How hard can it be to transform a 2 oz. energy shot into a canned beverage? 5-Hour Energy is learning on the fly.
After nearly 20 years dominating an energy shot category it largely created, parent company Living Essentials made the bold decision in October 2021 to jump into the $21 billion U.S. energy drink market with a full-sized 16 oz drink, making it the centerpiece of its mission to reinvent 5-Hour as a multi-occasion category player. The “natural progression” into beverages seemed obvious; offer consumers more than one opportunity to engage with the brand.
But entering the lion’s den of energy drinks – and competing with the global muscle of Red Bull, Monster and a resurgent Pepsi with Celsius – has required a different set of competencies than the ones that have served 5-Hour so well thus far. The company’s last two years have been a story of transition and balance, a double-act of both navigating a new distribution network while not taking its eye off (and still finding new ways to enliven) its core shots business.
Over 50% of 5-Hour shot consumers also drink energy drinks and “because people move back and forth between energy drinks and shots, we didn’t have the ability to keep them in our franchise,” said 5-Hour president and COO Jeff Sigouin. “You see a lot more people with a breakfast sandwich and a Red Bull than you will have a breakfast sandwich and a 5-Hour [shot].”
A Failed “Street Fight With DSDs”
As 5-Hour entered energy drinks in late 2021, its first priority was to build out a new distribution network separate from the candy and tobacco wholesalers most retailers use for the brand’s shots. Moving into a full-size beverage meant tapping into DSDs and beer distributors that Living Essentials had not tapped into.
Making things more complex were the shifting sands within the category: at the time, ZOA was signing a distribution deal with Molson Coors’ network and Bang was shaking things up by entering Pepsi’s system and leaving its beer distributors in the lurch.
“There was a lot of noise in the category,” Sigouin said. “There were contracts moving around, exclusivity agreements, lawsuits…all of this happened during a time of tremendous turmoil and, frankly, distrust from a lot of distributors of energy brands.”
The company launched its three-flavor line (Berry, Watermelon, Grape) with beer wholesalers in November 2021, aiming “for a street fight with DSDs” as it built out a national distribution network to compete with category leaders. The plan was to build the brand through beer houses in independent c-stores while ramping up production and distribution with an eye towards bigger partnerships in grocery and convenience chains.
Yet when Russia invaded Ukraine in March 2022, the spike in gas prices “seemed to disproportionately impact independent stores more than it did chain stores. And we found it to be tough sledding,” Sigouin said.
On top of challenges in getting cans on shelves, the brand’s initial formulation was too “light and seltzer-like,” he added.
The company went back to the drawing board to rethink its strategy, spending the next year doing consumer research and reformulating with bolder flavors reminiscent of some of 5-Hour’s top selling shot varieties (OrangeSicle, Pineapple Splash and Tropical Burst). The finished product contains the same amount of caffeine as 5-Hour Extra Strength shots using the signature energy blend of 230 mg of caffeine, taurine, Glucuronic acid, Malic acid, L-Phenylalanine, N-Acetyl L-Tyrosine and Citicoline.
Trial And Error In Distribution
The focus on DSDs and independent convenience stores was a battle that 5-Hour was losing throughout 2022 with some distributors leaving the brand asking for more chain store listings before they would carry the product again, Sigouin said. “They want that guaranteed drop when they’re at that store.”
Although 5-Hour has name recognition in the convenience channel, battling for refrigerator space among category leaders like Monster and Red Bull or emerging brands like PRIME, Alani Nu or Ghost has proven more challenging than anticipated.
The drinks have seen the most success through non-alcoholic DSDs, but trying to wedge into those networks where many distributors are already locked up in exclusivity contracts with competitors has proven difficult, Sigouin said.
“The labor crunch that they (DSDs) are facing has inhibited their ability to be brand builders. They now rely more on the supplier to be the brand builder,” he said.
5-Hour has taken that strategy to heart and deployed 12 sales team members throughout the country to sign on new retail partners and visit stores to oversee promotions and merchandising.
This past April, everything came together from product mix to channel and pricing strategies falling into place, Sigouin said. Although the brand still doesn’t have a completely national distribution network it has shifted from independent c-stores to trying to land more regional grocery chains and building from there.
Currently, the energy drink is available for $2.99 or less in over 30 states with about 40 retail chains including H-E-B, Meijer, Tops Friendly Markets and Publix as well as approximately 4,000 independent convenience stores. OrangeSicle and Tropical Burst are the best-selling flavors, per VP of beverage sales Doug Steffen.
The “barriers of entry are a little easier” in grocery, with buyers “eager” to offer both individual cans in coolers and larger pack sizes on ambient shelves as chains go deeper in the energy category, Sigouin said.
In the past year, the strategy has expanded to include 12-can packs available on Amazon and via the 5-Hour website for about $30. The sales team is also focused on building consumer awareness of 5-Hour’s drink format. The newly minted “street team” is using stacker displays on pallets or endcaps and front-end cooler placements in a “deliberate attempt at interruption” to have consumers recognize the brand in-store, said Steffen.
If done all over again, the brand would have taken a more regional approach to distribution, Sigouin said. As of now, the energy drink works with about 180 distribution partners with plans to add another 60 to 80 to “close its network.”
Continued growth for the shots will give 5-Hour’s drinks time to develop, and fears over cannibalization between the two lines have not been realized, according to the company. This has led the brand to be less discriminating about placing the drinks in the same locations that carry its shots.
“I guess we learned from our failures, and we also learned that the environment was rapidly changing. It was different than we thought it was when we first entered,” Sigouin said. “Retail execution is store-by-store. You need to have a good distributor but you need to put your own bodies on the street as well.”