Unlocking the Potential of India’s Nascent Energy Drinks Market
Energy drinks shows a promising future, with manufacturers such as Red Bull and Monster now looking beyond pubs and restaurants for promotions and advertisements. Euromonitor International’s forthcoming research on non-alcoholic drinks in India reveals that energy drinks’ off-trade volumes are forecast to grow by11% year-on-year between 2014 and 2019. This is a notable acceleration on the 8% compound annual growth rate (CAGR) predicted for 2013-2018 in our previous year’s research. The stronger expected growth comes after quantifying the impact of changes in “soft” demand drivers like increased marketing promotions and product launches.
Euromonitor International estimates that higher growth forecasts will translate into an additional 7 million litres of energy drinks consumed off-trade from 2014 to 2018. These new volume estimates are based in part on econometric modelling, and will generate around 3 million litres in additional off-trade consumption compared to our previous estimates for the entire 2014-2018 time period. In the chart below, the gap between the revised forecast (orange line) and the previous edition (blue line) in turn translates into an additional off-trade value sales opportunity of some US$43 million in constant terms for existing manufacturers and potential entrants.
Figure 1: Off-Trade Volume Forecasts for India Energy Drinks: 2014ed vs 2015ed Research
Source: Euromonitor International
Deconstructing measurable demand factors driving baseline growth
Measurable socioeconomic and demographic factors will continue to support future baseline modelled growth for off-trade energy drinks in India. This baseline growth is the result of econometric analysis on how different quantifiable demand factors impact historic retail volume growth. Using these historically evaluated relationships, category forecasts are estimated based on future expectations for each factor.
As shown below, expected year-on-year increases in population (green segment) combined with increasing average incomes (purple segment) would immediately contribute around two percentage points of growth annually. Moreover, these market forces tend to have a significant lagged effect, as shown by the expected importance of consumption inertia each year. Part of this is due to the fact that historical year-on-year off-trade volume growth has been consistently strong (above 9%) between 2010 and 2014. This generates expected growth momentum into the future, especially as players including Red Bull, JK Ansell Ltd (Raymond Group Company), Monster Energy Drink, and K.G. Functional Beverages Pvt Ltd continue to expand their retail presence and off-trade marketing initiatives.
Consumption inertia also captures the cumulative long-run impact of year-on-year changes in income, demographic segmentation and other key consumer demand drivers. Hence, as Indian consumer wealth increases in a given year, this will also benefit growth prospects in subsequent years.
Figure 2: Growth Decomposition for Energy Drinks Off-Trade Volume Forecast in India
Source: Euromonitor International
Identifying additional growth drivers to help manufacturers to focus resources better
In addition to measurable demand drivers like income and population growth, unmeasurable factors are further boosting growth prospects for off-trade energy drinks over and above the baseline expectations from Euromonitor International’s industry forecast model. Such factors subsume all other category demand drivers of significance not captured by Euromonitor’s forecast model because they are either fundamentally unquantifiable or no globally comparable data is available to measure them. As such, their impact is captured and quantified exclusively by empirical research and local market observations from Euromonitor research analysts.
In the case of off-trade energy drinks in India, the additional growth represented as unmeasured effects (orange) is attributed to many positive factors including growing consumer awareness, increased product promotions, and changing consumer preferences and lifestyles. Manufacturers are no longer solely reliant on advertisements in on-trade outlets or association with sports events to generate awareness and promote their products. Now they are increasingly investing in TV commercials, digital media campaigns and outdoor events like Red Bull Flugtag to make their product more mainstream and drive consumption beyond bars and restaurants.
If manufacturers focus even more on building product awareness via product promotions and expanding their retail presence even further, this would only catalyse the growth process. If this happens in 2015, then it could drive off-trade volume growth by a further three percentage points in that same year, with continued incremental gains of around 1.5 percentage points each year to 2019.
While there are many incremental growth drivers, it is equally essential for manufacturers to watch out for growth restraints as well. In particular, consumers’ love for natural food and beverages could emerge as one of the major growth restraints for energy drinks, generating a significant negative unmeasured effect. Many consumers avoid consuming energy drinks because of their high caffeine content, which could slash energy drinks’ growth potential. Manufacturers will need to take such potential downside consumer risks into account when devising new marketing campaigns and product innovations.