Energy Drink Wars – Coke Learns a Lesson That Pepsi Has Not Learned

In light of recent news about Coca-Cola’s interest to buy Monster Energy and then later refuting their interest (link here), the energy drink category has continued to cause headlines in the beverage industry.  However, most of the noise is generated from the leaders like Red Bull, 5-Hr Energy, Monster, Rockstar, and Xyience.  Amp Energy is Pepsi’s own energy brand, while Full Throttle Energy is Coca-Cola’s home grown energy brand.  Both have languished in the category as the two refreshment manufacturers focused on other beverage categories (carbonated soft drinks, sports drinks, and coconut water to name a few).   Given Coca-Cola and Pepsi’s distribution contracts with Monster and Rockstar Energy respectively, and their focus on growing other beverage categories, will Amp and Full Throttle Energy survive?

BevReview.com has a great piece on what Amp has been up to recently (link here).  Pepsi’s own energy drink product has gone through packaging redesigns, name changes, and a re-focus on functionality.  What remains constant is the brand’s partnership with NASCAR racing.  Amp has re-positioned itself and it’s product offerings, but has not simplified its offerings – there are still seven flavors.  Given it’s varied product portfolio, Pepsi will be hard pressed to find a retailer agreeing to take in all seven flavors of its energy drink, unless Pepsi provides the retailer great profit margins.  Retailers have product buyers that determine what products are brought into the outlet, and are mandated to grow the retailer’s beverage portfolio with products that provide strong sales and high profits.  Having a product that isn’t within the top 5 selling energy drink brands, with seven flavors, poses a challenge at getting listed.  It will be tough to convince the retailer to give Amp a chance unless there are less flavors to choose from or very high margins to compensate for their lower sales velocity.  Ultimately, the buyer may tell Pepsi to pick and choose two flavors to get listed – and Pepsi would be better off having a less complicated Amp portfolio.

What about Full Throttle Energy?  BevWire previously detailed that Full Throttle was also undergoing packaging redesigns (link here).  Since that time, advertising and marketing support for Coca-Cola’s in-house energy product has diminished even more.  A quick look at their website drinkfullthrottle.com reveals a splash page with two links at the bottom, and a general link to the NHRA (National Hot Rod Association).  Visiting various Canadian grocery stores reveal that there is only one remaining flavor that is stocked regularly and that is the original Full Throttle Citrus flavor.  Gone are the Berry and Agave flavors.  Despite the change in artwork, it appears that there still has not been any support behind Full Throttle Energy; Coca-Cola instead focused on growing Nos Energy.  In this case, it would appear that Nos Energy will be replacing Full Throttle in no time.  Both Nos and Full Throttle have auto racing sponsorships like Amp, but having your brands occupy the same space and also compete against products in the exact same space is redundant.

If there was a lesson to be learned here on supporting your beverage brands, it appears as if Coca-Cola has learned that lesson.  Full Throttle has gradually reduced their flavors voluntarily and focused on the core product: Full Throttle Citrus.  Even in that regard, it certainly appears that Coca-Cola will be phasing out Full Throttle completely and gradually replace it with Nos Energy.  Nos Energy was previously only available in 650ml (22oz) cannisters but has expanded its 473ml (16oz) offerings in addition to expanding its flavors.  Pepsi does not appeared to have learned the same lesson as their main competitor.  Should Amp Energy remain competitive, Pepsi must support the beverage more than just re-skinning and renaming the products.

Red Bull Total Zero: Sticking With What Works

Red Bull is anticipated to launch Red Bull Total Zero this April in the U.S. – an energy drink formulated with no calories, carbohydrates, and sugar.  U.S. trademark and patent files indicate that the colors are silver and grey, with a yellow band across the top.  A pretty sleek looking can from my perspective.

The launch will come in the can size that Red Bull made popular (250ml) and likely retail for the same price as existing Red Bull products (Original and Sugar Free).  With only two products variations available and selling, Red Bull undoubtedly needed to innovate and come out with new products and re-gain their lost leadership position from Monster Energy.  Is Total Zero going to help them with that?  The latest innovation is a very safe line extension, capitalizing on existing energy drinkers that are concerned about calories and carbohydrates.  Red Bull is sticking to what they know best and using this to build upon their success.

