When energy drinks hit American shores
Last decade, many industry insiders dismissed the category as a flash in the pan. Well, good news for shot marketers: shots look to be shaping up as every bit of a “fad” as their larger, enduring cousins – that is, not a fad at all.
Since 5-Hour Energy arrived on convenience store counters in 2004, the shot category has grown from a niche catering mostly to truck drivers to a product class so mainstream that 5-Hour Energy now sponsors a NASCAR team. One analyst estimated that the category nearly doubled its sales to $700 million this year, from about $370 million last year. All that cash has drawn so many entrepreneurs and beverage stalwarts to introduce new shots that one convenience store firm has given up trying to keep them all on the counter. The influx has brought new bottles, new sizes and new functions to the category, along with the expected raft of “me too” products. But even the copycats have performed well enough that many have returned to their suppliers for second and third production runs.
“My gut says that energy shots are here to stay,” said Carl Sperber, director of marketing for 5-Hour Energy. “At least, until the next great thing comes along.”
While the category has quickly developed into a force so large that any beverage retailer would be foolish to ignore it, it’s still in its early days. 5-Hour, the first energy shot, owns about 70 percent of the category. A second-place player with more than a few percent of the market has yet to develop, and many of the products entering the market are riffing as obviously on 5-Hour as some early energy drinks riffed on Red Bull. Where Red Bull inspired such imposters as Red Dragon, Red Rooster and Red Tiger, 5-Hour Energy has found itself pursued by 6-Hour Energy, Redline 7 Hour Energy and Mr. Energy 8-Hour Energy.
Not every product, though, has been a copycat. Newcomers and veteran beverage firms alike have introduced shots substantively different from 5-Hour. Harcos offered novelty by commissioned globular bottles that resemble the magic potions from fantasy-themed video games for their Energy Potion line. Impulse One took their shots into a larger format by rolling out their 4 oz. Headshot, which also departed from 5-Hour’s low-calorie formula by packing in 21 grams of sugar. Tea brands Steaz and Guayaki have taken an organic angle on shots, and AriZona, which has tried just about everything in beverages at least once, rolled out three different shots that prominently featured tea flavors. Monster and Red Bull have also entered the fray, bringing their well-known flavors to a small format, while Coca-Cola and PepsiCo released Full Throttle and Amp shots, respectively.
The buying public will decide which of those products will survive, and that may not bode well for the biggest companies entering the market. Established players have had a difficult time with emerging, dynamic categories in recent years. Coca-Cola made several attempts to create an in-house energy drink brand before changing tactics to partner with independent brands, first Rockstar, then Monster. PepsiCo had better luck with its AMP energy line, but even the one-time Mountain Dew sub-brand ranks fourth behind Red Bull, Monster, and its own new distribution partner, Rockstar. Similarly, both firms have demonstrated difficulty with the super-premium tea segment, with Coca-Cola ultimately buying interest in Honest Tea after Gold Peak failed to ignite. In shots, PepsiCo has pulled the plug on its AMP shot, and Coca-Cola’s Full Throttle shot, according to Nielsen data for the four weeks ending May 16, has stagnated with an unimpressive 0.9 percent of the category. However NOS Power Shot, produced by Coke Subsidiary Fuze, entered the market as a strong player – even if its sales have since tapered – and both big players now boast alliances with independent energy drink brands, which Sperber thinks are poised as strong competitors in the shot category.
“I have a feeling when the dust settles it’s going to be us and Hitman and Red Bull,” Sperber said.
His consistent refrain on the future of the category, though, is that another shot will not overtake 5-Hour unless it’s better. Many companies – Red Bull included – have proven that the first mover in a category enjoys a strong advantage. Sperber also noted that 5-Hour Energy is his company’s core business, while shots are a “sideline” for his better-funded competitors. That not only leaves Living Essentials with a more consistent focus, Sperber said, it also frees them from struggling with internal tensions generated by marketing both a 2-4 oz. shot and an 8-16 oz. energy drink.
As Sperber sees it, shots have a tricky relationship with beverages: they compete for the same dollars, but boast differing strengths. A shot, Sperber said, is good for delivering a specific function in a rapid fashion, but will never serve as a good platform for refreshment, rehydration or flavor – a particular failing highlighted in a recent New York Times article. Sperber said that not only did he never expect 5-Hour to be widely praised for its flavor, he didn’t want it to be. He doesn’t want people coming to the product for the wrong reasons. Additionally, some brands involved in both energy drinks and energy shots have put themselves “upside-down on price,” as Sperber put it. They’re offering an 8 to 16 oz. product in the cooler for around $2, while selling a gulp-sized shot, warm, for $3 next to the cash register.
“What they’re doing kind of goes against the American value proposition,” Sperber said.
