Think icebergs. With Red Bull and Monster deeply entrenched for the past decade as the two leading energy drink brands, things haven’t visibly changed at the apex of the category. But beneath the waterline, the past two years have brought a sea change.
It was towards the end of 2018 that Bang Energy — the “performance” energy drink produced by Florida-based VPX Sports — broke the surface into the mainstream on the backs of Anheuser-Busch DSD trucks, a network that brought the brand from $345 million in sales in the Spring of 2019 to $1.1 billion in the past year, according to market research firm IRI. Now with a little more than 9% market share of the total energy drink category as of the 52-week period ending March 22, Bang’s emergence hasn’t just had a ripple effect, it’s made waves.
Though Bang’s growth has begun to slow (but still up 144.5% year-over-year) the brand is now firmly in the top three companies in the category, next to Red Bull and Monster Energy — and despite their size, both of them have felt slight share declines as consumers migrate from traditional energy to functional, low sugar, BCAA-infused competitors.
In true energy drink category fashion, as Bang has taken off, a host of new brands have emerged with similar characteristics, and the overall mix of faces underneath the top two or three brand families is starting to look different. Monster itself joined the performance energy party with Reign Total Body Fuel, which saw its strongest line extension launch to date in Q1 2019; meanwhile Keurig Dr Pepper (KDP) has partnered with serial entrepreneur Lance Collins to launch Adrenaline Shoc (A-Shoc), and independent brands like Nutrabolt’s C4, CELSUS, 3D, and Optimum Nutrition Amino Energy have gained steam in retail as consumers sample different products.
But, in the past several months, this new face of energy has seen the deck shuffled once again. In March, PepsiCo — the only major non-alcoholic beverage strategic that had been without a stake in the performance space — acquired Rockstar Energy, with which it had a longstanding distribution partnership, for $3.85 billion. The move ended the two companies’ non-compete agreement and paved the way for a new distribution partnership with Bang that would be announced just weeks later, during PepsiCo’s Q1 earnings call in late April. Though the deal with Bang lacks a path to ownership, it also isn’t subject to an exclusivity clause, which was a roadblock that eventually proved to be one of Rockstar’s greatest assets in its own distribution deal. Now PepsiCo has complete freedom to continue expanding in the space with new brands or extensions as it sees fit — though there are currently no announced plans for further acquisitions.
According to Laurent Grandet, food and beverage analyst at investment firm Guggenheim Partners, PepsiCo’s recent moves now give it nearly 20% market share of the entire energy category to build from.
But this shift in the category also leaves pressing questions about what the distribution landscape for energy will look like in the coming months: As Bang onboards into blue trucks, AB distributors will loset their top non-alcoholic brand. Meanwhile, with sales of performance energy brands continue to rise, independent companies are seeking to expand their own distribution. Beyond performance, Coke, which has a 1/7 stake in Monster, is testing the waters for soda-styled innovation with Coke Energy; PepsiCo, in addition to Rockstar and Bang, plans to increase its spend on Mountain Dew, kicking off an entirely new energy race. Red Bull, meanwhile, continues to cruise forward from its leading position, offering flavor variations. All of this is taking place as the energy drink space itself is facing a potential slowdown related to the COVID-19 pandemic: after all, with greater unemployment, and less nightlife, how necessary is a product that “gives you wings” to get through the day or night?
Performance Provides a Jolt, But The Space is Evolving
Pandemics aside, why is performance the subcategory of the moment? According to A-Shoc president and co-founder Scot De Lorme, who previously spent eight years helming innovation at Monster, “traditional” energy drinks have a household penetration of roughly 18-20%. The emergence of performance energy, however, has the potential to double that penetration within the next five to 10 years as health-conscious consumers are brought into the space.
“I think any of the negative stigmatism that traditional energy might have had, I think that’s all changed now with performance,” De Lorme said. “I feel that we’re in the infancy stages, right now, of this category. And I think the natural evolution is just going to be massive.”
Last year, Reign quickly made a mark on the category, driven by aggressive promotions that included buy one, get one free deals. That brought the brand attention, but it’s not clear whether that rapid growth will turn into continued loyalty without the promotional support..
Still, a lack of brand loyalty could indicate even more potency for the new performance energy space as a category. Ken Wrathall, manager of non-alcoholic beverages at AB distributor Nevada Beverage Company, contrasted fair-weather consumer behavior to the more consistent sales on flagship products of brands like Red Bull and Monster; Where traditional energy consumers tend to crave a specific flavor profile, performance consumers are more educated and more curious, “following the ingredients” and trying different brands, he said. Even within the Bang portfolio, he noted that consumers will jump around, choosing different flavors day-to-day.
“I don’t know if there’s any street cred with [Reign] with all the health and fitness folks because it didn’t grow up in the gyms and nutrition chains,” Wrathall said of the brand’s slowdown. “When you look at Bang and all the others, they’re all flavor-driven. So I don’t think consumers mind trying new flavors and if there’s a little change in the efficacy [between brands] then that’s just a bonus for them to sample.”
So while there’s still a chance the omnivorous purchasing behavior could be the temporary result of a new subcategory’s novelty before consumers settle into a favorite product, independent players competing for market share see this period as an opportunity to seize a chunk of the market before it gets completely taken over by the strategics.
