even fruit juices have declined as consumers continue to move away from high sugar/calorie 100% juices. Despite this movement away from full flavoured, high calorie beverages, the new generation of beverage consumers have also come to expect a degree of functionality in their drinks, whether it be health, hydration, or energy. As such functional beverages such as superfruit juices, functional water, and energy drinks remain popular. In fact the only beverage types to produce a double digit CAGR from for retail volume from 2001-11 were RTD Coffee (10.7% CAGR), Energy Drinks (28.8% CAGR) and Functional Bottled Water (50.8% CAGR).
But, despite strong historic performance, the recent dramatic slowing of growth for energy drinks has many analysts feeling that the category has reached a saturation point much quicker than expected. Chief among concerns is that, while the product has reached a high level of penetration, manufacturers have historically lacked innovation to attract new customers – or keep old ones.
Energy Drinks Year-on-Year % Growth 2001-2011
Case in point – the category’s most dominant manufacturer, Red Bull GmbH, has a total of three brands: Red Bull, Red Bull Sugar Free, and Red Bull Total Zero. (The company discontinued its Red Bull Energy Shot and Red Bull Cola brands in 2011). The release of Red Bull Sugar Free and, subsequently 2012’s launch of Red Bull Zero, are obvious reactions to a consumer base growing more and more concerned with calorie intake. The response to the diet drinks has been strong and, despite this lack of innovation in flavours, Red Bull remains the US value leader with 43.2% share, leading second place Monster by over US$800 million in 2011 retail sales.
Red Bull’s steadfast belief in its truly singular brand profile is a testament to the idea that it has a loyal consumer base – one who views the product’s functionality as synonymous with its unique “Red Bull” flavour. With such strong flavour recognition, it is not surprising that the company has refused to develop twists to its signature brand outside of providing dietary options. Similar to Coca-Cola’s flagship brands of Coca-Cola Classic, Diet Coke, and Coke Zero, Red Bull has established itself as the traditional energy drink leader behind Red Bull, Red Bull Sugar Free, and Red Bull Zero. However, the lack of innovation from the energy drink giant may be contributing to the category’s deceleration. While energy drinks have enjoyed universal channel acceptance, its consumer segment penetration is still far from universal.
Can energy drinks shed their bad boy image?
The backbone of the energy drink category is undoubtedly the “Generation Y” or “Millennial Generation”, which refers to the demographic ranging from consumers born in the early 1980s to the mid-2000s. For many of these consumers, energy drinks remain popular as they have replaced coffee as the preferred source of caffeine. As such, many energy drink manufacturers positioned themselves as edgy – capitalising on the “You Only Live Once” fad of the era’s popular culture. Brands such as Monster, Rockstar, Full Throttle, and AMP not only capture this sentiment in their brand names, but also in their distinctive (and traditionally black) labelling and oversized 16 ounce cans. These manufacturers are also prevalent in non-traditional sporting events– Red Bull is an official partner with the extreme sport showcase “X Games”, Rockstar sponsors several non-traditional race cars such as drift and drag, and Monster sponsors a motocross team.
While such positioning was initially effective in generating interest amongst the very important youth culture, the branding was also polarising – alienating older and more conservative consumers. And as these Millennials themselves begin to age, many are seeking “healthier” alternatives such as RTD teas and coffees or organic energy drinks. The rise of energy shots – miniature servings intended as a quick pick-me-up for a more conservative consumer for daytime usage – is further testament to the need for traditional energy drinks to begin marketing to consumers outside of their core demographic of patrons of extreme sports, skate parks, and rock concerts. However, a complete repositioning may alienate core consumers.
With this in mind, many manufacturers have instead launched new flavours under the same or slightly tweaked brand names. In particular, Monster Energy, the number 2 energy drink manufacturer in terms of volume, launched Monster Rehab – an energy/hydration beverage available in various tea flavours. Similarly, Rockstar Energy has their Recovery line featuring real fruit juice and flavours. These new offerings present consumers seeking energy boosts options for their palettes. And by branding them as new derivatives rather than replacing or repositioning their traditional energy offerings, the manufacturers have an opportunity to maintain their current consumer base while tapping into customers who had either moved away from, or altogether avoided, energy drinks due to their perceived image.
The emergence of such hybrid hydration/energy drinks speaks to what modern consumers expect from their beverages. While taste is still paramount, in many ways it is not enough. The energy era carries a demand that beverages “do something” for the consumer aside from just quenching thirst. Monster Rehab speaks directly to this demand with their slogan “Re-Fresh, Re-Hydrate, Re-Store”. But what is the ideal way to position these beverages to reach these consumer segments? Are new flavours and colours, couple with functionality, enough to persuade them or do specific ingredients come into play? As the second part of this article explores, there are multiple ways to position this new derivative of energy drinks – as well as new competitors to consider.