Total Zero is a product that is very similar to what everyone has come to know and expect from Red Bull.  It is a product that many expect it to perform the same way as its other two beverages, but calorie-free and carbohydrate-free.  It will likely be shelved in the same cooler space as the 250ml Original and Sugar Free variety, making it less of a delineated extension (ie Red Bull Cola in the cola section, Red Bull Energy Shots at the cash register).  These factors give it a higher chance of success than their previous innovations.  However, the launch of Total Zero isn’t likely to gain a lot of additional shelf space in the cooler door, so the facings for Red Bull Original and Red Bull Sugar Free will have to be reduced.

While there may be some cannibalization with their existing products (expected), Red Bull is hoping to attract those drinkers that may have left for Monster, Rockstar, and Xyience because of the calorie-free option.  Since the growth of energy is slowly tapering off, the importance of converting a category shopper to a Red Bull shopper is even more important.  As long as they are buying your company’s products and not the competition’s, you at least keep their dollars within your organization.

Are there other product extensions or adjacencies that Red Bull can leverage?  Cola didn’t work and neither did energy shots.  There’s only so much space in the cooler’s energy door for Red Bull, so they will really need to look beyond that one section to drive growth.  Are there growth opportunities in the juice door, or the water area?  Or expand into confectionary offerings like Jolly Rancher and Jones Soda Co?

Total Zero’s launch makes the most sense for Red Bull because it’s a safe bet and should work very well with energy drinks, but Red Bull should also be thinking about where to go next beyond Total Zero.

Xyience Targeting Female Energy Drink Consumers

A few posts ago I talked about 5-Hour Energy targeting the older demographics to expand their reach outside of the typical energy drink user (link here), and it appears that Xyience is trying a similar strategy.  To be concise, Xyience has always been an all-natural calorie-free energy drink, but now has the opportunity to capitalize on their positioning.

Xyience became a major player through their partnership with the UFC, where the energy was originally featured within the Octagon as well as other UFC apparel such as round cards, towels and t-shirts.  The partnership has since expanded to cover UFC fighters, which appear at autograph signing events when Xyience launches into convenience stores and grocery stores (more info from a beverage industry article here).  With their calorie-free energy drink, female consumers are a prime target since they are the ones that really look at the ingredient table to check on the beverage’s contents.

As energy drinks transitioned from an emerging beverage category to one that is stabilizing, manufacturers must be innovative and look for new growth opportunities or risk becoming irrelevant.  We saw Red Bull try energy shots briefly before discontinuing them, and also saw 5-Hour Energy targeting senior consumers groups with their energy shot.  Now we see Xyience targeting female consumers.  The main difference between Xyience’s target and that of Red Bull’s is that there should be little to no cannibalization for Xyience.  Someone that buys an energy shot may not buy an energy drink since both products perform the same function.  And Xyience is not necessarily penetrating a category that has numerous competitors (there are some energy drinks that target female consumers – Rockstar Pink, Pink Energy, Tab Energy, etc – but not many manufacturers are targeting the female consumer).  And the difference between Xyience’s target from that of 5-Hour Energy is that they do not have to educate the audience on the product’s benefits since the female consumer is already knowledgeable about energy drinks.

After all is said and done, Xyience stands a stronger chance to reach the female consumer than other energy drinks.  However, simply relying on the product’s ingredients to appeal to the target is not enough, so Xyience may need to adjust some of their packaging to better communicate with females.  For example, Rockstar Pink comes in a 12oz/355ml pink can (stereotypically female targeting, as no males would want to be seen drinking from a pink can) with a straw.  The insight may be that females would prefer to drink out of a straw than directly from the can, so the straw’s addition may help with reaching females.  Xyience may consider adding a straw in addition to changing some of the Venn circles to white or pink (again, stereotypical female colors).  This will allow them to keep the core colors of  black and silver constant, while making slight alterations to appeal to the opposite sex.

