Beverage segment gets som healthy new shots of energy

1/12/2009

NEW YORK Energy drink sales are still strong in the drug store channel, but the strong mid-double digit growth the category enjoyed for several years has flattened as the category has become more mature.

Dollar sales were up 11% in the channel for the 52 weeks ended Oct. 4, according to Information Resources Inc. Red Bull led the nonaseptic segment with a nearly 47% dollar share of the category, followed by Monster, which held a distant 15% dollar share in the channel.

“Energy drinks have gone beyond fad status to become a bona fide beverage category,” said Gary Hempill, SVP of Beverage Marketing Corp.’s information services division. Like many other segments in the category, energy drinks have been affected by the economy. “These are premium-priced products, so they have been one of the hardest hit segments in this economy,” said Phil Gorham, a beverage analyst for Morningstar.

Hemphill said for the category to continue to grow, it has to generate appeal beyond its core consumer group of young men to other demographic groups. “As the category grows, new products are moving into the marketplace that offer a unique point of difference,” he said. “We’re seeing innovation in healthier, organic energy drinks.” Those products might widen the products’ appeal.

“Healthier is absolutely the way the category has to go,” agreed Gorham. “For 10 years, the fastest-growing segments have been healthy beverages.”

Manufacturers have been introducing healthier and sugar-free products. They also are tweaking packaging. Red Bull recently launched a 16-oz., super sleek can that replaces the 16.9-oz. can for its regular and sugar-free drinks. Monster also recently introduced a new Nitrous Monster energy drink packaged in a resealable, portable 12-oz. can that “really stands out on retail shelves,” according to a Monster spokesperson. The drink also is the first in the category to feature nitrous oxide gas technology.

To grow the category beyond its core 20-something male base, manufacturers will have to develop new products. Even Starbucks coffee-based energy beverages are targeted to this core group. Experts say there likely is untapped opportunity. “The need for energy is a big one,” Hemphill said. New brands targeted to tired moms or energy-challenged seniors could be the next wave.

Energy shots have become a bigger part of the category. “Typically under 4 oz. and merchandised at the checkout, these products don’t have to be refrigerated, and that’s a big advantage for retailers,” Hemphill said.

Dollar sales of energy shots were up more than 40% in the drug channel for the 52 weeks ended Oct. 4, according to IRI. The segment was led by Living Essential’s 5-Hour Energy brand, which holds a 76% dollar share of the energy shot business in the channel.

Seeing opportunity, Monster and Rockstar have entered the segment, and Coca-Cola debuted a NOS shot. Dr Pepper Snapple Group is test marketing a 3-oz. version of Venom. Category leader Red Bull launched a regular and sugar-free shot in June.

“For Red Bull, the energy shot category offers a profitable incremental opportunity because it’s driving new users to energy products and increasing usage occasions without cannibalizing existing businesses,” a company spokesman said. The shots, he said, are helping grow the brand’s consumer base by introducing a premium shot from a trusted brand.

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