Suddenly $2 for an energy drink seems like a lot of money. After almost a decade of explosive growth, the only surging category in carbonated beverages is starting to look sluggish.
Energy drinks volume grew 30% last year. However, for the month of June it was only up single digits (7%), per Beverage Digest, Bedford Hills, N.Y. For the year through mid June, it grew 10%.
Such a slow down was inevitable, said beverage veteran Ken Sadowsky. "Trees don't grow to the sky."
Economic factors have helped take the charge out of many of the brands in the segment, including trailblazer Red Bull. "It's still the healthiest beverage sector, but its prime Sun Belt market overlaps closely to the areas where the housing bust has been the most severe, so there is definitely concern," said Gerry Khermouch, editor of Beverage Business Insights, West Nyack, N.Y.
Overall, consumers are spending far less in convenience stores (energy drinks' primary channel) thanks to soaring gas prices. "After filling up a lot of consumers don't have the heart to even enter the store," said Khermouch.
Red Bull stood idle for years, charging about $2 for an 8.3-oz. can while Monster Energy, Amp and others swooped in with 16-oz. cans at the same price. Today, Monster's volume is growing at roughly the same rate while PepsiCo's Amp (also 16 ozs.) grew more than 50% in volume in Q2, per the company.
Red Bull, which now has a 16-oz. version as well as a new cola line extension, said it has no plans to change its marketing strategy. However, it grew only 14% last year, per Beverage Digest.
Another factor at play is the fragmentation of the category. New entrants continue to cloud the picture. "There is a five-hour energy shot," said Sadowsky. "FRS has all kinds of funding and a partnership with Lance Armstrong. And the cola giants are blurring the lines. What's the difference between Amp and a new SKU of Mountain Dew?"
For one thing, Amp has hitched its wagon to Dale Earnhardt Jr., which has paid dividends. "He's racing well and the way we're activating him is really powerful," said Maurice Herrera, marketing director on Amp Energy for Pepsi-Cola North America, Purchase, N.Y. The brand has featured him in ads, limited edition cans as well as created a promo where 70,000 consumers can autograph his car.
Awareness for the brand is up 30%, per the company, thanks to a $12.8 million marketing spend for the first five months of the year, per Nielsen Monitor-Plus.
Amp has segmented its line according to functional needs. Overdrive provides a "turbo boost" while elevate helps the drinker focus. "We've taken the ambiguity out of it," said Herrera.
Monster has seen continued success thanks to the launch of its Java Monster coffee-based energy drink and targeted marketing like its X Games sponsorship. "Our X Games coverage was phenomenal," said Mark Hall, president of Monster Beverage Co. "There were plenty of money shots where the guy drinks a Monster after winning a medal."
Hall said the category's brand proliferation is a myth. " Everyone tells me there are 1,000 energy drinks, but there are only five that matter."
One of those brands is Coke's Full Throttle, which has seen its volume fall. It has rallied behind the brand by launching Full Throttle Coffee, Full Throttle Hydration (which drinks like a sports drink) and a title sponsorship of the National Hot Rod Assn.
Rockstar, meanwhile, has a full slate of products including Rockstar Juiced Pomegranate and Energy Punch. It sponsors a variety of alternative sports including mixed martial arts and concert tours like "A Taste of Chaos."
Still, each brand will face a stiff challenge for the future.
"Energy drinks are premium priced," said John Sicher, editor of Beverage Digest. "Some consumers are trading down. Others are buying them less frequently."