The Year of the Energy Drink

With over 30 different brands hitting the market last year, the beverage industry was clearly dominated by the energy drink in 2001. Yes, Red Bull still accounts for over 60% of the US market share, but the giants have finally joined the race, making for an entirely new playing field in 2002. Read on for an in depth review of what happened last year and a preview of what we think is to come.

What’s the deal with Red Bull and all the Red Bull wannabes? Is this good for the industry?
Yup, last year’s energy drink market was plagued with mediocre knock-off products. Many of these products have no shame in hiding the fact that they aspire to be Red Bull. Similar design, packaging, and flavor were used in many of the products that were released in 2001. Some even went as far as coming up with a name that was very similar — take Red Tiger or American Bull, for example.

Then again, why wouldn’t you want to be Red Bull? They practically invented a major new category, grew a brand from obscurity to market dominator, and have the sales numbers and brand recognition to show for it. In our opinion, the Red Bull story and the related energy drink boom that they have created will have a long term positive impact on the beverage industry. Seeing a company like Red Bull grow from nothing into a potential major player will inspire many would be beverage entrepreneurs in the coming years. It’s actually very similar to when Snapple hit its peak (as an independent) — a strong brand, cult following, new category — all the signs are there.

What’s the future of this category? Will it be around in 5 years?
The energy drink concept is here to stay. The entire health and sports segment of this industry will continue to boom as long as consumers continue to trend towards being health conscious and interested in herbal remedies. One thing we are sure of, however, is that there is not room in this industry for the current mix of 30+ brands. In addition, we’d bet that you will see larger packaging, lower prices, and more scientifically engineered formulas. You’ll still see the 8.x oz can, but we think that you’ll also see many more specialized products.

One serious issue that looms over this category is the government. The FDA has not put any regulation in place regarding the use of many of these ingredients (including the specific approved list, levels of legal use, and what mixtures are safe) and right now the sky is the limit. Your average consumer doesn’t know whether 200mg or 80mg of caffeine is safe — and they definitely don’t know what 100mg, 10000mg, or even 1mg of taurine does to their body. Eventually the government is going to have to step in and provide better documentation and regulation of what these products can and cannot use. This could spell real trouble for many of the products on the market today.

In the current market, which are the good brands? Which are the brands to watch in 2002?
Virtually every major soft drink player already has an energy drink on the market, including Pepsi, Coke, SoBe, Snapple, Hansen’s and Arizona. Speaking purely in terms of taste and brand appeal, we’d bet our money on Pepsi’s AMP (it’s got the Mountain Dew taste, which is a big advantage), Arizona’s Energy Shot (the flavor is good and we like the use of fruit juice, but they must lose the plastic cone), SoBe’s Adrenaline Rush (SoBe has been very successful marketing to this demographic already and the product tastes good) and last, but not least, Hansen’s (the only brand that successfully has multiple flavors).

We’re also very intrigued by Anheuser Busch’s 180, which is the first beer manufacturer to crossover into the energy drink market. Given that many of the energy drinks are marketed at bars (some in Europe even have alcohol already mixed in), we’re surprised that other beer guys aren’t following suit.

As for the independent brands and upstarts, we like Jones Whoop Ass, Hype, Bawls, and Go Fast. Each one of these brands is doing more than just trying to emulate Red Bull and that definitely gives them an advantage. There are certainly many more brands to come, but these are the brands that we think will be around when the marketplace finally stabilizes.

What will happen to red bull? Is the brand ever going to slow?
Red Bull is very much in a sophomore state right now. It’s starting to get past the initial hype of being a hot new product and settling in as a power brand on the market. The real question for Red Bull right now is, how do you continue to grow the brand and solidify it’s future? We’re not quite sure what the answer is, but Red Bull seems to think that building their own distribution network is the way to go. We, however, see this as a very risky proposition. Yes, it helps the company keep a higher margin on it’s product and insure better service to the retailer, but it’s also a very different business than being a beverage manufacturer. Several companies, most notably Clearly Canadian and Nantucket Nectars, almost put themselves out of business trying to do this. Whether or not Red Bull will be able to execute this is still up in the air.

The other challenge for Red Bull is to evolve it’s product and to evaluate how to expand its brand. It’s plain and simple: consumer tastes change over time. Will Red Bull change it’s packaging or formula to meet these new tastes or will they expand their product line? The time will definitely come for Red Bull and it will probably be the company’s biggest challenge — how do you change, but keep the magic alive?

OK, so what does all this mean?
It’s all a matter of opinion. Some people out there undoubtedly think that energy drinks are an overpriced fad that will end up in the tin can recycling bin in the near future. We’re not saying that we are happy that these products are here to stay — but in our opinion, this category has had such an impact on the marketplace that we think it’s here to stay in some form or another.

As for Red Bull, this year is extremely critical. With momentum continuing to grow for the brand and the size of their own distribution network increasing, there are several things working in their favor. However, we think this is the year that their brand will finally plateau a bit and some critical decisions will come about.

Stay tuned.

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