Shrugging Off Negativity, Energy Drink Companies Push Forward

Seemingly every month, an energy drink company takes a black eye from a new, harrowing slate of news, another lawsuit, a demeaning study, a band of legislators with belts tied too tight and constituencies to appease. Whether justified or not, energy drinks have been painted as an evil that’s worthy of no more than the pariah life.

But the industry isn’t exactly flabbergasted.

“Whether it be aspirin or caffeine or nail polish, whatever, anything that is going to be abused is going to receive some public scrutiny,” said Walter Orcutt, the executive vice president of contract packaging and private label work for NVE Pharmaceuticals.

Like most of the energy industry, NVE, which manufactures and owns energy products, is paying close attention to each blow on the battlefield. Consumers, retailers and wholesalers read the papers and digest the negativity. Yet in response, the category has only slightly shifted.

It’s worth noting that retailers haven’t started making demands of energy drink companies in response to the scrutiny. Debbie Wildrick, the president and founder of Growing Innovative Brands and the former senior director of vault and proprietary beverages for 7-Eleven, said that she hasn’t seen too many product alterations. She said that she doesn’t believe the cycle of news deeply affects retailers or wholesalers, so they’re not changing what they put on the shelves.

“This backlash or bad press really hasn’t changed that much,” Wildrick said, referring to the energy drinks that she approved during her time with 7-Eleven from 2002 to 2007.

Then, the category was emerging; now, more evolved, there still aren’t major changes taking place. In fact, the category has made steady progress amid the latest onslaught of tough press. According to IRI, a Chicago-based market research firm, the energy category still accumulated nearly $10 billion in sales over the previous year ending on April 21, and grew by 7.86 percent over that time. Still, the last quarter has been tough for Monster and the rest of the category as well: while growth is still there, it has slowed significantly compared to the previous year.

But the ongoing growth of energy drinks as a category, even when under siege, is enviable compared to the rest of the beverage industry. It’s an odd situation – the brands’ success appears compromised by their popularity, but at the same time, that popularity continues to grow. The question is, if energy drinks were to adjust to meet their critics, what would happen?

 

THE STORM BEGINS

The recent wave of public scrutiny can be bookmarked by the death of Anais Fournier, a teenage girl who went into cardiac arrest after consuming two 24 oz. cans of Monster Energy in a 24-hour period. Fournier was only 14 years old when she died, in December 2011.

Fournier suffered from Ehlers-Danlos syndrome, a disorder that weakens connective body tissues. She also had mitral valve prolapse, a heart condition that malfunctions one of the heart’s valves. An autopsy report indicated she died of cardiac arrhythmia due to caffeine toxicity. (Monster Energy has disputed the finding of caffeine toxicity in court.)

While Fournier’s health condition likely made consuming energy drinks riskier for her than for much of the general population, her family believes a lack of responsibility by Monster is what led to her death, and has filed a wrongful death lawsuit. That suit’s filing had a double effect, however. In addition to the initial story, part of the discovery process for the suit gave rise to a new set of stories – mostly in the New York Times – based around public health data collected by the FDA in relation to reports of adverse medical events that mention energy drinks.

Since the Fournier suit, there has been a subtle change in the criticism of energy drinks: rather than target their caffeine content explicitly, the direction of the marketing of the products has become the chief front in the battle. While Fournier’s family went after the product most directly, another lawsuit recently filed against Monster by the city of San Francisco accuses the company of heavy marketing toward teenagers and young adults (the demographic most susceptible to caffeine-related injury). Rather than targeting product abuse, these marketing tactics have become the opposition’s go-to argument.

In November 2012, the city attorney of San Francisco, Dennis J. Herrera, sent a letter to Monster that asked them to substantiate their belief that their products are safe for adolescents and adults. Since sending the letter, Herrera has repeatedly demanded that Monster reduce its caffeine content and stop marketing to minors. At the end of April, Monster filed a lawsuit against Herrera over his demands. Herrera called it a preemptive lawsuit. One week later, Herrera countered with a lawsuit of his own against Monster and called the company “the industry’s worst offender.”

 

MAKING A FEDERAL CASE

A significant contingent in the energy industry believes that product abuse, not the product itself, is to blame for much of the tough news – and it continues to push out caffeine counts for other product types, like Starbucks coffees, to the public. Still, this opinion hasn’t been enough to mute what’s followed.

The Fournier news triggered an onslaught of inquiries and requests by legislators for more regulatory action. Five months following her death, Senator Richard Durbin (D-IL) sent a letter to the U.S. Food and Drug Administration (FDA) in hopes of reforming the way energy drinks are marketed and sold. In the letter, Durbin noted Monster, Red Bull, Rockstar, Full Throttle and AMP as torchbearers for the category’s wrongdoings and urged FDA action against ingredients and labeling. Durbin also mentioned that young people are the most susceptible to the adverse effects of energy drinks.