But consumers have proved that they’re willing to pay more for a gulp than for a 16 oz. can. Consumer Edge Research founder Bill Pecoriello reported earlier this year that shots are taking share and usage occasions away from energy drinks. He evaluated data from Information Resources Inc., that covered the 12 weeks ending May 17, and found that shots grew by 84.5 percent year over year, while drinks slipped by 0.8 percent.
Either ignorant of that trend – or in an attempt to get ahead of it – energy drink brands have continued to pile into the shot category. Joey Allen, President of Allen Flavors, Inc. said his company works with a lot of energy drinks in 8 oz. cans “and just about everybody who was in that size is gravitating towards also having a shot.”
Allen said that, early on, he counted himself as one of the energy drinks naysayers who expected the category to have a “limited run,” but he said he won’t make the same prediction about shots. He said he sees a new competitor just about every day. He’s seen relaxation and anti-hangover shots, but most of it’s energy, and, he said, right now, half the projects in his lab have something to do with an energy drink or a shot. (For more on other shot functions, see sidebar.)
“We’ve gotten a lot of people come back for a lot more,” Allen said. “Everybody’s rushing to the market...The average turn around in a real beverage used to be at least six months to two years. With these things it’s like boom.”
Allen said his company can – and does – turn around complete energy shot products in as little as three months. The biggest challenge, he said, is finding a name that “isn’t already gobbled up by somebody.”
Bob Occhifinto, president of New Jersey-based co-packer NVE Pharmaceuticals, described a similar picture. In November, he said his company had doubled the number of energy shot brands it dealt with in each of the two previous years. Since then, his business has continued on an upward vector.
“There’s been no peak yet... Every week there’s new companies. It’s not stagnating at all,” he said.
To cope with that growth, NVE has installed a total of four energy shot-filling lines that fill the factory with a constant mix of rattles, rumbles and pneumatic hisses. The fourth line started churning out the diminutive packages in April, and Occhifinto said he’s currently satisfied with his company’s capacity. He doesn’t have any plans to add equipment in the immediate future, but is considering equipment to handle organic shots, as more competitors have considered using the organic badge since Steaz and Guayaki set the precedent.
Space Race
Until then, though, his factory will continue to churn out 30 million shots per month, contributing to an escalating space challenge at retail locations. What started with a cardboard box filled with shots has quickly become a mess of boxes stacked on and around the cash register, sometimes filled with mismatching product. To cope with that clutter, shot brands, including 5-Hour and NVE’s in-house brand Stacker 2: 6 Hour Power responded by offering branded counter racks to fit the shots in. Sperber calls it “community racking,” and said it’s “a little painful” to give a 5-Hour rack to a retailer that’s almost guaranteed to use it to hold a competitor’s product, but he said it’s a “goodwill thing.”
Even those racks may not be enough. Terry Johnson, director of marketing for the 40-store Uppy’s chain based in Chester, Va., recently told Convenience Store/Petroleum magazine that he decided to raise the shot segment’s profile by giving it a rack off the counter. Johnson created a six-shelf display, called it the “Energy Shot Headquarters,” and placed it near the cash register. So far, he said, the displays seem to be doing well, and they help him deal with the wild proliferation of energy shot brands arriving on the market.
“With the new brands coming out, we would have had all that sitting on the counter,” Johson told CSP “There’s just no place for all that stuff.”
Retailers’ difficulties with organizing the category may be exacerbated by the number of channels through which shots are shipped, and confusion on what, exactly, they are. Originally viewed as a sub-category of energy drinks, shots will not be listed with beverages at this October’s National Association of Convenience Stores Show. Following a suit filed by Living Essentials, NACS declared last November that it would categorize shots as health and beauty care products. Natural products, like PurBlu’s Potion Herbal Remedy, have used natural distributors like UNFI and Tree of Life. CEO and founder Ben Lewis said his company – better known for its GIVE line of charitable bottled waters and energy drinks – has also used candy and tobacco houses to move his shots. Other beverage companies have leveraged their existing relationships with DSD houses to distribute their products. Red Bull, according to Beverage Business Insights, went so far as to turn down chain wide authorization from 7-Eleven because it insisted on staying with its existing distributors. 5-Hour Energy, according to Sperber, mostly ships its product directly to stores, or works through a broker when chains prefer that method.
In the mean time, not much has changed about 5-Hour Energy. Since its debut five years ago, Living Essentials added an extra strength and a low-caffeine variety, as well as three new flavors. The brand also swapped out its generic white cap for a red cap with an embossed “energy guy” logo and a depressed top to ease the process of peeling off the product’s plastic safety seal.
The company’s big push, Sperber said, has been finding new outlets for 5-Hour – Living Essentials recently added placement at warehouse stores Sam’s Club, BJ’s and Costco – and monitoring the competition.
“We’re not smug and satisfied with our success,” he said. He added that the company will keep pushing the brand until it hits its limit. Then, he said, it will figure out what to do next.