Soft Drinks: Lifestyle choice

There can be fewer more thankless tasks in a convenience store than merchandising the energy drinks section. As fast as you perfect your display another SKU enters the market and you’re back to square one.

Red Bull head of category marketing Simon Hewitt agrees it’s a crowded category. “In the past five years we’ve seen the biggest increase in new entrants and significant competition. Across 2012 there were 81 new energy SKUs entering the market, taking the figure to 420 in total.”

No Fear sales and marketing director Glenn Hudson says he has a lot of sympathy for retailers trying to make sense of it all. “There are just so many products. If I were a retailer I think I’d be confused.”

Only in the past month well-known drinks brand Vimto entered the market with Extreme, aiming at a target audience of 18- to 24-year-olds attracted to a thrill-seeking, extreme sports lifestyle. The range consists of two products: Extreme Energy and Extreme Sport.

While brands such as Vimto bring quality to the category, there are fears that the value end of the market is in danger of taking money out. Says Hudson: “There are lots of one-man-bands starting up and putting product in, and a lot of it is very disappointing. Inevitably, there is a sense that some value has been taken out of the market.”

The problem, says Hewitt, is that the cheaper brands not only strip value from the marketplace, but they send out the wrong signals, stirring up negativity which continues to stain the sector. “It’s not good that the cheapest drink in the shop that children could potentially buy is an energy drink, and I’m not sure that’s where we really want to be as a category.”

Hudson agrees. “If you can walk into a convenience store and find energy drinks at pocket money prices this is obviously a bad thing. We’re all aware of the rigorous publicity that energy drinks attract, and this really doesn’t help,” he says.

However, he predicts that a lot of the very cheap SKUs will disappear. “The middle area is starting to consolidate a bit, and the bottom area will probably end up as two main players, and one of those will probably be an own brand. If you go back you could see all sorts of brands at very cheap prices, but after a period of time, unless a brand has got something to recommend it, people move on.”

All this activity has led to some phenomenal growth in the sports and energy market, with 64% growth in value sales between 2007-2012 and 8% year on year (source Mintel), and volume growth of 10.7%, with forecasts for the market to reach £2bn by 2017.

The driving force behind this growth is energy drinks, which account for more than 80% of sales and grew in both volume and value sales by almost 80% from 2007-2012.

But for the industry, and for retailers selling the products, the big question is can the sector sustain this phenomenal growth? Red Bull’s Hewitt thinks so. “Absolutely!” he says: “The category, at the top line level, has a household penetration of only 40%, so there is a lot of room for growth.”

He says that the impulse sector, in particular, will benefit. “Since the beginning of the year symbols and independents have been outperforming the total off premises market.”

Taste test

To continue to grow, the market may find itself having to adapt to ensure longevity. The recent emphasis on refreshment and flavour from all the major brands is a clue that they are doing so already. The taste of energy products in particular has long been a traditional barrier for some consumers, with Mintel pointing to more than a quarter of consumers saying that they are put off from buying the products because of it.

The market has been addressing this with a variety of flavour launches. Red Bull introduced its Editions range last year which, says Hewitt, has been extremely successful. Britvic’s latest, Amp Energy powered by Mountain Dew, has been designed to incorporate the citrus taste of Mountain Dew, but with extra caffeine, B vitamins and taurine.

Rockstar has certainly embraced the flavour trend with NPD including SuperSours Bubbleburst and the recent Xdurance Tropical Orange. Earlier this year CCE brand Relentless brought its revamped range to the market, including new flavours and improved formulations such as apple and kiwi. Its Relentless Lemon Ice, for instance, gives no hint of its energy credentials and tastes pretty much like a standard lemonade.

Changing marketplace

Another barrier for a marketplace so firmly associated with youth is an ageing population. According to Mintel, while sports and energy brands have benefited from youth-focused marketing, growth lies in the positioning of these drinks as a lifestyle aid, appealing to a much wider demographic.

Mintel points to the fact that there will be a growth in the number of 25-34s in the market by 2017 and a rise in the number of over-55s. AG Barr head of marketing Adrian Troy says that he sees changes afoot already. “The market is not just a youth market we see expansion of the category into adult as well. For many consumers, energy drinks have replaced traditional coffee and tea consumption, particularly for people at work, or when they’re out and about during the working day. Brands, including Rockstar, are adapting to the changing demographics, although our core consumer is still 16-to-24.”

According to Hewitt, Red Bull already benefits from having both a core market of 16-to-29-year-olds and the 30+ drinkers who have grown up with the brand. He says that while youth will continue to dominate the market, the sports and energy drink sector will inevitably widen to incorporate other drinkers and usage occasions: “We know that Red Bull plays a big part of the working day and I think we need to keep an eye on the 30-39 age group of tomorrow as these are the youth of today.”

Hudson says that the continuing move towards refreshment and fruitiness will also help to change the demographic of drinkers. “The market has gone from 100% functional for an immediate boost to a requirement of refreshment and a fruity taste. We’ve definitely taken No Fear down that route with No Fear blueberry.”

He says that the brand will be bringing out further flavour NPD in the future.

Hudson says that this quest for refreshment on top of the functional aspect of the drinks helps to explain the demise of shots. “They just didn’t offer any refreshment,” he points out.

