The Energy Alphabet

EnergyConsidering that the first apartment I ever rented under my own name was in a pungent part of New York called Alphabet City, count me as sympathetic to all editorial projects alphabetic, as we’re getting again this month in BevNET Magazine. (If you’re wondering, I was 17, and my compact studio – bathtub in the kitchen, kitchen in the living room and Day-Glo stars and planets painted on the ceiling by the hippies who’d occupied the place before me – was just off Avenue B, one avenue away from “The Avenue Bearing the Initial of Christ into the New World,” as Avenue C had been memorialized in a sprawling poem by Galway Kinnell. By the time I got there, though, Christ had fled to the suburbs and left the neighborhood to the drug addicts, the driftless, the demented and a few Ukrainian holdouts.)

At this writing, I don’t know whom the wise editors have settled upon for this year’s compendium of movers and shakers (though it’s a fair guess that the letter K is unsullied by the name Khermouch). But I hope they’ve made room for names like Hall, Sacks, Schlosberg, Weiner, Mateschitz and Bhargava because, collectively, these rivals have attained a rare miracle in beverages: nurtured a category that’s managed to continue growing at a brisk pace while remaining emphatically premium in price. That category, of course, is energy drinks.

It truly is a miracle. By now the category is 18 years old in this country, dating back to the launches of the Red Bull and Hansen brands in 1997, and the lion’s share of volume has consolidated around a handful of big brands. Usually that’s a recipe for relentless rounds of price promotion in c-stores and large-format retailers, and a sputtering out of innovation. That’s been anything but the case in energy. Though we see sporadic eruptions of promotional skirmishing, by and large the key energy players have managed that rare feat of growing fast while remaining premium in price. Can you think of another established category where that’s been the case? I can’t.

Why has this category avoided these traps? I’d hazard the guess that it’s because the leading brands – Red Bull, Monster, Rockstar, 5-Hour Energy – have all remained independent, still in the hands of the entrepreneurs who created them. That’s served to maintain a sense of urgency about the brands’ development and kept them out of the morass of the big beverage companies’ beggar-thy-neighbor, lowest-common-denominator marketing development programs and promo calendars. Remarkably, fighting the usual entropy, some of the captive brands are going the other way: any week now, Coca-Cola will transfer all its energy brands, including NOS and Full Throttle, to the stewardship of Monster Beverage, as part of an unusually far-sighted transaction that’s seeing Coke take a 17 percent stake in MNST and receive Monster’s non-energy brands. I say far-sighted because it represents a recognition by Coke managers that the category will only continue to thrive if it’s kept out of the suffocating embrace of big companies like Coke, however well-intended they may be. Have we ever seen that before either? Not that I can recall.

It leaves the energy landscape in a fascinating place. Category pioneer Red Bull continues as a solo act globally, its founder Dietrich Mateschitz apparently intent on resisting any buyout invitations as long as he’s having a ball running the enterprise, which he clearly seems to be doing judging by the ever-inventive stunts the company devises to keep Mateschitz entertained and its marketing fresh. And while Red Bull has never gone in much for product innovation (that’s not intended as a gibe – nor have such long-running successes as Corona Extra beer), it’s at least begun to steadily add flavor extensions, to favorable effect. And while Monster and Rockstar from time to time slug it out on price, Red Bull seems to stay resolutely above that fray, a stance that’s redounded to the great benefit of every player in the category. Again, credit Mateschitz and his North American steward, Stefan Kozak.

Then there’s Monster Energy. Though I can’t claim any great inside knowledge of how the company operates, it seems to benefit from a particular creative tension between the instinctual marketing genius of the brand’s creator, Mark Hall, and the financial and operational acumen of his corporate overseers, chairman/ceo Rodney Sacks and vice chairman Hilton Schlosberg. For a while, that tension drove Hall away to a year-long sabbatical, but I hear he’s returned to a grateful team energized and ready to start playing with his new toys, those Coke brands coming his way. Meanwhile, the company continues to take a liberated approach to package and product innovation, with a willingness to try all kinds of concepts, kill the losers quickly and keep moving forward. It’s taken an almost clinical approach to exploring energy hybrids like coffees, teas, protein drinks and juices, and its Ultra Zero inaugurated a new generation of great-tasting, upscale zero-calorie entries.

For its part, Rockstar moves mainly through the Pepsi bottling network, but there’s no ownership tie and, crucially, Rockstar has retained its independent distribution network in the northwest quadrant of the country, where the brand continues to be a formidable presence even as it slips further behind Red Bull and Monster in the rest of the U.S. (That structure might seem inefficient, but maintaining control of its core territory confers a liberating effect on Rockstar, kind of like the way Lauren Bacall’s $30-odd stash in To Have and Have Not offers “just enough to be able to say ‘no’ if I feel like it.”) For a few years Rockstar could fairly be accused of mimicking Monster innovations, but lately it’s offering its share of intriguing new entries. Indeed, out of an apparent desire to avoid collisions with Pepsi’s other energy plays, notably the Starbucks Doubleshot coffee energy lines and Mountain Dew’s Kickstart extension, Rockstar founder Russ Weiner and his team lately seem to be working harder to offer unique variants – using almondmilk in Rockstar Roasted, for instance, as a non-dairy alternative to the more conventional dairy-based formulation employed by Pepsi and Starbucks in Doubleshot. It’s even launched an organic entry. Whether retailers and consumers will allow the Rockstar brand to stretch that far will be interesting to observe, but the company certainly is offering a bunch of reasonably thoughtful innovation.

Lately 5-Hour has gone flat and in some ways it can be viewed as participating in a separate shot category but under its founder Manoj Bhargava it remains unassailable in that realm, and continues as a premium play. Then there are a range of smaller brands, some staking out a purportedly healthier positioning than the core canned entries, and others that are more conventionally positioned but now see an opportunity to crack the Budweiser distribution network that’s just been abandoned by Monster.  Foremost among those I would rank Xyience Xenergy, under Big Red ownership now, and VPX’s Redline. The healthier-energy set contains any number of intriguing plays, from the Hiball organic line to guayusa-based entries under the Runa and Mamma Chia brands.  Strikingly, aside from a few modest plays like National Beverage’s Rip It, value-priced brands have never gotten a substantial foothold in the energy category, nor have retailers’ private-label brands. That, too, is testimony to the power and discipline the branded entries have demonstrated. When you take a step back and realize that these are all playing in a seemingly depleted soda category, the achievement is that much more extraordinary.

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

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