The female energy drinker is both elusive and profitable, and if Xyience effectively reaches them and can translate sales from this group, then we may see this mid-size energy drink player rising to the same status as Red Bull, Monster and Rockstar.

Red Bull to Discontinue Cola and Energy Shots

Choosing to focus on their core offering – the canned energy drink  - Red Bull has decided to sell through the remaining inventory on their Red Bull Cola and Red Bull Energy Shots, and cease further production.

This may come as a surprise to certain some people, but predictable among other.  Red Bull Cola being discontinued seemed only a matter of time, as it never really gained distribution like their energy drink and faced tough competition from Coca-Cola and Pepsi and their broad array of cola offerings.  In grocery stores where it could be found, it was never placed in a position where attracted much attention from aisle shoppers and never really got a chance to succeed.  Adding to their demise was the opening price point, priced on average 50 cents higher than a 12oz (355ml) can of Coke or Pepsi.  While Red Bull products are generally higher priced based on its premium brand status, consumers were not receptive to Red Bull Cola as being a premium cola (or both Coca-Cola and Pepsi loyalists were simply that – loyal to their current cola offerings).  Red Bull Cola entered several markets to much fanfare especially in Europe and the United States, only to be discontinued starting in May 2011 in the United Kingdom.

The Red Bull Energy Shots being discontinued is more of a surprise.  Despite their late entry into the energy shots segment, Red Bull was a well-known manufacturer and thus many experts predicted that there would be carry over success from their canned energy drinks.  However, consumers may have already gotten used to look exclusively for 5-Hour Energy.  Though well-known as a energy drink brand, the competition was more fierce for Red Bull Energy Shots as many entrants were already in the category, and the shelf space for energy shots were extremely limited.  Not to mention the premium price point (50 cents higher than 5-Hour Energy and other competitors) served as a stronger deterrent given the absolute price points range anywhere from $2.49 – $3.49.

In choosing to focus on their core product – the canned energy drink – Red Bull may remain successful and possibly more profitable.  Though two revenue streams will soon be closed off, the disappearing costs to promote and maintain those two streams may provide them with more money to keep on the core product.  Their cooler door presence will just be as strong, as their unique size (8.4oz, 250ml) eliminate many competitive products from being placed side-by-side with them.

Since Red Bull will stop making energy shots, what will other manufacturers do?  The only success story in this market is really Living Essential’s 5-Hour Energy, as most products are even struggling to sell through before the expiration dates.  My guess is that in the next year, we will see more energy shots being taken off shelves, as grocery stores realize that the market is peaked.  The shelf space for these products, generally at the cashier will be available for faster moving products such as mints or gum.

Energy Shot’s New Target Audience: Baby Boomers

The Wall Street Journal reported that baby boomers are now the target for energy shots like 5-hr Energy (link here).  At first look it sounds like a bad idea, targeting seniors and baby boomers with energy shots since there is so much negative connotations with energy drinks for the general public, and now it is targeting seniors which may be more susceptible to the health concerns of energy shots.  Yet the American Association of Retired Persons (AARP) has allowed for 5-hr Energy to advertise their product in the AARP bulletins and hand out samples at their events.  In short, 5-hr Energy and other energy shots are supported in the AARP’s marketing position toward seniors.

Should seniors really be positioned as a market for energy shots?  And now that their parents or even grandparents are drinking energy shots, how will this affect the product’s reach toward their core demographics?

As much as this may seem like a shocker, this appears to be a good marketing ploy for Living Essentials (the makers of 5-hr Energy) to position toward seniors.  The category may have peaked, but it is still gaining sales at a decreasing rate compared to the previous year.  With the variety of energy shots that need to be delisted to make space other products, there always seems to be an unexplored market that finds energy shots intriguing.  And advertising the product as a sort of dietary supplement toward seniors hits the sweet spot.  Since everyone is healthier and living  a more fragmented lifestyle nowadays, why deny baby boomers their entitlement as long as they have the energy to do so?  If a boomer needs an extra kick to golf 18 holes and choose to consume something other than coffee, why not 5-hr Energy?  The AARP’s research concluded that there are no specific harmful effects of the beverage, and has thus allowed 5-hr Energy to promote the product as their events.  And positioning to boomers helps the product gain distribution to other areas where they would not traditionally be found, like shelving the product with wrinkle cream and nutrition shakes.

