Energy To Weather The Storm?

10/4/2010

Retailers reveal the state of the energy category in stores, and how they evaluate newcomers in the maturing category

For the last several years, energy drinks have been the stars of the cooler. And more recently, energy shots have taken the health and beauty care (HBC) category by storm. But do these two product segments have the wherewithal to survive the perils of a maturing category on top of the impact of the continued sluggish economy?

Many retailers say yes. For more than 70 Spinx stores, headquartered in Greenville, S.C., the energy drink segment is still growing, and is up more than 15 percent over last year. “2009 sales were down, and we are cycling these with better numbers,” explained Brad Eaton, category manager for the c-store chain. “Also, people are working harder in this economy for the same dollar and need the energy.”

A similar situation was reported by Handee Marts, a 7-Eleven licensee based in Gibsonia, Pa. At its 62 stores, Red Bull is up 18 percent; Monster is ahead 52 percent; Pepsi energy, led by Rock Star, jumped 23 percent; and Venom is up 8 percent. Bruce Earhart, vice president of marketing for Handee Marts, attributed the positive movement to increased space and increases promotional activity, such as moving all products to two-for pricing.

This year’s increases in the energy drink doors of VPS Convenience Store Group, which includes the Village Pantry and Worsley (Scotchman) chains, follow a year of flat sales. Rich Mione, vice president of merchandising, cited consumer activity and new products as drivers of growth. “We are seeing the younger consumer switching from carbonated beverages to energy. Also new flavors and sizes have created more excitement in the category,” he said.

In other areas of the country, though, the energy drinks segment is faltering. For Cenex Zip Trip convenience stores, the markets are mixed, but overall, the category is flat.

“Some of it is partially related to customer spending habits,” explained Jon Fleck, merchandising manager for Zip Trip, adding consumers are “definitely buying what’s on deal. One might be two for $4, while the other is two for $3, but they are buying the cheaper one or even only one.”

Bottom Line

  • Convenience stores report healthy sales of energy drinks after a lackluster 2009.
  • Larger package sizes, promotional pricing and line extensions all help energy drink sales.
  • Energy shots are earning expanded space on counters due to profitability.

The titans of the energy drink category remain in their lofty seats. Red Bull, the market share leader in Spinx stores, is up 16 percent year-over-year, while Monster is up 44 percent. Red Bull is also No. 1 in Zip Trip stores, although sales are down due to the absence of a contract and top-of-the-door placement, said Fleck. Other energy brands, Monster and Rockstar, are on contract with the chain, so they are up substantially, he said. For VPS Convenience, again Red Bull takes the top honors in the segment, followed by Monster.

And some convenience stores are giving the category more cooler space. Handee Marts expanded its energy drink space due to increased demand, while VPS Convenience bumped up space slightly in stores with adequate space to do so, after seeing late 2009 trends and early 2010 results.

While Spinx has not changed space dedicated to the category, which equals one full door, it did bring in two new products recently in the form of line extensions of Monster Energy - Monster Import and Monster Nitro. “Line extensions in brands that perform well almost always do good,” Eaton said. Other additions were larger package sizes, with 24-ounce Monster and 19-ounce Red Bull.

Zip Trip also kept space dedicated to the energy drinks category the same, but did bring in Venom.

Regarding package size, 16-ounce cans of energy drinks are proving resilient for all the convenience chains providing insights to CSNews.

“The consumers like the two-for specials on the 16-ounce can because they get 32 ounces, but only have to drink half of it at a time,” said Zip Trip’s Fleck.

Larger sizes, meanwhile, have increased dollars sales in VPS Convenience stores, with a trend towards 16- and 24-ounce packages, said Mione, adding the company also brought in Red Bull and Monster line extensions, along with a few new brands that are in test in various markets. Handee Marts also added the 19-ounce Red Bull.

In terms of new product selection and evaluation, Handee Marts’ Earhart reported he evaluates new product introductions by working with vendor partners, checking the competition and doing a store-by-store item evaluation. The retailer also reduces slow movers and adds new products with growth potential.

