Energy Spikes

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Energy Spikes

05/20/2015

Convenience stores and their customers continue to be amped up over energy drinks.

The convenience channel remains the primary energy drink purchasing spot, attributed to its on-the-go convenience and varied single-serve offerings.

While the segment peaked in 2011–2012 with double-digit sales growth and was then followed by stalled growth in 2013 due to safety concerns and lawsuits, “renewed popularity” buoyed energy drink sales again in 2014, with continued strong growth forecasted through 2019, according to Mintel, which is estimating a gain of 41 percent from 2014 through 2019.

Here’s a look at some of the recent spikes reenergizing energy drinks’ performance:

GAS PRICES DOWN, ENERGY DRINKS UP

This year’s significantly lower gas prices have had a positive impact on energy drinks.

“We believe the energy category was one of the largest beneficiaries of the recent drop in gas prices at the pump,” said Bonnie Herzog, managing director of beverage, tobacco and convenience store research at Wells Fargo Securities LLC.

The gas price drop “bottomed out” after the four-week period that ended Feb. 14, 2015, according to Herzog. During that four-week period, Wells Fargo recorded the energy category as having strong dollar sales growth in the c-store channel of 15.4 percent “driven by continued solid results” from Monster and Red Bull. On its own, Monster generated “very strong” dollar sales growth of 16.8 percent for those four weeks, driven by 18.1-percent equivalent unit volume growth and a 1.1-percent average equivalent pricing decline.

Comparatively, Red Bull had dollar sales growth in the convenience channel of 15 percent during the same period, driven by a 9.9-percent equivalent unit volume gain and 4.7-percent average equivalent pricing “as its new pricing went into effect at the beginning of January,” Herzog explained. “Monster gained solid dollar/unit share this period, which we believe partially reflects consumers reacting to Red Bull’s pricing growth.”

Another issue very much in play is the transition already underway of nearly half of Monster’s distribution from the Anheuser-Busch system to the Coca-Cola system in the first half of this year. More than 50 percent of retailers recently surveyed by Wells Fargo’s Beverage Buzz indicated they expect some level of disruption or potential challenges during this phase.

However, the majority of retailers suggested these would be “normal transition disruptions” and the “bumps should not be big,” according to the Beverage Buzz survey findings.

INNOVATION CHURNS

Turning a challenge into an opportunity, “health and ingredient safety concerns are creating new avenues for innovation that address factors hindering some consumers from consumption [of energy drinks],” noted Elizabeth Sisel, beverage analyst for Mintel.

Although the controversy over energy drink ingredient safety of 2012 and 2013 has significantly decreased, health is still top of mind with some consumers concerned about sugar content and other negative information surrounding energy drink effects. Some brands have already launched sugar-free and all-natural energy drink options to better compete.

Energy drink innovation around new and “exotic” flavors is also on the rise and continuously being tested at retailers such as Minute Market with 13 stores in Medford, Ore., which is constantly shifting around its two-door planogram of energy drinks to make room for the latest newcomers, according to Cliff Simpler, operations manager. The secret, he said, is to not be influenced by personal taste and not get bullied by manufacturer contracts.

THE BEVERAGE EQUIVALENT OF SAN DIEGO

It has been said that San Diego has some of the best weather in the United States — and consistently temperate, sunny days also means there is virtually no seasonality. The same could be said for energy drinks.

Of all packaged beverages, the alternative beverages segment (comprised mostly of energy drinks) remains fairly steady, with no real seasonal sales swings throughout the year, according to research from The Nielsen Co., as reported in the Convenience Store News 2015 Guide to Category Management (published in February). This means convenience retailers can enjoy robust sales of alternative beverages and energy drinks throughout the year.