For A-Shoc, which despite strong expectations is still a smaller player in the category, De Lorme said the strategy has been to swiftly achieve a high convenience channel penetration and hone its marketing to younger consumers. Though many guerilla marketing initiatives are on hold due to COVID-19, as well as experiential partnerships with fitness brands like Spartan Race, he said the brand has also focused on social media, and has been working closely with retailers to drive trial during the pandemic, becoming an early adopter of chain-specific, consumer-facing apps that help advertise the brand.
John Herman, EVP and general manager of North America at Nutrabolt, the maker of C4, said he believes there could be room for a “Top Four” in the performance space, with Bang, Reign and A-Shoc taking expected leadership roles but leaving enough room for an additional brand to take sizable share. While C4 will compete for that role, Wrathall, noted that brands such as Celsius and Optimum Nutrition’s Amino Energy are also well-positioned to capitalize on the trend, as well as recent entrants such as 3D.
“They’re all the brands that are pecking away,” Wrathall said. “And so it’s not just a three horse race, but there are many horses in the race that are chopping up the pie.”
AB Distributors’ Bang-Sized Void
With Bang preparing to leave AB wholesalers by Q4, reports from industry newsletters like Beverage Business Insights have suggested that VPX Sports has sought, with little success, to get its current DSD houses to keep distributing its other brands, such as Redline and Meltdown. However, it remains unclear whether the distributors will choose to keep working with VPX once the transition to Pepsi is complete, seek out an alternative energy brand, or look outside the category.
Wrathall, who could not comment on the specifics of arrangements with VPX, said that there will undoubtedly be a “big hole to fill” in distributors’ portfolios, but he noted it’s a key component of AB wholesalers business model to incubate and scale emerging brands before they eventually sell or partner with a larger distributor. That hole in place, in many ways, the race is now on among independent brands to be the one that could fill the void.
At C4, John Herman said the company has been exploring ways to fill its own distribution gaps across the country and that the vacancy left by Bang poses an opportunity for the brand’s RTD line. C4 was expected to reach $100 million in retail sales this year, though Herman noted the impact of the COVID-19 pandemic could push that threshold into next year depending on the timeline for category resets.
“With a change of Bang moving from an AB house over to Pepsi trucks, if that allows for us to optimize a market or find a new partner where we’d really like to have a growth engine where we’re not currently covered, then we’re going to look to take advantage of that for sure,” Herman said.
The Total Beverage Energy Play
In PepsiCo’s Q1 earnings call in April, CEO Ramon Laguarta said the PepsiCo strategy is three-pronged; the conglomerate will invest in Rockstar to turn around declining sales and expand the brand internationally, Bang will be supported with strong “distribution muscle” to place it into new channels, and further innovation on Mountain Dew will serve as a third pillar in the category via sublines like Game Fuel, which has built an entrenched subcultural consumer base in the gaming community.
The Coca-Cola Company, meanwhile, is remaining competitive in the category with its stake in Monster and Reign, and now the cola-styled Coke Energy, which launched in the U.S. in November. According to Laurent Grandet, with Guggenheim Partners, PepsiCo’s back-to-back deals with Rockstar and Bang may now put pressure on Coke, as the revised marketplace comes into view throughout the rest of the year, to purchase Monster outright — though the conglomerate currently has no plans to do so. Like Pepsi and Rockstar’s prior agreement, Coke has a non-compete clause with Monster and entered arbitration with the company last year to settle a dispute over the Coke Energy launch; still, a potential acquisition could allow the company the necessary flexibility to compete head-on with Pepsi.
“[Coke CEO] James Quincey and his team want to build a ‘Total Beverage Company,’ that is what they are claiming,” Grandet said. “So right now, the only space where they have any limitation in the non-alcoholic beverage space is actually energy because of their contract with Monster…. They’re very limited, so if Coke really wants to become a Total Beverage Company the best way to own that space would be to own Monster ultimately.”
Grandet noted that Coke Energy “has not been a great success” to date, though the brand still has potential to improve. A report by Skupos analyzing the independent convenience channel showed that the line launched in November with a velocity of about 1 unit per store per day, but that has since declined to a 0.6 average. Part of the slow start in the U.S., Grandet said, could be due to category confusion. In Europe, the line was packaged in 8 oz. slim cans — similar to Red Bull — whereas in the U.S. the pack size is larger and feels more reminiscent of traditional CSDs. As well, the impact of COVID-19 on convenience channel foot traffic may have stunted the line’s rollout.
Meanwhile, Pepsi is now tasked with reversing years of sliding Rockstar sales. Speaking to investors, Laguarta said the Rockstar strategy will be a matter of investment and the conglomerate may also look towards international markets as an opportunity to achieve growth. With Bang filling the performance energy role, Grandet said Rockstar is likely to remain a “pure energy” player going forward to compete with Red Bull and Monster.
As for Red Bull, the independent has tended to stay in its own lane — one that consists of more than a third of the market share for the category. Will it move toward performance? Keep an eye out, says Wrathall, who warns that a recent slip in sales may be because some consumers have dropped the brand for Bang. If that’s the case, “it would not be a surprise” if Red Bull made its own moves toward performance, he said.