Focus - A World of Energy: The Landscape for Energy Drinks
The future remains bright for the energy drinks category, according to Richard Haffner.
The energy drinks segment has provided the fastest growth in the overall soft drinks category over the past five years, increasing by 73% versus total soft drinks growth of 21%. While much of this growth is due to energy drinks being the newest soft drinks category, it is also projected by Euromonitor to continue to be the fastest growing category over the next five years.
Although the growth rate between now and 2016 is projected to slow to 37%, the category will add about the same amount of total volume; 1.8bn litres between 2006 and 2011 versus 1.7bn litres from 2011 to 2016.
However, the regional contribution to global growth will be different in the future. While the largest regions, North America and Western Europe will still contribute the most growth, they will each add fewer litres in the future than they did in the past. This is largely due to category maturity. However, the still healthy growth is expected to come from innovative products attracting new consumers to energy drinks or from new usage occasions from existing customers.
Latin America is the one region that is projected to add more volume in the next five years than it did in the previous five years; albeit at a lower percentage growth. In this region, energy drinks are still an emerging category.
In the last two years, energy drinks manufacturers in the US attempted to expand the appeal of their brands to a new group of consumers. The current offerings have generated a loyal, youthful following, but they tend to alienate older and more conservative consumers.
Manufacturers attempted to broaden the appeal of their existing brands by introducing a new product form in recent years - energy shots. These products are miniature servings of between one and two ounces of the main brand that are concentrated so they contain the same amount of stimulant as the drink (e.g. Red Bull Energy Shots and Monster Energy M3 Super Concentrate). These energy shots were intended to be a quick- fix pick-me-up for a more conservative consumer; for example, bankers or office workers.
The idea was to shed the bad-boy image and appeal to more of a daytime usage. However, the brand image stuck more with consumers than the new product form. While the idea of expanding the number of people who would purchase the category is a solid goal, line extensions of edgy brands (such as Coca-Cola’s Full Throttle and Rockstar Inc’s Rockstar) did not appeal to the new crowd and are now largely absent from store shelves.
Although manufacturers’ attempts to bring new consumers in through existing franchises did not succeed, the current brands are benefiting from expanding usage occasions by existing users. Energy drinks, which looked like a maturing category, are benefiting from a new trend where the millenial generation is choosing energy drinks over coffee. While not growing as rapidly in the past, this trend will still support good growth (total volume growth of 77% 2006-11 and projected growth of 40% 2011-16).
Germany and the UK are the two largest energy drinks markets in Western Europe, accounting for almost 60% of the region’s volume in 2011. The two markets combined had similar growth to Western Europe from 2006 to 11 and are projected by Euromonitor to have similar future growth (UK plus Germany growing total volume by 38% 2011-16 versus Western Europe’s 33%). While this is strong growth, it is slower than the 60% growth experienced between 2006 and 2011.
Similar to North America, the current energy drink brands have an edgy, younger-oriented appeal. This has served the category well in the past. To maintain future growth, Western Europe, unlike North America, is focusing on expanding the penetration of the category.
The two key factors that will impact the sports and energy drinks category over the forecast period are innovation and price positioning. With consumers' preferences gradually moving towards natural and organic ingredients, manufacturers will bring new products to market focusing on these ingredients in an attempt to bring new consumers into energy drinks.
An example of this type of product is 'Energize Your Life' from MatchaMagic International, which was introduced in Germany in March 2011. It is an energy drink based on matcha tea, but also contains whey. The product is positioned as natural and a healthier energy drink, with high quality ingredients. It claims to have the scent and taste of mango and citrus fruits and not the “candy taste” of typical energy drinks. Matcha green tea powder is used as an ingredient. Matcha is easier to digest and the body feels its energy effects longer than other natural products, such as coffee.
More launches are expected in line with naturalness and most of the products are anticipated to perform well in the short-term, as the idea of functional drinks is linked with healthier lifestyles. It is probable that, in the forecast period, smaller manufacturers and discounters will attempt to improve their presence in the sector. This is likely to lead to increased pressure on unit prices, a reason why unit prices of both sports and energy drinks have been estimated to decline.
The rapid rise of energy drinks forecast in Latin America is solely dependent on manufacturers executing their proven strategies.
Brazil is the main growth engine for energy drinks in the region. From 2006 to 2011, Brazil accounted for half the volume growth of Latin America and, from 2011 to 2016, growth is expected to accelerate and account for two in every three new litres.
Similar to the rest of the world, growth in energy drinks has been associated with young people, and these products are positioned to have the same edgy positioning of providing an energy charge to have a fun time.
Thanks to the vigorous growth registered by energy drinks in recent years, small- and medium-sized companies are entering this category, with launches of new products in 1-litre PET bottles focusing on C-emergent socio-economic classes.
These products are economically priced (US$5.60 per litre) compared with traditional 250ml cans from leading manufacturers (priced at US$2.80-$3.70 per 250ml can).
Future growth will be driven by expanded distribution. This follows the tried-and-tested formula from the developed markets. The category should benefit from the expansion of the target niche, comprising teenagers and young adults, as well as new products, the expansion of distribution networks and high-profile advertising campaigns.
The future is clearly bright for energy drinks. Achieving the growth is likely to bring about changes to the category. In North America, with the new and expanding usage for energy drinks as a coffee substitute, new products that cater to this specific usage occasion may appear. Western Europe appears ready to pursue a different route by appealing to new consumers through new brands with a more healthful appeal.
While Latin America is duplicating the successful strategy of the developed markets, the category will likely change. Today, Red Bull (with a 45% volume share in 2011) and Coca-Cola (14% volume share) are the two dominant companies. However, with the great potential for growth, other manufacturers will try to enter the market.
The main barrier to entry is gaining distribution, so look for these new entrants to forge partnerships. Following a formula used by Monster in the US, beer companies may be a route to distribution. Some candidates with a strong presence in Brazil are Anheuser-Busch InBev, Heineken and Kirin Holdings.
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