Market Experts See Energy Drink Growth Flagging, Dominant Players Reigning
This article was originally published in The Tan Sheet
Executive Summary
Beverage industry experts foresee the explosive growth rate of the energy drink market falling to earth during the next five years, as products have virtually saturated the market and new customer segments have failed to materialize
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Beverage industry experts foresee the explosive growth rate of the energy drink market falling to earth during the next five years, as products have virtually saturated the market and new customer segments have failed to materialize. Further, they expect smaller players in the caffeinated and functional beverage field to either fall off the map or become absorbed by market leaders, as the need for more marketing and distribution resources intensifies. An energy drink market report by market research firm Mintel predicts that the U.S. energy drink segment will expand considerably less in the near future than the triple-digit growth it experienced from 2003 to 2008. The report cites 49.4 percent sales growth in the U.S. energy drink segment in 2005, down to an estimated 11.8 percent increase in 2008. The inflation-adjusted data are provided by Information Resources, Inc. Garima Goel Lal, a senior consumer analyst with Mintel, said energy drink companies have "narrowed the target demographic market" by employing "racy" product names and marketing. Without broad appeal, the beverages have few viable new market segments into which they can expand. Scott Van Winkle, an analyst with Canaccord Adams, agreed with Mintel's conclusion, surmising that energy drinks have reached full distribution and sales growth will drop from the current 10 to 15 percent annual rate to "more of a normalized annual, call it 2 to 5 percent, type of [gross domestic product] growth." There is confidence in the success of functional beverage spin-offs, however. Goel Lal highlighted hybrid products such as Ocean Spray's Cranergy caffeinated juice drink, and Van Winkle noted that coffee energy drinks - including Hansen Natural's Monster Java - seem to have "a lot of legs." With energy drink market leaders Red Bull , Hansen's Monster Energy and Rockstar thoroughly outselling smaller brands and even products from beverage giants, Van Winkle said the segment has the makings of an "oligopoly." He added that, other than a few regional or specialty companies, most smaller players will eventually fold. Coca-Cola and Pepsi, which market Full Throttle and Amp , respectively, are "going to have to buy their way in" to leadership positions, though the "first mover advantage" maintained by Red Bull will be hard to beat, he said. Goel Lal explained that smaller firms can only grow so much through convenience store sales, and typically cannot afford the "slotting fees" necessary to gain shelf space in major supermarkets. "Alliance with big players or consolidation is likely to play a big role in the proliferation of small but innovative brands," she said. In an example of such a partnership, Anheuser-Busch is dedicating additional resources to distributing non-alcoholic drinks through the launch of its 9th Street Beverages subsidiary, the company announced Sept. 1. The St. Louis-based firm manages U.S. distribution for Monster Energy and also markets its own 180 Energy brand. In June, Anheuser-Busch said it would discontinue its alcoholic energy drinks Tilt and Bud Extra after several state officials raised concerns about their marketing (1 'The Tan Sheet' June 30, 2008, In Brief). Mintel's report states that growing alarm "from legislators, schools, parents and the medical community" about the effects of energy drinks on their most devoted consumers, teens, could spell danger for growth in the segment. If state or federal legislation bans energy drink sales to teens, "basically 20 percent of the total consumers will be gone, which would be a big dip for the market," Goel Lal said. Food and drug attorney Antonio C. Martinez II said that, since "the last thing FDA wants is people being injured" by energy drinks, it behooves the industry "to get ahead of the curve" by disclosing caffeine content on product labels, before FDA requires it. The agency has been monitoring concerns about ingredient labeling for functional beverages, which have frequently straddled the line between conventional foods and dietary supplements, and is considering its options (2 (Also see "FDA Lawyers Working To Defog “Clouding” Of Food/Supplement Boundary" - Pink Sheet, 22 Oct, 2007.), p. 6). - Dan Schiff ([email protected]) |