Since his letter, Durbin has been joined in his efforts by Senator Richard Blumenthal (D-CT) and Rep. Edward Markey (D-MA), who is currently campaigning for the open U.S. Senate seat in Massachusetts. The legislators have repeatedly sent letters to the FDA – and have received tepid responses that seem to acknowledge the complaints but also hint toward inaction.

In April, the troika went directly to the public, releasing an extensive report titled What’s all the Buzz about?, which neatly outlined their complaints about the energy industry’s marketing practices and included several recommendations. The report advised energy drink manufacturers to label products with a clear description of the caffeine level (by milligrams), display a “prominent precautionary statement” for products with unsafe caffeine levels, stop marketing to young people, and report to the FDA any serious incidents resulting from energy drink consumption.

 

OPPOSITION FROM THE CITIES AND STATES

While Durbin, Blumenthal and Markey have become the faces of energy regulation, they’re not alone in the quest for change. In March 2010, Louisiana state senator Robert Adley (R-Benton) proposed a ban of selling energy drinks to kids under 16. The bill would have included any beverage, other than coffee, that contained at least five milligrams of caffeine per fluid ounce. However, about one month later, a Senate committee decided that parents, not the state, should monitor the energy drink consumption of their kids.

In July 2012, New York attorney general Eric Schneiderman initiated a probe into the packaging, formulation and labeling of Monster, 5-Hour Energy and perhaps others. According to The Wall Street Journal, Schneiderman issued subpoenas to investigate whether the companies were overstating benefits and improperly labeling guarana, which was noted as an ingredient but wasn’t quantified.

In October 2012, the FDA announced that it had received reports linking five deaths over the previous three years to drinking Monster. The following month, the FDA announced that it had received reports of 13 deaths over the previous four years that cited the possible involvement of 5-Hour Energy. Reporter Barry Meier’s coverage in The New York Times received significant attention – and helped build more soapboxes.

One week after the publication of the 5-Hour Energy story in The Times, Chicago alderman George Cardenas said that he doesn’t “want kids dying because of something that shouldn’t be in their hands.” Cardenas, who is also the chairman of the Chicago City Council’s Health Committee, proposed banning the sale of energy drinks to anyone under the age of 21.

At the beginning of March, the Cleveland City Council proposed an ordinance that would ban the sale of energy drinks to anyone under the age of 18 and remove the beverages from certain vending machines. (If one thing’s clear, it’s that there’s no national consensus on the proper age for energy drink consumption.) This specific ordinance would include beverages that contain 140 milligrams of caffeine per four fluid ounce or larger container, 0r 80 milligrams of caffeine per 0.8 fluid ounce to 3 fluid ounce container.

Later that month, a group of 18 doctors implored the FDA to take action for the sake of young people.

In April, Bernard Parks, a Los Angeles City councilman, said that police should crack down on kids who buy too many energy drinks, according to The Washington Times. Parks, the former head of the L.A. Police Department, also wants more labeling and thinks that energy drinks should be strategically placed in stores so that children can’t reach them.

In spite of those high-profile proposals, here’s the only regulation that has passed: a law in Suffolk County, N.Y., that prohibits the sale of energy drinks to minors – by vending operations at county parks and beaches.

“There are medical concerns associated with these beverages, and some parents don’t even know what’s in them,” Suffolk County Health Commissioner James L. Tomarken told reporters.

 

THE INDUSTRY’S REACTION

This continuous stream of negative news and lawsuits hasn’t crippled the industry, but it seems to have weighed it down a great deal. A Morgan Stanley report from April says that growth in convenience stores has slowed to about 6 percent during a four-week period ending on March 16, down from a 13.1 percent growth average from the previous two years during this same stretch of time. This decrease in growth may indeed stem from a plummeting consumer perception. YouGov, a consumer research firm that measures the impact of word-of-mouth, news and advertising on brands, found that consumer perception of energy drink brands fell to its lowest level since 2009.

In March, Monster began marketing its products as beverages, not supplements. This change could act as a temporary veil, which would free the company from reporting tragic events linked to its products. This follows a similar, recent move by Rockstar. Both companies have recently joined the American Beverage Association, which recommends caffeine disclosure for member companies’ products, as well as food and beverage classification. Perhaps readying themselves fo a drawn out fight, both companies have also recently hired high-profile D.C. lobbying firms.

“They make that move based on the fact that they’ve been attacked,” Wildrick said.

Wildrick and Orcutt both feel unaffected by the battlefield against them, and they believe that the industry feels the same way. After all, the FDA has yet to take considerable action. However, this doesn’t mean that the industry is ignoring the news. Some steps are being taken, but aren’t yet tangible.

“In the last two years, everyone has been more on top of the their game when it comes to making sure their labels are technically correct and FDA compliant,” Orcutt said.

NVE, like many other brands, now approaches its product labels as not just a growth tactic, but also as a safeguard. Perhaps this will make them a less identifiable target for the FDA, if it ever does lay the hammer down.