Has the energy drinks market lost its fizz?

Energy drinks are facing pressure from own-label products, clever marketing, and possible legislation in an ever-flattening market.

Like a tired clubber, the functional energy drinks market is beginning to flag – its rate of growth by volume has halved year on year.

Yet this has not stopped Britvic Soft Drinks buying the Red Devil brand (MW August 22). Nor has the slowdown restricted the flow of products pouring onto the market.

The functional energy drinks market comprises products that use caffeine as a stimulant and are usually sold as alcohol mixers. This is a separate category to sports energy drinks such as Lucozade and Coca-Cola’s Powerade.

The battleground for the functional energy drinks market has shifted to positioning, packaging and flavouring, as the brands try to steal share through innovation.

The West Europe Energy Drinks Report from Zenith International, published last week, states that the UK market, estimated to be worth &£750m, grew by 17 per cent, to 60.6 million litres in 2001 – across both the retail and away-from-home sales channels – the latter including garage forecourts and on-trade distribution. This compares with a volume g

rowth of 42 per cent in 2000.

Market leader Red Bull holds 85 per cent share by volume and has seen its growth in unit sales slow from 170 million units in 1999 to 260 million last year.

In part, this slowdown is to be expected from a sector that saw large volume growth from a standing start in the early Nineties. Red Bull managing director Harry Drnec is sanguine about the flagging pace. “If sales kept increasing at the same rate as its initial growth, it would be coming out of taps by now,” he says.

Zenith research and development director Gary Rothenbaugh points out that the slowdown is not just a UK trend. The West European market grew by 22 per cent, compared with volume growth of 44 per cent in 2000. He says: “In context it should be pointed out that energy drinks have emerged from a small base and thus the high growth rates could not be sustained indefinitely.”

Britvic already has a functional energy drink brand in the on-trade sector called Carbon. However, it plans to withdraw it following the Red Devil buy. But, one buyer questions whether Britvic has missed the boat by making this investment at a time when growth begins to slow. Countering the criticism, Britvic marketing director Andrew Marsden says: “The growth of one particular brand may have slowed, but we are not going for overnight success. We build brands selectively and properly.”

However, there are other factors aside from a maturing market that have had an impact on energy drinks sales. The sector first made its mark in clubs and bars as a mixer. As a result of changed drinking habits, this arena shows less potential. In 1999, the Red Bull unit sales percentage ratio between onand off-trade was 70/30; it is now 50/50. Drnec says: “The toughest competition stems from the rise of premium packaged spirits (PPS), which have changed the character of the on-trade market.”

As Budgens buyer Len Hooper points out, this is bad news for new players in the market. He says that sampling for most people first takes place in bars and clubs, where they are a captive audience, “and the familiarity starts there”. Now energy drinks are losing ground against the PPSs such as Smirnoff Ice (MW August 8).

Britvic has a strong hand in this respect, as it can exploit its established on-trade distribution system. On the other hand, Coca-Cola Great Britain’s on-trade only energy drink, Burn, is listed in bar and club chains, and the company claims it is growing steadily by using a “seeding” strategy.

The various brands are adopting different fightback strategies with flavour coming to the fore. Previously, energy drinks played on functionality and steered away from claims about taste. Silver Arrow, which produces Spiked Silver, stresses its cranberry juice content, while Marsden says that Red Devil’s cherry flavour will also be a selling point as “cherry flavour is currently popular.”

The sector has also seen retailers developing their own brands, such as Asda’s Blue Charge. Although branded products have generally maintained a premium price, as another buyer says, they are showing signs of flexibility, by using price promotions and multipacks.

Packaging is also becoming more innovative. In a move away from the traditional 250ml or 330ml can, Halewood International’s Red Alert is available in a 500ml plastic bottle. The company says this makes it more portable for commuters and sports players, as it is resealable. Spiked Silver has a contoured proprietary design for its can, which it claims offers a better grip and stands out better on shelves, while Bomba Energy comes in a hand grenade-shaped container.

Manufacturers are constantly searching for new outlet channels. From its early days as a boost for tired revellers in nightclubs, Red Bull has taken the brand to garage forecourts and is targeting the drink at fatigued motorists – a move other brands have followed. The trend has become so extreme that in Germany an energy water called Water Joe, containing caffeine and guarana, now promotes itself through IT retailers and ads in the computer press, targeted at “techies” who need to concentrate.

The market may well encounter competition from drinks that use more natural ingredients designed to enhance wellbeing, such as those from Feel Good Drinks and Optio Health Products.

The functional energy drinks sector may still be growing, but buyers say it should look over its shoulder at the trend towards healthier lifestyles, particularly now that the European Commission has adopted labelling rules forcing any drink containing more than 150mg of caffeine per litre to carry the label “high caffeine content”.

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