Bursting With Energy

Increasing cooler space, focusing on smaller packaging sizes and getting on board with hybrid product innovation are among the latest c-store energy drink do's

Convenience store cooler doors have a lot of energy behind them — energy drinks, that is. In fact, the channel is empowered by energy drinks, having captured the biggest share of energy drink sales across all retail channels, according to market researcher Mintel.

"We don't see that changing; if anything, there is still room for channel growth," Garima Goel Lal, beverage analyst for Mintel, told Convenience Store News, noting that c-stores' share of energy drinks and energy shots grew from nearly 80 percent of total sales across the market in 2006 to nearly 82 percent in 2011.

Mintel research also highlights that convenience stores' key consumer profile — adults aged 18 to 24 — matches perfectly with that of the main energy drink demographic group. The higher volume in the c-store channel additionally generates better and more frequent manufacturer discounts, which further promotes channel loyalty.

And now that the energy drinks market has reportedly moved past the recession with accelerated sales growth again, c-stores are re-energized by these best practices.

• Making Room for More — There is still room for expanded shelf space in the subcategory, according to buyers such as Hank Kaiser from Gainesville, Ga.-based Olympic Oil Co. "My energy drink sales have increased over the past year, not as much as the year before, but we still had increased sales, so I signed an agreement with the three majors [Red Bull, Monster, Rockstar] to expand the space," he told CSNews.

He reported that Red Bull and Monster are both up from the previous year about 5 percent, so he's increased the segment's shelf space in his stores by approximately 10 percent in total. "We took the space away from some of the juices and the flavored waters that weren't selling so well and from some of the less-popular energy drinks in our stores like Red Line and Full Throttle," Kaiser said.

At Minute Market, based in Medford, Ore., Operations Manager Phyllis Simpler is paying attention to the high double-digit growth Mintel is predicting for the subcategory by 2016.

"We've put in double the space for energy drinks that we initially had," she said.

•Mapping Out Prime Space — Because of its stellar growth rate among all packaged beverages, the energy drinks subcategory enjoys the most basic of merchandising practices — garnering the prime cooler shelf space that's eye level and to the right, according to Kaiser. "We utilize shelves two, three, four and five behind the cooler doors," he specified.

• Enjoying the Constant Buzz — C-store retailers have learned that energy drinks are not merely a cold refreshment beverage category — for many young c-store customers, they have become their morning "buzz" in place of coffee. Therefore, it is a subcategory that can be counted on consistently throughout the year.

"Energy drinks are a constant throughout the year; half of my morning customers head for the coffee machine and half head for the energy door," stated one buyer who did not wish to be named. "Whereas Powerade and bottled water drop off at the end of the year, energy drinks do not."

• Running Promos Monthly — The sister category to energy drinks, energy shots, is almost never discounted or price-promoted, according to buyers. But energy drinks are the exact opposite story. The leading popularity of the c-store channel has made it the recipient of the best and most frequent manufacturer discounts, according to Mintel.

Red Bull and Monster are reportedly neck-and-neck on deals, typically ranging from two for $4 or two for $5, depending on the sizes offered. Rockstar is also in the game, according to category managers who report that monthly promos are par for the course.

"Two-fers are a given with energy drinks," stated Simpler.

But Kaiser said he's gotten smarter about offering promos and no longer offers the sale of a single energy drink at the two-fer price. "To get the sale price, they have to buy two," he explained. "We didn't used to do that, but it's really driving promotion volume now."

• Spotlighting Smaller Sizes — Bigger is definitely not better in energy drinks. Mintel data shows that 16-ounce and 10-to 12-ounce packaging tie for the top sizes purchased by energy drink consumers. The market research company found that only 5 percent of consumers buy 18-and 23-ounce sizes combined. "This could be due to the negative effects of drinking large amounts of energy drinks — caffeine — on one occasion," said Goel Lal. For this reason, she said extra-large energy drink containers that feature a re-sealable cap may be more appealing to consumers moving forward.

• Going for the Big Chill — C-stores know that giving the cold shoulder to energy drinks is really the only way to go. "Nearly 50 percent of all users want to buy them cold, so it's very important for the c-store channel to offer energy drinks chilled," relayed Goel Lal.

Competing channels, such as supermarkets and mass merchandisers, are much less likely to offer energy drinks cold, and if they do, it's not often in any breadth. This is a no-brainer advantage for convenience stores.

"I haven't seen anyone in the c-store market that doesn't want them cold," maintained Kaiser, who likened the opportunity to the wine he sells chilled in his stores. "We carry wine in several of our stores and we merchandise it cold, so that the person looking for a chilled bottle can drink it right away," he said. "Just like with energy drinks, consumers might find it a little bit cheaper at supermarkets, but they won't typically find it cold, and they know that."

For retailers that want to merchandise energy drinks in ideal secondary locations, such as outside in sight of the gas pumps, Goel Lal suggests utilizing vending machines that can also offer cold product. Small cold coolers are another merchandising option for inside secondary locations, such as near the checkout.

• Signing On With Hybrid Innovation — Monster Energy's new Rehab drink is part tea, part sports drink and part energy drink. At only 10 calories per serving, it is being viewed as the start of a "hybrid drink explosion," according to beverage analysts.

Jim Callahan, director of marketing for Geo. H. Green Oil Inc. in Fairburn, Ga., is among those who told CSNews that he believes Rehab is his next "hot ticket item" for 2012. Effectively executing the brands' May launch of a new Orangeade flavor is "imperative" to its success this year, he said.

• Staying Atop Other Trends — Retailers that stay on top of other burgeoning energy drink trends are wise, even if it is just to carefully observe them, according to Goel Lal. Innovations such as "food-based" energy drinks, fresh-juice-based energy drinks, coffee extract energy drinks and those sweetened with Stevia are cropping up as "healthier" energy drink alternatives.

Alternative Gains

In the c-store channel specifically, the biggest increase in packaged beverages was generated by alternative beverages, comprised largely of energy drinks. And for the 52 weeks ending Feb. 18, 2012, the subcategory continued its double-digit increases, leading the overall packaged beverages category with a 15.8-percent sales gain and a 15.4-percent volume gain.

Source: Nielsen SCANTRACK

Energy Spurt

Here's a recent timeline of the energy drink market growth across all channels, including convenience stores, according to Mintel:

• The segment exhibited 25-to 40-percent growth in the early 2000s.
• After showing a dip in 2009, likely caused by the recession, energy drinks made a good comeback in 2010 and 2011.
• During 2010-2011, the subcategory grew 12.6 percent, impressive compared to other non-alcoholic beverages.
• Energy drinks are projected to grow 11 percent in 2012.
• The market is projected to grow by 70 percent during 2011 to 2016 at current prices; the growth is expected to be 56 percent after factoring in inflation.

For comments, please contact Renée M. Covino, Contributing Editor, at [email protected].

Energy Profile

Here's what shapes energy drink users, according to Mintel:

• Their top three reasons for drinking the beverages are to get an energy boost, increase mental alertness and stay awake.
• The key demographic group is adults aged 18 to 24.
• During 2006 to 2010, the main growth in consumer base (3.5 million) came from adults aged 25 to 34.
• Men continue to be the primary consumers: 20 percent of all men aged 18-plus report drinking them in 2010, compared to only 12 percent of all women. Thus, marketing efforts remain focused on extreme sports to uphold male appeal.
• Consumption among teens has declined by more than 1.2 million from 2006 to 2011.
• During the recession, consumption fell "significantly" among blacks and Hispanics, but growth is expected to bounce back among these groups now that economic conditions are improving.
• Consumer brand loyalty remains high in the segment.