Energy Drinks
May/June 2001

Beverages with Buzz

Once upon a time, the drink cabinet was a simple affair - milk, juice, water and soft drink. Then came energy drinks and now even that category is becoming complicated. ASS&CSN reports.

Forget flavour. The key word is functionality. This is the drink to have, not when you need a drink but when you need energy or some fun or a vitamin boost.

The products were initially directed at young people and their need for stimulation, but the industry now recognises that people of all ages and all walks of life occasionally need a helping hand to get through their day or night. It is changing its marketing approach to echo that fact.

The energy drinks concept
The category was originally pioneered more than 14 years ago by Red Bull, which is still the major player in the market - it sold more than a billion cans across 45 countries last year. To put it in simple terms, Red Bull is regularly the highest value SKU in British service stations.

While the original concept may have been energy, pure and simple, the category has expanded to include a wide range of combinations of vitamins, minerals and trace elements to suit a wider range of demands - and there's no end in sight.

Some sources value the wider energy drinks market at between $150-$170 million per annum (others even higher) and suggest it's growing at a rate of 100 per cent per year. The new sub-section - nutritional drinks - is worth around $55 million and also growing strongly. The experts say it's worth their being involved because the margins are good on a product with a very small footprint.

Roman Cylkowski is marketing director for Taisho Australia. The parent company offers 30 different nutrient drinks in Japan - Lipovitan is their number one seller and the first on offer here.

"It could be argued that those aged 25-plus are more in need of energy than younger people, but they're also more health-conscious and are after sustainable health benefits rather than just a quick hit.

"We see ourselves as delivering wellbeing to our consumers and we do that with Vitamin B rather than huge doses of caffeine. There is some caffeine in the product but probably equivalent to about half a cup of coffee."

Mr Cylkowski says his company's product shares more conceptually with the likes of Sustagen and Lucozade than it does with the 'traditional' energy drinks.

One of the leaders in that category is 'V', now being distributed directly and nationally by Frucor Australia which has bought out the operations of previous distributor, Spring Valley.

According to Glen Martin, Frucor's general manager, 'V' has over half of the Australian energy drink market for daytime consumption. Red Bull, he says, has the night/alcohol mixer market sewn up. He refers to the pair as the 'category captains'.

"We're an afternoon wake-up call as a substitute for other pick-me-ups like chocolate, coffee and colas whereas Red Bull is a night-time entertainment drink which is mixed with alcohol. They're totally different consumption habits - and both are a very different concept to traditional 'soft drinks'."

While not wanting to disagree, Red Bull's trade marketing consultant, Mike Stacey suggests his product has far broader appeal than simple night-time use. He also describes his company's product as not being a 'drink' in the traditional sense of the word.

"It's not about refreshment as such. It's something people use to gain certain benefits - they don't plan to get tired but when they do, Red Bull will help. If they're just thirsty, it won't.

"What we're finding is that our demographic includes motorists, students, executives, sports people and nightclubbers - in short, anyone who needs an energy hit, whenever and wherever they need it. C-stores are an ideal environment for those people because they offer such accessibility."

Something of a maverick in the field is Red Eye International Pty Ltd producer of Red Eye products. A range of six flavours containing various blends of a wide assortment of energy-boosting and therapeutic ingredients (including vitamin B, Gingko Biloba extract, Guarana and Ginseng as well as a number of lesser-known herbs and extracts) is produced in bottles. The range even includes a "stimulating" blend known as Red Eye PassionÖ

A slimline can, Red Eye Power, has recently been released and has, according to Red Eye's Managing Director, Mr Theo Kotiadis, received immediate acceptance in the market.

Australian Premier Promotions markets a range of energy drinks including Dark Dog, the official drink of the Prost Formula One team. National sales manager Morris Goodman says the market emphasis has moved from pure refreshment to a demand for a product that delivers health and wellbeing benefits.

"People want longer, healthier lives. Soft drinks are sugar-based and sugar has become a no-go area - people want different drinks that perform different functions and they're starting to take energy drinks, or functional foods, seriously. Our products offer consumers a convenient, affordable and enjoyable way to feel fit and healthy."

Operators should take them seriously too, because energy drinks are not seasonal. Soft drink sales have a tendency to fall off in winter because people don't need to 'cool-off' - energy is something people need all the time, so trade is far more constant.