He predicts that flavour NPD will settle down at some point, which will lead to further emphasis on the quality of the liquid, with new mixes and formulations creating new usage occasions as part of that.

Focus on format

As the market changes and incorporates older drinkers, it could also see a drift away from single-serve, larger cans that dominate the youth market. Hudson says that older consumers are probably not going to be interested in drinking that much liquid at once. “When we launched No Fear we specifically made it resealable. I think as the age profile increases the formats may have to be looked at and we might see more bottles or resealable cans, or more 250ml sizes.”

CCE brand Relentless has recently moved into the 250ml format on its Origin variant, which is also available in a four-pack for take-home - another huge opportunity for the sector.

Hewitt says that take-home could be part of the answer to the real challenge for the industry, which is to make energy drinks relevant to everyday life. “Lots of people drink coffee on a daily basis and take vitamins, and no one says that’s too much energy. However, in energy drinks there is still a slight negative feel, which is why you’re seeing us have a focus on mainstream sports and working life. It’s not just about jumping out of the highest rocket, but it’s about helping you do great things throughout the day it’s about helping you achieve your goal.”

Troy says that the market has changed dramatically in the past five years. “We’ve seen the expansion of formats, flavours and price segments. However, the most important observation is that the market is defining a new ‘added value’ need for soft drinks among many consumers, that of an energy boost. This has enabled soft drinks to expand into more traditional tea and coffee occasions such as when working, studying or even to drink with lunch.”

With the sports and energy focus shifting slightly to everyday life, more manufacturers are talking about the opportunity afforded by the 3pm energy flag and afternoon usage occasion. This is particularly highlighted in the growth in the protein category, which not only focuses on protein milk drinks as an alternative to isotonics, but also as an everyday lifestyle aid and afternoon pick-me-up.

GSK was one of the first to embrace this trend, when earlier this year it announced that it was expanding its Maximuscle brand with the launch of Maxiprotein milk, specifically aimed at new consumer groups, such as men who didn’t traditionally drink fitness foods.

Arla Foods is also targeting men with its chocolate dairy drink containing 5g of protein per 100g. The manufacturer says that the launch comes on the back of research pointing to a group of men who are not being served by the existing dairy drinks category. These ‘balancing blokes’ are men in their 30s and 40s who are looking to beat hunger without resorting to the usual packet of crisps and a chocolate bar. Hudson says that the interest in protein could see a blurring of the lines between energy/sports and protein drinks. “It’s not too far of a stretch to see one of the energy drinks going into protein,” he says.

Many manufacturers agree that a major hurdle to addressing the afternoon opportunity is getting consumers to become used to buying the category as part of their lunchtime shopping mission. For many shoppers, the sports and energy category doesn’t figure in lunchtime food-to-go purchasing, not being traditionally associated with food. Earlier this year GSK repositioned its Lucozade Revive brand away from sports and energy category into the enhanced and flavoured waters category with highlighted vitamin (4x energy releasing B vitamins) and reduced calorie claims on pack in a bid to pick up extra customers.

It recommends that retailers merchandise the brand within the new section. The accompanying marketing campaign had the magic 3pm hour at the core of its message.

A further barrier to consumption is the amount of sugar that consumers perceive to be in the drinks. Health is still a major driver within the soft drinks market and the rise of healthier variants may also help to engage drinkers with the one in four launches in 2012 boasting a lack of artificial preservatives, additives or reduced calories (source: Mintel).

Other research points to 46% of the 16-24 year age group spending less on energy drinks due to sugar content vs 40% of total soft drinks consumers (source: Pepsico/Britvic), which might explain why the sugar-free category is growing by 24% year on year (source: Nielsen).

Earlier this year Britvic launched a sugar-free version of its Mountain Dew brand, signalling the first sugar-free PET format drink in the UK energy category. GSK also reduced the sugar content of its Lucozade Energy by 9% in response to the trend.

Of course, not everybody who drinks sports drinks is doing so at their desk, and new launches and formulations continue to address the needs of those that take part in sport as well as watch it. Earlier this year GSK launched Lucozade Sport Champions Choice in partnership with the Vodafone McLaren team, with a formula that blends glucose and electrolytes for improved physical performance, with added caffeine for improved mental performance. The launch was supported by a £1m marketing campaign fronted by Jenson Button. The company’s message for 2013 is educating consumers about the scientific benefits of sports drinks during exercise.

CCE brand Powerade is taking inspiration as its marketing message this year. Says operational marketing director Caroline Cater: “This is quite a change to how we position the brand. We will look to build on our core audience of ‘born sportsmen’, but also take our message to a wider audience with the positioning ‘You are more powerful than you think.”

So with barriers being addressed and NPD flooding the market, how do c-store retailers cater to the new markets and usage occasions? Don’t be afraid to include them alongside more traditional lunchtime drinks is the advice, and consider offering them as part of a meal deal or secondary siting them in the food-to-go area.

Hudson says that getting the mix right is half the battle. He says that it’s a given that some consumers will drink Red Bull and nothing else, and it’s important to have it onshelf. In the middle ground, where No Fear sits, he says pick one or two and merchandise them well.

“The good thing about this market is there are lots of brightly coloured, well designed cans which look fantastic when merchandised in a well stocked, well maintained chiller. They have strong visual impact, and if you keep the fixture well stocked you can see a phenomenal uplift in sales.”