The (Deal) Killer in Our Midst

As those of you who’ve learned to skip right over them will know, I often start my columns with an amusing or revealing anecdote, or even sometimes a mordant joke. You won’t get that this month, because that certainly isn’t appropriate when the topic of the column is the killer in our midst. Energy drinks.

As I write this, the energy drink business is getting slammed by serial reports of fatalities “linked” (how we journalists love that word!) to consumption of the highly (and sometimes not-so-highly) caffeinated drinks. We have the parents of a 14-year-old girl suing Monster Beverage for the brand’s alleged role in her premature death, and enterprising journalists scurrying to dig up “adverse incident” reports (usually filed to the FDA by the energy marketers themselves) on episodes involving injured or deceased consumers who’d consumed energy drinks or shots around the time they experienced their distress. If I seem to be taking a snide tone in recounting these events, it’s certainly not because I see anything remotely amusing or trivial about those consumers’ travails. What I do find appalling is the stampede to judgment in a near-total absence of any evidence that the drinks are any more dangerous than, say, Starbucks Coffee or Mountain Dew sodas.

I’m certainly not writing this as a blind supporter of the beverage industry.Readers of my newsletter might recall that I was the first to blow the whistle in 2010 on the presence of excessive levels of alcohol in kombuchas labeled as non-alcoholic – a real issue on health, labeling, taxation and any number of other levels. In the case of energy drinks, there really seems to be nothing there.

I suppose this manufactured hysteria shouldn’t strike me as too surprising in an era when policy debates on complex and technical issues like global warming and hydrofracking can be anything but science- or fact-based. This climate may have something to do with why certain congressional leaders are continuing to demand action on energy drinks from the FDA despite the agency’s avowals that it’s amply investigated the drinks in the past and found nothing untoward about them.

So, if there’s really nothing there, will this uproar dissipate once the next “scandal” is uncovered and the media move on to that? Well, we can’t be sure of this. If you recall the uproar over Four Loko and its rivals in the caffeinated, alcoholic beverage realm, no real evidence was ever produced that proved them to be more dangerous than, say, a Red Bull & Vodka or an Irish Coffee, and yet they’ve all either thrown in the towel or been reformulated without caffeine. But that was in a more highly scrutinized and regulated alcoholic sector where the government could easily bring enough pressure to bear to get the producers to “voluntarily” rejigger or withdraw their products. On the non-alcoholic energy side, I expect a lot of this will blow over soon enough.

That doesn’t mean there won’t be any repercussions. The biggest may be that you can pretty much rule out an acquisition of Monster by Coca-Cola or Rockstar by PepsiCo any time soon. With these conservatively managed companies already on the fence about deals because of the steep valuations attached to energy players (in Rockstar’s case, for a distant No. 3 player no less), the enhanced regulatory risk may scotch any such moves. On a routine earnings call during the furor, PepsiCo execs were suddenly talking about playing in energy “in a more responsible way” (apparently in reference to the 24-oz. cans of Mountain Dew containing 108 mg of caffeine that the company lately has been proffering as an energy drink alternative) and assuring investors they won’t devote any serious cash to acquisitions in the segment.

It’s also possible that the furor may offer an opportunity to purportedly “healthier” energy options – based on ingredients like, say, green tea and vitamin B – that haven’t garnered much traction over the past decade. The adverse press about conventional energy drinks, whether warranted or not, may encourage some consumers to rethink their choices. My hunch, though, is that most consumers won’t make such fine distinctions; those who feel well-enough-served with the current choices in conventional energy drinks will stick with them and maybe a small number (or their moms!) will abandon the sector. The fact that energy drinks are still overwhelmingly sold through convenience stores would seem to support that view of the core consumer. You don’t find many health nuts cruising c-store aisles.

One more word on the adverse-incident reports. Though some media reports have tried to demonize brands sold as supplements rather than beverages, those companies actually must meet a higher standard in having to report these incidents. As for the reports themselves, they almost never contain any clear causal link to the product of the reporting company. Just noodling around the FDA Web site, for instance, I encountered a report filed by a medical pump maker in May 2011 about a patient who experienced a hypoglycemia episode after being given “a candy bar and mountain dew.” The device apparently bleeped a few times, “the issue resolved” and “the patient has continued to use the pump without further reported incident.” That’s what most of these reports are like. Though somewhere down the line, who knows, this particular report may find itself enlisted as evidence that Mountain Dew is a cause of diabetes. For such a responsibly marketed brand, can you imagine anything more ridiculous than that?

Longtime beverage-watcher Gerry Khermouch is executive editor of Beverage Business Insights, a twice-weekly e-newsletter covering the nonalcoholic beverage sector.