As for the second question of whether the product would lose popularity among the core audience (young adults), I believe 5-hr Energy would be safe.  While the product is essentially identical, the reason behind the usage varies slightly.  The communication message is different for each audience, and the product is found is different places as well.  For seniors, the product is marketed as a dietary supplement, and would likely be foundin drug stores or grocery supermarkets near medicine or coffee powder.  For young adults, the product is positioned as a caffeinated energy boost and found in the beverage aisle as well as near the cash registers.  The product should ultimately be ubiquitous with consumers both young and old without much concern for it being your grandparents’ choice of product.  After all, if grandparents ate asparagus and drank tomato soup, would young adults not eat asparagus or drink tomato soup?  Doubt it.

Good for Living Essentials to notice this trend and stimulate sales growth for their product.  For a category that seems to have peaked and matured after its initial climb to popularity, 5-hr Energy has provided it with a second life.  The next question then becomes which energy drink competitors (ie. Red Bull, Monster, Rockstar, etc) will try to carry over and gain the shelf space along with 5-hr Energy to target the seniors.

Segment or Brand – Article From Beverage Spectrum

An online article from Beverage Spectrum’s Gerry Khermouch sheds light on how some beverage categories are strong with opportunity to grow while others just have one strong brand while other competitors barely make a dent (article link here).  In the article, Gerry Khermouch mentions that vitaminwater, 5-Hour Energy, and Gatorade spawned a new beverage category (enhanced water, energy shot, sports drink, respectively) and copycat products eager to captialize on the category have entered the market but without much success.

“It implies that what appears to be abundant opportunity really is a solo success story, and all the pretenders are doomed to exhaust a lot of money, energy and credibility in a fruitless effort. That doesn’t mean there aren’t ways to build off that conspicuous success, but it won’t happen just by throwing your hat in the ring with your own version. ” ~ Gerry Khermouch

The article mentions that there has been success for other brands, but the success has not been easy to come by. Pouring lots of money to market the product doesn’t always bring success either (as seen by numerous enhanced water beverages, energy shots, and sports drinks in the marketplace).  Sobe Life Water, Red Bull, and Powerade have all seen limited success given the amount of resources they have put into growing their brands.  Competing on price doesn’t always help either.  If you have poured significant funding just to enter and compete on price alone, the likely result is that your product is no better than a private label product – so why bother entering the market?

The real opportunity to gain market share would be through innovation.  Innovation either improves on a beverage already on the market, or launches a new category altogether to meet a previously unmet need.  Let’s use the energy drink category to draw examples from.  Jolt Cola and Red Bull.  While Jolt Cola entered the market first in 1985 with their offering, Red Bull came in two years later with their version of an energy drink.  Red Bull improved on areas where Jolt Cola was lacking and quickly gained the majority of the energy drink market.  Jolt Cola may have contained more caffeine, or Red Bull’s marketing expertise helped them gain the leadership position.

Or Red Bull and 5-Hour Energy for another example.  Red Bull may have been the first to launch an energy drink and grow the category, but 5-Hour Energy innovated and spawned a segment within the category.  While other energy drinks entered the market to compete against Red Bull in the cold vault and cooler doors, 5-Hour Energy developed a small energy shot that was located at the till rather than where the rest of the energy drinks were.  Customers shopping on impulse would still see 5-Hour Energy at the checkout counter after the rest of the energy drinks are left behind in the cold vault.  As the article mentions, Red Bull’s energy shot offering is still fighting to gain significant market share.

As Gerry Khermouch says, “Healthy skepticism must be maintained about brands that are just expecting to cruise down the roads carved by segment pioneers.” You just cannot rely on your brand name to bring you success.  The beverage company has to work on developing a great product through innovation and market it properly in order to succeed.