A growing well-being category
The market is growing, in size and breadth, but not the same way as the soft drink or juice or milk market has done. As Taisho's Mr Cylkowski says, they're not about to start selling the same formula in a range of different flavours.

"We're developing a wellbeing category. We can't see any problem introducing a multi-vitamin drink, or something that addresses iron or calcium deficiencies, or vitamin drinks for kids and older people, or relaxants. The scope is huge and we're already working on a variety of products."

Likewise Frucor is not gearing up for a variety of 'V'. The company plans to concentrate on the one product for the next 12 months.

"You never say 'no', but we're not rushing to crowd what is a very successful product. If and when we do bring something else in, it will be another unique product. We won't be bringing in a V2 or a 'me-too' proposition."

C-store is the ideal outlet
The C-store is seen as an ideal outlet for this type of product because it appeals to busy people on the move. While vitamins are necessary, they may not end up on a shopping list - but if the consumer knows they're available in a pleasant, refreshing, easily-accessible formula, they'll grab them. The trick is to educate the consumer that you have this product available - and the companies involved are ready to help.

Lipovitan is spending around $5-6 million this year on an advertising campaign that includes TV, outdoor advertising and free sampling. Point-of-sale material includes a nutritional leaflet - again, there is a need for education.

"I think what we're struggling with at the moment is not just a lack of consumer awareness but also the industry's lack of understanding of the profitability and growth of this market," says Frucor's Mr Martin.

"If we get equal shelf weighting to the Coca-Cola products, we outsell them per SKU. For instance, in New Zealand, our 350ml bottle outsells Coke's 600ml in petrol stations and we believe this is where the Australian market is heading.

"The trouble is, as of now we don't get the shelf weights in Australia - the operators don't yet realise how well we can perform. The margins are good and given the product has a smaller footprint, they'll get more profit from an energy drink."

Mr Kotiadis of Red Eye International credits the phenomenal success of his relatively small enterprise (despite a noticeable lack of advertising) to a number of factors, not the least of which is brand loyalty. Being the first energy drink available in the Australian marketplace, a strong following was immediately established and has only continued to expand. The popular Red Eye website runs hot, with thousands of 'hits' being logged every day. Red Eye aficionados are invited to contribute their thoughts about the products to the site and this makes for some very interesting reading indeed.

Mr Kotiadis is very proud of the fact that his is the only energy drink actually manufactured in Australia.

Red Bull's Mr Stacey says it's important for operators to clarify in their own minds the different styles of energy drinks so they can create a distinction in the fridge to avoid confusing customers.

"Products like Lucozade are about refreshment, Gatorade and Powerade are sports energy drinks designed specifically for fluid replenishment and our product is a functional energy drink which provides stimulation for the body and the mind.

"It's not surprising the confusion is there because there has been such a proliferation of brands in a short space of time, but it is important to separate the categories from each other and from other fridge occupants.

"We're incremental - we don't cannibalise other sectors. We add value to the general drinks offering. The smart operator will have a spread of products to suit different tastes and age groups."

APP's Mr Goodman says the category is only beginning but we should expect more variety and more special-purpose products as it develops.

"Australians are cautious and conservative when it comes to something like this, but we will follow the trends that are happening elsewhere. Once they recognise the benefits, they will seize the products with more enthusiasm - and they are also happy to pay for a quality product when they recognise it.

Make shelf space available
"C-store operators need to acknowledge that shelf space is a problem and some products need to go. Do they really need half a dozen varieties of lemonade at the expense of these new products that offer real benefits to their customers, and real benefits to their bottom line?"

The drink that could be perceived at risk from the influx of these new products is Coca-Cola, but it's not. Aside from being well-entrenched in its own right, it has also entered the 'true' energy drink market with Lift Plus for daytime consumption and the new 'Burn' for nighttime use.

"There's no doubt the energy drink segment is growing, but so are other segments," says Coca-Cola Amatil's Alec Wagstaff.

"It's important to keep it in perspective. Yes, energy drinks are growing and they're here to stay but they are a niche product and they're still small in the wider scheme of things. The smart operator will look at all categories and keep a balance.

"Look at your shelves and see what's working and what isn't. Get rid of the slow SKUs so you can give shelf space to things that move. Talk to your supplier but also rely on your own judgement - watch what's happening with your fridge and keep it alive."

"But also remember the importance of value," says Red Bull's Mike Stacey.

"A high cash rate of sale equals price by volume - nobody ever takes a percentage to the bank, but they do take cash."