Title: Energy drinks bounce back

Sub-title: This highly profitable category, which stumbled slightly during the recession, has returned to growth mode.

 

The economic recovery of the past several months is starting to put back purchasing power in the hands of Canadian consumers. This in turn has spurred a rebound in premium and higher-value products. One of the biggest winners from this trend has been convenience store energy drink sales.

 

According to data provided by Coca-Cola Bottling Company, after falling slightly during 2009, energy drink sales rose by 8.2 during the first three months of the year to March 27th. The turnaround has renewed convenience store owners’ interest in the category, which had shown explosive growth until the recession hit.

 

According to one industry insider, the prospect that growth will continue is forcing operators to reevaluate their merchandizing strategies. “Innovations are the key,” says Erika Tremblay, Director of Emerging Business at Coca-Cola Bottling Company. “Energy drinks now comprise fully 29% of all non-alcoholic beverage sales in convenience stores. Much of that progression has been driven by new market entrants.”

 

Came out of nowhere

Energy drinks, which are basically soft drinks that are advertised as boosting energy, have made astounding progress in the five or six years since the category burst on the scene in a big way. The energy in these drinks is said to derive from a choice of caffeine, vitamins and supplements that the various manufacturers include in them. By 2009, led by market leaders such as Red Bull, Monster, Rockstar, 5 Hour, AMP and Full Throttle, energy drink sales shot up to $239 million in Canada, including $157 million in convenience stores alone, which remain their primary distribution channel, accounting for two thirds of all sales.

 

The profits that these high margin drinks produce have brought the category a corresponding increase in respect says one industry professional. “When energy drinks first appeared, most stores only allocated on or two shelves to them,” says Gus Prokos vice-president (sales and marketing) at Xyience, which distributes the Xenergy drinks. “But their shelf space allocations quickly shot up to one, and now often two full doors.”

 

Profiting from the bounce back

That said, according to Prokos, the emergence of a slew of “Me Too” brands, by a wide variety of new players, has boosted significantly market competition. “We are advising retailers to concentrate their efforts on a few core brands that have visible competitive advantages,” says Prokos.  Of course, since Xnergy, is the official drink of the Ultimate Fight Championships, Prokos’s advice isn’t altogether totally altruistic.  Due to its special relationship Xenergy benefits from the UFC’s considerable marketing backing, such as the contests that it runs with select retailers, which feature prizes that provide winners with all expenses paid packages to watch UFC events.

 

Not surprisingly, Tremblay, agrees wholeheartedly. “The category has matured, with consumers increasingly being driven by brand recognition,” says Tremblay. “Coca-Cola’s combined energy drink portfolio, which includes Monster, Full Throttle and NOS is number one in market share, and number one in dollar sales. That means the marketing and advertising support that we bring provides convenience store owners considerable incentive to feature them prominently.”

 

According to Prokos, as in most categories, effective merchandizing strategies are also very important in selling energy drinks. “The standard energy drink comes in a 473 ml. format and sells for between $2.99 and $3.29,” says Prokos. “However we are increasingly seeing retailers launch promotions such as two drinks for $5.00, and so on.”

 

The big question right now is what the future holds for energy drinks. Coffee energy drink sales, which are growing by about 2 percent a year, remain an interesting opportunity at a time when Starbucks is on the ropes. Furthermore, diet drinks and new sizes are also expanding the various product lines.

 

“Prior to the recession, the category showed four years of explosive growth,” said Tremblay. “Right now, no one is predicting that we will return to those levels. However overall price increases, the introduction of the smaller “shots” format, and other innovations has clearly provided considerable momentum right now.”

 

Peter Diekmeyer (peter@peterdiekmeyer.com) is CStore Life’s Quebec correspondent.

 

 

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