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Starbucks Doubleshot

Energy drinks sustain impressive performance

The unstoppable rise of the energy drink category continues to astonish. That a market that is (in the West at least) now twenty years old can continue to produce 10% annual growth – against the background of a stagnant economy and despite premium pricing – is scarcely believable. So how is it possible? And what can we all learn from the phenomenon?

First published in New Nutrition Business, May 2011 Newsletter

According to checkout scanning data from SymphonyIRI – data which includes all supermarkets except Wal-Mart, as well as drugstores, convenience stores and gas stations – the US energy drink category grew by 10.94% in 2010 to a total retail value of $5.815 billion (€3.919 billion).

What is even more striking is how, after 20 years, the market leader – Red Bull – not only continues to be the powerhouse of the category’s growth but to outpace the category. Red Bull’s sales grew by 14% in 2010 and it slightly increased its market share, to 38%.

The number two brand – Monster from Hansen Natural with a 29% market share – produced 16% growth. But Monster has to sell a much greater number of product variants than Red Bull in order to achieve that growth – and not all of them were successful (with some actually losing sales markedly). Monster’s logistical and production costs will be higher than those of its larger rival.

Not only that, but Red Bull’s sales value is so much bigger – measured in dollar terms – than that of Monster that Monster will actually have to lift its growth rate to 20% per annum, every single year, if it is to have any hope of catching up with Red Bull by 2015. That’s a probably unachievable stretch for any company even in a market like this one so Red Bull is likely to retain the top position for many years to come.

POWER BRANDS DOMINATE

What’s also interesting is that despite the launch of hundreds of varieties of energy drinks over the years, the market is now concentrated in the hands of a small number of brands (just eight have a 92% market share) and becoming more concentrated all the time as a smaller number of brands define and drive the market.

To illustrate that, note that the energy drink market, when measured in straight dollar terms, increased by $573 million (€386 million) in 2010 of which:
• Red Bull generated $275 million (€185 million)
• Monster accounted for $240 million (€162 million)
• Rockstar (the 3rd biggest brand with a 10% market share) grew 6%, generating an extra $32 million (€22 million).

NEW CHALLENGER

A relatively new entrant – Starbucks Doubleshot – turned in a better performance than Rockstar. The debut in the category of this major brand with a product based on coffee – a logical format for a dose of stimulation from caffeine – produces the possibility of a new challenger among top brands. Doubleshot has a just 3% market share, worth $180 million (€121 million), but its sales grew by 24% in 2010.

The energy category also illustrates how – contrary to a widely-held belief – being “a big company” with big distribution muscle isn’t always an advantage. PepsiCo-owned AMP, for example, which has a 4% market share, saw its sales decline slightly in 2010, after years of lacklustre performance. Coca-Cola’s NOS brand is slightly smaller and has also been a consistently poor performer.

Both companies are paying the price for bringing to market me-too brands with no real point of difference other than some superfi cial aspects of brand strategy. The mediocre performance shows how, despite advantages in distribution and marketing spend, a brand cannot succeed unless it creates true point of difference.

Starbucks may be late to market but it at least has a brand with an appeal beyond the traditional energy drink demographic (males aged 18-25) and a “different” carrier for the benefit.

“EXPERT BRAND” POWERS CATEGORY

The continued success of Red Bull is a testament to the effectiveness of the strategy of being the “expert brand” in the category – the brand that consumers see as being the most credible provider of the benefit on offer.

Red Bull has established itself as the expert brand by consistently focusing – year after year – on its single eponymous energy drink and the message that it “gives you wings”. It has not tweaked its brand position and, perhaps even more importantly, but for a single weak foray into upscale colas, it has resisted the temptation to extend its brand in all directions.

Brand extension is beloved of large companies and many senior executives believe that all brands could and should be extended as much as possible. However, as various studies from Symphony IRI to Harvard Business School have illustrated time and again, brand extension in food and beverage is very rarely as successful as the original parent brand and usually produces disappointing results.

Red Bull is also earning the reward for being the new category creator – the brand that gave birth to the energy drink category in the West and has defined its shape and direction. All other brands are inevitably me-toos for whom it is difficult – even impossible – to establish a meaningful point of difference, a task made all the harder by the fact that most companies are so risk-averse that they choose me-too over innovation every time.

It’s no accident that the only other brand which can be said to compare to Red Bull is 5-Hour Energy, which is also a new category creator brand, giving birth to the 100ml energy shots category (not included in our data here). It too, provided an innovative product that no corporate giant dared to and its reward is a $700 million (€471 million) business.

“FEEL THE BENEFIT” IS KEY

The reason that the energy drink category is the biggest part of functional foods worldwide, with probiotics for digestive health, and the reason that these two categories have continued to grow healthily despite the economic downturn, is that they deliver a quick shot of stimulation that you can immediately feel. For consumers, the fact that a product gives them a benefi t they can feel is one of the most compelling reasons to buy a product – especially during economic hard times.

PREMIUM PRICING NO BARRIER TO SUCCESS

A “feel the benefit” advantage also makes people less price-sensitive. And in fact a significant element in the energy drinks success story is that it is a super-premium price market. Chart 2 (below) compares the pricing of the leading energy drink brands in the US, using a price per litre equivalent, with each other and with the world’s best-known “regular” refreshment drink, Coca-Cola.

Red Bull sits at a huge premium to all its competitors – yet it outperforms them. It was first to market, it is the expert brand, it gives you an effect you can feel, it has been consistently marketed – all elements that support its continued super-premium pricing.

Even the most price-competitive energy drinks are at a huge premium to regular drinks like Coca-Cola, which have no comparable “feel the benefit” advantage.

Energy Drinks Pricing


NNB CoverAbout New Nutrition Business

Julian MellentinNew Nutrition Business is a London-based research, publishing and consulting company which specialises in researching, analysing and forecasting developments in the business of food, nutrition and health around the world.

The strategies and success factors it  has identified in the 1990s have become the benchmarks for strategy development and brand positioning in the worldwide nutrition business. It works with companies all around the world, from the United States to Australia and from Sweden to South Africa.

New Nutrition Business is headed by executive director Julian Mellentin (right), one of the world’s very few global specialists in the business of food, nutrition and health.

He is the editor-in-chief of New Nutrition Business and Kids Nutrition Report, the only industry journal in the world on the rapidly developing kids’ nutritional marketplace. See www.new-nutrition.com

Julian Mellentin can be reached at julian.mellentin@new-nutrition.com

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