Analysis: Energy drinks go from strength to strength
Although a small sector in volume terms, the energy drinks category punches above its weight in the global soft drinks market in value terms, and has outpaced market growth for many years. While the rate of growth has slowed somewhat in recent years, writes Darren Brindley of industry analyst Canadean, the outlook for the category remains extremely positive.
The energy drinks sector is one of the most dynamic categories in the beverage market. Characterised by powerful branding and advertising, the category is also no stranger to controversy with its best known brand being banned in several markets due to its ingredients.
Energy drinks may be a small, almost niche sector in the global soft drinks market in terms of the volume but it certainly makes its mark in terms of influence, and more significantly, in terms of value.
Although the category can be traced back to the early 1980s with caffeinated cola's such as Jolt Cola, it was the introduction of Red Bull in the late 1980s that really kick-started things. It quickly established a dominant position, and has maintained that ever since - still keeping around a 25% share of the category worldwide. The category's premium pricing model has over the years led all the major beverage companies to launch their own energy brands, or snap up and develop smaller brands and producers.
Worldwide, the category accounts for less than 1% of the total volume of soft drinks, but has shown a compound annual volume growth rate of just less than 24% in the last five years. That growth rate is significantly stronger than any other category in the soft drinks market, and indeed outperforms the soft drinks market as a whole by more than four times. In value terms, energy drinks account for nearly 5% of the worldwide soft drinks market.
Premium pricing is a feature of the energy drinks category. Since its inception the category has been positioned as providing products that not only refresh you, but give you the energy and related brain power to make the most of your time. While it could never be said that energy drinks position themselves as healthy, there is little doubt that they claim to provide a functional benefit to the consumer, which is the main reason why they can command a premium price. In 2006, the average price per litre for an energy drink across the world was US$5.78, almost four times the average price of a litre of carbonates (US$1.54), and similarly ahead of the average price per litre in the soft drinks category as a whole (US$1.50).
Higher per litre revenue of that degree has attracted brands from all the major players into the market, such as Coca-Cola's Burn, and Pepsi's Adrenaline but so far they haven't come close to dislodging Red Bull from its position as market leader.
Asia dominates consumption of energy drinks, accounting for almost half of all energy drinks volumes. However, at a per capita level it is North America and Australasia that lead the way. In almost all regions, the concept of energy drinks has been established, and accepted by the consumer. The only two regions that remain exceptions are Eastern Europe and Central and South America, where lower levels of disposable income remain a barrier.
Not surprisingly, the US is the largest country market, ahead of Japan, Indonesia and China. Three other Asian countries also appear in the top ten markets for energy drinks, namely Thailand, South Korea and Vietnam. While still accounting for nearly half of all energy drinks consumed worldwide, Asian dominance is starting to slowly slip as other regions begin to catch up. In fact, worldwide growth in consumption is beginning to slow. Following year-on-year growth of 31% in 2004, and 24% in 2005, growth slowed to 17% in 2006.
In Western Europe, the UK leads the way in volume terms, accounting for nearly half of energy drinks consumed in the region. However, the Republic of Ireland and Austria have a far higher per capita consumption figure, with Irish consumers drinking an average of just under 8 litres of energy drinks per year, hugely more than the regional average of 1.6 litres per capita. Higher per capita figures in Austria can perhaps be explained by the fact that Red Bull and other energy drinks companies originated there.
In Western Europe, many energy drinks are banned from sale due to certain ingredients, including market leading Red Bull which is banned in France. This obviously has a marked effect on the market when comparing it to other geographic regions.
Although Red Bull was originally targeted at the on-trade, retail has now become the principal channel for energy drinks, with approximately two thirds of worldwide volume being sold through these channels. This picture is pretty consistent worldwide, other than in Central & South America where the split is far more even, and North America where the emphasis is far heavier on the retail channels (85%). In many markets, the UK being a good example, the volume sold through on-premise channels is heavily impacted by energy drinks being sold as mixers with spirits, primarily vodka.
One of the main influences of energy drinks has been the impact on packaging, with around one third of all energy drinks sold in 25cl cans. The slim-line can has become recognised as the principal package format for energy drinks around the world, and the size and shape of the can is as recognisable as any branding when looking at products on-shelf. Such recognisable imagery is helping the category grow, and keep pace with its young, fashion-conscious audience.
Canadean believes the future to be bright for the category as a whole, and predicts that by 2010, energy drinks will have grown again by more than 50% from their current level, more than double the predicted 20% growth of the soft drinks industry as a whole in the same period. With a very powerful brand leading the market and the marketing might of the two leading companies in the soft drinks industry trying to gain a stronger hold of this high-value category, the future is very positive.
Source: Soft Drinks International
For more information go to www.softdrinksinternational.com
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