However, there are restrictions to bringing in new energy drink products for some retailers. Zip Trip’s Fleck reported constraints to bringing in new energy drinks due to lack of cooler space. “Unless something is on fire in the market or nationally backed up with advertising, we haven’t really let any new ones into the store, due to lack of space because of contracts from the pop companies and other direct-store delivery (DSD) vendors who bring in the other energy drinks,” he said.

A SHOT IN THE ARM

In other areas of the store, another form of energy product is building steam. Energy shots, falling under the HBC category according to NACS category definitions, is growing within c-stores across the country.

For Spinx stores, sales of the shots are up 45 percent, thanks to successful advertising and a consumer desire for more energy, said Eaton.

Echoing this sentiment is Fleck of Zip Trip. “I believe [energy shot growth] has a lot to do with the new entries into the market, where consumers are trying out the new guy, but also the amount of advertising you see, especially from 5-Hour Energy, promoting ‘hours of energy now - no crash later,’” he said.

VPS Convenience’s Mione said consumer acceptance of shots boils down to comfort level. “Customers have a comfort level with energy shots compared to pills such as epinephrine,” he said.

For all convenience store retailers interviewed, 5-Hour Energy is by far the market leader, with some reporting it reaches up to 85 percent of the segment’s sales. For Zip Trip stores, the twin-pack Stacker 2 6 Hour comes in a distant second, while Red Bull is second at Handee Marts.

To capture more opportunity in this segment, Spinx created its own line of private label energy shots, “PUMPED,” which sit at No. 5. It is also increasing space dedicated to the products, by adding 16 box counter units this year.

“This will clean up our counters and remove all smaller racks. When the racks are installed, we will carry only 5-Hour products, Red Bull shots and our ‘PUMPED’ private label,” said Eaton, adding: “With 5-Hour at an 85 percent market share, you don’t need all the other brands.”

Likewise, Fleck chose to increase energy shot space in Zip Trip convenience stores to make room for line extensions and is using supplier Coremark’s corporate program, which provided numerous new products for the chain to test, such as Red Bull, Stacker 2 6 Hour Power, Mango Shot, Head Shot, Mega Shot, MetRx, Fusion Energy, Shotz Energy and Slap Energy.

“Many of these, excluding the Red Bull, were on the Coremark ‘corp’ program,” he said. “For our contract we agree to try some of the shots they contract with. Because of the success of their drinks, we also let Red Bull and Monster in with mixed results. We evaluate about once every six months unless we become aware of something that is hot and we give it a try.”

VPS Convenience continues to expand space and visibility for the segment, while looking at new and unique ways to merchandise it to take advantage of the profitability and high impulse sales opportunities, according to Mione. Meanwhile, recent additions to the section were mostly line extensions.

Similar success is being seen at Handee Mart stores. Energy shots are growing at its stores, thanks to the segment being repositioned to the checkout to drive impulse sales utilizing vendor-provided racks, Earhart said. Handee Marts is also growing the space given to the products due to customer demand and their success as an impulse item.

On the other side of the spectrum, the Mid-Atlantic convenience store chain is also testing relaxation shots, which have shown “some traction,” he said.

As for the future of the energy shot business, retailers are confident it will continue to perform, despite threats of regulation from federal and local agencies.

“The category will remain strong. Right now only a small portion of the population uses energy shots,” said Eaton. “There’s still a lot of market to tap into.”

On the other side of the coin, Mione said growth will come from product innovation, such as flavors, packaging and merchandising. “This is a very profitable category for all parties and has many years of maturity left in the category,” he said.

Meanwhile, Fleck said the energy shot segment will mimic the path of energy drinks. “The big players will rise to the top, filtering out the lower sellers. They will steadily increase in the short term, but eventually will see maturation similar to the energy drinks,” he said.

Handee Marts’ Earhart was not as optimistic, though, saying the energy shot segment is close to maturation.

For comments, please contact Mehgan Belanger, Associate News Editor, at [email protected].

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