Still Buzzing

Energy drink sales are soaring despite negative press and government scrutiny

It would be difficult to find someone who has never heard of energy drinks or their explosive growth over the last several years. You would essentially need to find a person who has never set foot inside a store that sells beverages and, as of late, you'd also need someone who doesn't watch or read the news.

That's because energy drinks have been garnering some negative publicity in recent months.

While these alternative beverages have always been met with some concern since coming onto the market years ago, hints at more intense scrutiny began last April when Sen. Dick Durbin (D-Ill.) sent a letter to the commissioner of the Food and Drug Administration (FDA) calling for an investigation into energy drinks after learning that a 14-year-old Maryland girl died of a cardiac arrhythmia due to caffeine toxicity after drinking two 24-ounce energy drinks in a one-day period. Four months later, the FDA responded that the level of caffeine found in the beverages did not set off any warning bells.

Concerns, however, were raised once again in October when FDA incident reports revealed that five people had died in the past three years after drinking Monster Energy beverages from Monster Beverage Corp. The reports did not prove a direct link between the deaths and the caffeinated energy drinks, nor did they state if alcohol or drugs were involved in the deaths.

These FDA reports came to light after the mother of the Maryland teenager filed a Freedom of Information Act request to obtain more information as part of her lawsuit against Corona, Calif.-based Monster.

The Monster brand was not the only energy product to be called out in FDA reports, either. In November, it came to light that 5-hour Energy was mentioned in approximately 90 incident reports filed with the agency and that federal officials had received reports of 13 deaths during the past four years that were possibly connected to consumption of the popular energy shot.

In response, the FDA has launched a review of the safety of energy drinks containing caffeine and other ingredients that act as stimulants. The agency may turn to outside experts to help with the task.

Through it all, Monster and 5-hour Energy have maintained their products are safe. And in a turn that may just be coincidence, Monster last month said it was making changes to the labeling on its cans so that its energy drinks will no longer be considered dietary supplements and instead be in line with the federal guidelines that beverages must follow. The cans will list "Nutrition Facts" instead of "Supplement Facts." The packaging will also now feature the caffeine content.

NO NEED TO BRACE FOR IMPACT

Despite this negative attention, energy drinks are still going strong in convenience stores, according to the most recent Beverage Buzz survey conducted by Wells Fargo Securities LLC.

The quarterly survey, which includes retailers representing more than 10,000 convenience store locations across the country, found that energy drinks gained the most shelf space in the fourth quarter of 2012 — 10 percent compared to 6 percent in the third quarter of last year.

Shelf space for carbonated soft drinks (CSDs) in convenience stores, on the other hand, dropped by low single digits in the fourth quarter — a similar drop to the fourth quarter of 2011. Flavored CSDs gained a bit of space; about 1 percent in the fourth quarter vs. a 2-percent gain in 2012's third quarter.

Wells Fargo Securities expects energy drinks to maintain their momentum this year.

When looking at individual beverage brands, the research found that convenience store sales of Monster Energy drinks slowed in the fourth quarter of last year vs. the third quarter. Sales increased 11 percent year over year in the fourth quarter, down from a 15 percent year-over-year gain in the third quarter. However, the slowdown may have more to do with the company's promotional activity than any negative publicity. Monster scaled back its year-over-year promotions in the last three months of 2012. According to Wells Fargo Securities, overall promotions of the beverage maker's line of energy drinks rose 1.8 percent in the quarter, down from a 3.3-percent increase in the third quarter.

In fact, most c-store retailers seem to think there is a lot of smoke, but no fire when it comes to concerns over energy drinks and the effect on sales. Notably, 92 percent of Wells Fargo Securities' retailer contacts suggested the media spotlight surrounding the safety of the products "was a mere sensation and was unable to restrict the growth of energy drinks," according to the Beverage Buzz results.

"It is difficult to say what the impact has been or will be," one retailer told Wells Fargo Securities. "The Monster brand went off of promotion with us from Nov. 1 through February 2013, which significantly impacted sales, so it is difficult to separate that from the media impact."

Overall, most c-store retailers foresee double-digit growth in the energy drinks segment continuing at least for the next few years. One retailer even predicted up to 20-percent growth.

A look at Nielsen's numbers on alternative beverage sales in convenience stores over the past few years seems to put history on the side of those predictions. Alternative beverage sales, which include energy drinks, reached $4.1 billion in 2010; increased 15.3 percent in 2011 to reach $4.7 billion; and rose another 16.7 percent in 2012 to hit $5.5 billion. As for unit volume in c-stores, Nielsen data shows alternative beverages reached 1.6 billion in 2010, 1.9 billion in 2011 and 2.2 billion in 2012.

For comments, please contact Melissa Kress, Associate Editor, at [email protected].