Hardly A Shot In The Dark

Energy shots continue to be a sure bet for the convenience channel

Got energy shots? If you're a convenience store, of course, you do. The health and beauty care (HBC) subcategory quickly became a merchandising no-brainer several years back — and signs still point to a surge, albeit on a smaller scale.

Last year, energy shot sales and units increased 34 percent and 32 percent, respectively, over the prior year, according to Nielsen's Scantrack Convenience service. Even though these figures are significantly lower than what analysts called the "meteoric" gains c-store retailers experienced with shots in years past, they are still impressive double-digit numbers in a market where overall in-store sales are growing by only about 3 percent annually.

"Growth is still occurring, though it is not at the pace it once was," confirmed Dana Sump, category manager at Casey's General Stores Inc. "We had experienced some nice growth in the 50-percent range; now it's still going, but at about 25-to 30-percent growth."

At Minute Market, energy shots still make up the first four of its top five HBC items, according to Phyllis Simpler, operations manager.

Across the channel, sales of energy shots for the past three years were stellar enough to make it the fastest-growing subcategory in c-stores.

C-stores lend the perfect selling environment for shots — a quick pick-me-up product that fits nicely in a convenient in-and-out retail format for travelers, truckers, students, late-night workers and all energy-seeking shoppers.

In fact, energy shots generate their biggest share of total sales at c-stores, according to a recent report by Mintel. Convenience stores' share of shots and energy drinks (the report didn't just single out shots) grew from 79.1 percent of total sales in 2006 to 81.8 percent in 2011. Mintel also found that the convenience channel's key consumer profile —

adults aged 18 to 24 — matches with that of energy drink and shot users'

demographic group.

A spokesperson for energy shot maker 5-Hour Energy, now a $1-billion brand, confirmed that c-stores are clearly the single biggest channel for selling its brand.

But how has the climate changed recently?

MORE DEALING

For one thing, c-stores such as Casey's General Stores are regularly promoting energy shots now. "During the higher [economic] times, we never had to promote the category; it was just organic growth. People were trying it and liking it," Sump said.

Now, the chain has undertaken a more aggressive energy shot promotion schedule for 2012 — in six of the 12 months, there will be an energy shot promo, according to Sump, with many running at two for $6, some at two for $5 and even buy one/get one deals.

He clarified that these promotions will be for newer energy shot items, coming from companies looking to drive "trials" and not from Living Essentials' 5-Hour Energy, which he said doesn't fund any promotions.

Sump doesn't see his chain growing the space for the category, which is currently at 12 SKUs of shots and 12 peg-hanging items. "I think we can maintain what we have if we start promoting the category going forward," he explained. "Everyone is getting into the category.

Grocery stores, drugstores, dollar, big-box all have shots at their check-outs and they typically are willing to work on a lot less margin than convenience, so we have to watch what we do from a pricing standpoint."

Simpler noted that once in a while, "5-Hour comes along with a deal for retailers whereby if you buy so many boxes, you can get a box for free, and that helps the gross margin," which she said is about 40 percent in the category.

Additionally, Simpler told Convenience Store News that money-making deals in the energy shots category can be found in places like McLane's virtual tradeshow.

WIDER APPEAL

While energy shots are still in the early stage of their product life-cycle, they have more recently managed to create appeal among a wider base of consumers than energy drinks.

In mid-2011, the Wall Street Journal reported that a somewhat-surprising segment of consumers were gravitating toward energy shots: baby boomers aged 60 and up. 5-Hour Energy reportedly began focusing on seniors more than a year ago when it attended the AARP's annual convention and handed out free samples at the show.

In August, Mintel research revealed that adults aged 55-plus show higher consumption of 5-Hour Energy compared to adults aged 18 to 24. In fact, the brand's biggest consumers are adults aged 65-plus.

Because this population group has higher-than-average growth projections, Mintel believes the energy shots category has a higher potential to grow its consumer base in the next five years vs. energy drinks, which notoriously appeal to a younger crowd.

Meanwhile, there are those shot manufacturers going toward the other end of the spectrum to grow the category, too. For instance, new player Pure Growth and its recently launched Street King shot target a "younger, hipper demographic who are not currently using energy shots through a more emotive message and a charitable give-back," according to Keesha Johnson, spokesperson for the company.

She said Street King — founded by rapper 50 Cent — has "revved up the market" with its 100-percent natural caffeine and flavors.

The energy shots category is seeing innovation in packaging as well. There is certainly nothing wrong with the 2-ounce "shot" bottle — it has become something of an industry icon in packaging already. But the success of the category certainly lends itself to new delivery systems catching on, especially as the segment matures.

"I continue to believe in my mind that there's something out there other than the 2-ounce delivery system, even though none have ever caught fire here," said Casey's Sump.

Currently, Casey's carries the Ed Hardy Energy Stix, which Sump describes as similar to the "pixie sticks" candy concept of old.

A transdermal strip is another delivery idea, on the market now from PUREBRANDS and its Sheets Energy Strips. It is targeted to athletes and co-founded/backed by Miami Heat basketball superstar LeBron James. The idea behind it is that a strip provides a faster delivery system for energy, giving sports-minded consumers quick energy without the fullness from a bar or bloating from a drink.

Soon after it came on the market last year, Sheets formed exclusive distribution relationships with Convenience Valet and Energy 1 Distribution. Through Convenience Valet, c-stores such as 7-Eleven, QuikTrip, Sheetz and Circle K now sell Sheets Energy Strips.

Michelle Sausen, vice president of marketing for Convenience Valet, said the distribution company saw the dissolvable strip as a unique angle to help grow the category overall. "We believe in the concept of the individually wrapped energy strip without being a 'me-too' item," she maintained.

The functional "shot" appeal of energy shots is a powerful, expanding one, and forward-thinking convenience store retailers are also keeping their eyes on the (other supplement) bottles.

NOHO, touted as "The Hangover Defense," is now available at Mobil On the Run stores throughout southern California, and LiveWire Energy Chews are being sold in Casey's locations throughout the Midwest.

Convenience Valet is also putting stock in sleep-aid shots. "With all the additional caffeine that is present in the market, consumers will need to decompress," Sausen explained. "Sleep-aid shots and products with functional benefits have become much more widely accepted from retailers and consumers."

That's why Convenience Valet will be launching the Mint Dream Sheets Sleep Strip. Serena Williams, who Sausen said has gone public about her sleep deprivation, will be lead spokesperson for the new product.

A Quick Hit of Energy

• Convenience stores are the favorite retail channel for energy shot users.
• The top three reasons why energy shot users drink them is to get an energy boost, increase mental alertness and stay awake.
• Across all channels, the energy shot segment grew 30 percent from 2010 to 2011, more than twice the growth of energy drinks.
• Energy shots appeal to consumers on the platform of delivering an energy boost without the sugar and crash associated with energy drinks.
• Energy shots are still in the early stages of their product lifestyle, but they appeal to a wider base of consumers; they are predicted to have a higher potential to grow their consumer base in the next five years vs. energy drinks.
• One caveat regarding growth in the energy shots market is the possible intervention of the Food and Drug Administration (FDA), as new research linking energy shots (and drinks) with high caffeine-consumption risk continues to appear.

Source: Mintel's "Energy Drinks and Energy Shots - US - August 2011"

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