CSNews Exclusive: The Buzz Continues for Energy Drinks

Energy drinks have not lost their vigor and verve. Despite an overall packaged beverage slowdown in from 2007 to 2009, the energy drink beat still goes on for c-store retailers, with some operators reporting resumed double-digit growth in the category.

The top five packaged beverage segments, including alternative beverages (a segment dominated by energy drinks), declined in 2009, according to the 2010 Convenience Store News Industry Report. Interestingly, that was also the year when alternative beverages swapped positions with bottled water to become the No. 2 best-selling packaged beverage in c-stores behind carbonated soft drinks.

But in 2010, the packaged beverages category rebounded at c-stores, especially for energy drinks, according to Maureen Maguire, economist and founder of ThinkResearch and presenter of the annual Convenience Store News Industry Forecast Study.

The trend of alternative drinks, especially energy drinks, continues to be "explosive in its growth," Maguire noted in the study. "We predict a huge increase of unit volume versus sales numbers, showing kids are out there buying drinks and consuming them more rapidly."

For the 52 weeks ending Jan. 22, 2011, c-store sales of alternative beverages, including energy drinks, were up 9.4 percent in dollar sales and 8.4 percent in unit sales, according to The Nielsen Co.'s ScanTrack data.

Some c-stores reported even better results to CSNews recently. "Although 2009 was a tougher year for energy drinks, growth was still there for us," said Dana Sump, beverage category manager for Casey's General Stores in Ankeny, Iowa with over 1,600 stores. "2010 started off a little slow, just as 2009 ended, but towards the middle of last year, the category seemed to really pick up again. Now, energy drinks are back to double-digit growth in Casey's Stores."

At United Supermarket's Taste of Market Street stores (three locations, based in Lubbock, Texas), energy drinks never skipped a beat and "are showing continued growth," according to Mark Stewart, business manager for the beverage category. "Looking at sales for the past 52 weeks, we are still seeing double-digit growth in sales, units and profits," he told CSNews.

But for both chains, growth is not coming from new SKUs. "Red Bull is still our category brand share leader closely followed by Monster," Stewart said. "These two brands do more than 70 percent of the category. We have not added very many new items -- the last ones were the 'recovery' items from Rockstar and the 'zero' items from Monster."

He added the chain is "very selective in what it adds to the category. "We feel simply adding more brands of the same thing tends to fragment the category too much," he said.

Currently, energy drinks occupy the same space they did in 2010 at Casey's — "about 35 percent to 37 percent of the planogram space in our non-carbonated/new-age sets," Sump explained, noting that "new age" sets include water, enhanced water, energy drinks and isotonics.

Not surprisingly, Monster and Red Bull dominate Casey's energy drink category, garnering over half of the sales, according to Sump. After those, Rockstar, NOS, AMP and Xyience share about equal sales. "Space has not increased much," he said. "It's time for SKU rationalization."

Like Stewart, Sump did not see innovation and new introductions as a key part of growth.

"There are still new energy drinks trying to break into the category, but it is going to be very hard for them," he maintained. "There are new flavors and some innovation I see coming. Rockstar was successful with Rockstar Recovery. Hence, now everyone else is trying to introduce a non-carbonated lemonade or tea-based energy drink. Monster Rehab will be out soon."

And so with a more selective merchandising approach, c-stores are adding innovation to their energy sets where appropriate. In February, Circle K sealed an agreement with Xyience, elevating its energy drink brand Xenergy to near-national status with potential exposure to the chain's 4,200 locations. Specific Xyience products offered at Circle K will vary by region, according to local tastes. Each region will carry a minimum of three different varieties (in any combination) of Xenergy Xtreme and Xenergy Premium beverages.

Casey's will consider new items with unique packaging or those that fill a void at a price point. For instance, it now carries Slap Energy. "In lieu of developing a private label energy drink, we use Slap to be our low-priced 'value' energy drink," Sump explained.

And keeping prices in line could be the whole secret to continued category growth. "This is a category that is still way underdeveloped in household penetration," Sump noted. "I think we should expect a good five more years out of this category as long as pricing stays in check. If manufacturers start to raise costs, they could scare off potential new customers that may want to enter the category."