How Energy Is Getting Its Groove Back

9/1/2012

The energy drink segment continues to recover from aftereffects of the recession

Alternative beverages, composed largely of energy drinks, have their growth groove back in the convenience channel. The latest industry data and retailer reports indicate a quicker-than-expected recovery from the recession and the "moderation" it brought. Not that the wildly high double-digit growth rates of the past are in the category's future, but rebounds are well appreciated, with retailers making the most of the improved fortune.

At Krist Oil Co., the Iron River, Mich.-based operator of 67 convenience stores, beverage category manager Scott Bocick has definitely noticed energy drink beverages picking back up lately, particularly the "straight energy" brands and some select "hybrids" such as Monster Rehab. "We saw them going down a bit, probably 3 [percent] to 5 percent, but we've seen them rebounding in the last six months for us," he said.

What's helped Krist Oil is going large with twofers. "That's the big move with 'energies' right now, trying to get the higher dollar ring," Bocick said. Twofer deals at the chain are currently two for $3 or two for $3.50, depending on brands and sizes.

Responding to local competition, Bocick even attempted "threefers," offering three for $5, but "it didn't have a lot of legs. I won't do it again; it was just a competitive move," he admitted.

The threefers, he explained, weren't making a big sales impact and the margin loss was too great. Twofers, on the other hand, have fueled the rebound momentum and are worth the lower margins (around 20 percent to 25 percent vs. 35 percent to 40 percent with single energy beverage sales).

Russ Cato, buyer at Delhart, Texas-based Frontier Fuel Co., expressed gratitude for the similar quick rebound of energy drinks at his chain.

"We've been blessed," he said. "I just did a category review and with Red Bull, we're up 30 percent for the past six months compared to the same time period last year. Monster is continuing to grow, too. In fact, we're seeing quite a bit of growth overall."

What's working for Frontier Fuel is the fact that it "peeled back on contracts," according to Cato. "We didn't sign Red Bull's contract this year â they wanted so much space and we couldn't commit to that. We backed out of contracts that wanted too many shelves and too many displays. Displays aren't helping that much. Twofer pricing is helping. We just want them to make deliveries more often."

One display element Frontier Fuel invested in sits inside its cooler doors. White shelving was changed to black and products are now highlighted with LED lights. "Our newest store went with black shelving and it looked a lot better, so we went ahead and changed all the stores. We are focusing on our coolers, not displays," he reiterated.

WHAT THE NUMBERS SAY

Overall industry beverage numbers support that c-stores are wisely responding to the energy drink rebound. For the 52 weeks ending April 4, alternative beverages were up 16.7 percent in dollar volume and 16.5 percent in unit volume from a year ago.

Looking at it from an all-channel perspective, energy drinks are forecasted to nearly double their sales during the 2011-to-2016 timeframe, according to the latest research from Mintel, "Energy Drinks and Energy Shots, June 2012."

According to that report, the top three players Red Bull, Monster Energy and Rockstar have engaged in fast-paced innovation with some products already showing impressive growth, such as the aforementioned Monster Rehab, Rockstar Recovery and Rockstar 2X.

Other highlights from the Mintel research are:

Nearly three-quarters of all energy drinks buyers/drinkers consider the availability of energy drinks "cold" at the time of purchase influential in making their purchase decision.
Convenience stores still account for more than 70 percent of total energy drink sales.
The use of self-chilling can technology is expected to increase category SKUs in c-stores where shelf and cold vault space is limited.
About 19 percent of all energy drink consumers report drinking energy drinks almost always in the early morning and/or morning dayparts, indicating the beverage is tantamount to a morning wake-up coffee for these drinkers.
Mid-afternoon is another important time when consumers consume energy drinks.
Whereas private label brands have been unable to impress energy drinks users, they continue to show dollar sales growth in the energy shots segment.

New Blood

It makes sense that along with the energy drink segment's returned growth, new product introductions rebounded in 2011, according to Mintel research released in June.

During 2006 to 2011, the new product count peaked in 2008 and then declined sharply in 2010, which Mintel reported could be attributed to the influence of the recession and post-recession economic uncertainty on the market. In 2011, however, the new product count nearly doubled compared to the previous year.

This year, energy innovation is taking new shapes and forms, such as with Kraft Foods' MiO Energy, touted as a portable liquid water enhancer with the energy benefit of B vitamins and caffeine. It is targeted to the millennial male, aged 18 to 24, who is often on the run and views the convenience store as "his own personal kitchen," said Becky McAninch, marketing director, MiO, at Kraft Foods.

Now, that "kitchen" can produce a multi-serving portable energy drink for whenever the need arises â each 8-ounce black bottle of MiO Energy contains 12 servings.

"MiO Energy takes a different approach to competitors in the category," explained McAninch. "It stands out because it provides consumers with the ability to have their energy drink whenever and wherever they want it. We feel this is a revolutionary approach in the category."

A campaign with 7-Eleven Inc. featuring actor and comedian Judah Friedlander helped launch MiO Energy in the c-store channel earlier this year. Kraft Foods said it is continuing to invest in the channel through in-store displays and promotions.