Wells Fargo, Morgan Stanley Report Continued Strength of Energy Drinks

As some of the public bludgeoning of energy drinks has eased, and in turn, innovation and marketing increased, the category appears to have picked up the pace of its growth — again.

Category leaders Red Bull and Monster have continued to rack up strong sales figures, according to recent reports by analysts with investment banks Morgan Stanley & Co. LLC and Wells Fargo Securities, LLC.

The report from Wells Fargo, in particular, cited innovation, marketing increases and less negative press as boons for the category.

In a report that covers all channels in the U.S. marketplace, Morgan Stanley analyst Dara Mohsenian notes that energy drink sales increased by 7.7 percent in the previous 4 weeks ending on Jan. 19, compared to a 6 percent increase in the previous 12 weeks.

In a report that covers C-store data, Bonnie Herzog, the managing director of beverage, tobacco and consumer research for Wells Fargo, writes that Monster ended 2013 with its strongest sales performance of the year. The company accumulated a 13 percent volume increase in the fourth quarter, which followed a 12 percent increase in the third quarter and a nine percent increase in the second quarter.

Aside from the positive sales figures, retailers are expressing optimism in regards to Monster and the energy category as a whole. Herzog recently conducted a survey of beverage retailers representing more than 15,000 C-store locations across the U.S.

Based off the responses, she found that retailers believe Monster’s innovation — primarily Zero Ultra and Muscle Monster — have contributed to more than just the company’s growth.

“Monster’s new items are driving the entire energy category,” a surveyed retailer said.

With help from strong performance in the tea category, the energy drink category has led C-store non-alcoholic beverage sales to a 5 percent increase in the fourth quarter, year-over-year. Naturally, these categories offset the 6 percent declines expected from CSDs, Herzog writes.

However, not all figures from the CSD category indicate the same old negativity. While the numbers aren’t exactly inspiring, Mohsenian writes that the category’s sales improved from -3.5 percent in the previous 12 weeks to -1 percent in the previous four weeks ending on Jan. 19. He also writes that sales from The Coca-Cola Co., Inc., increased from -0.9 percent in the previous 12 weeks to 0.4 percent in the previous four weeks ending on Jan. 19. Retailers surveyed by Herzog believe that Coke will raise prices in 2014, which could drive revenue figures and boost margins.

“We therefore believe that [Coke] is poised to outpace the industry in 2014 and deliver stronger [earnings-per-share] growth,” Herzog writes.

Perhaps buoyed by its snacks business, Pepsi’s sales increased by 2.2 percent in the previous four weeks ending on Jan. 19, compared to a 1 percent increase in the previous 12 weeks, Mohsenian writes. Meanwhile, Wells Fargo found in its survey that retailers believe Pepsi will become more aggressive in its marketing in an attempt to regain market share.

Following the apparent category trend, Dr Pepper Snapple Group (DPSG) has also recorded moderate gains. Mohsenian writes that DPSG accumulated flat sales in the previous four weeks, compared to a -3.1 percent decline in the previous 12 weeks. On the C-store side of the business, Herzog writes that DPSG’s sales increased by 1.5 percent, driven by negative pricing and volume growth. Despite the good news, the company’s TEN platform continues to decelerate. Several retailers in the survey indicated that they plan to pull the products from their shelves during spring resets.

“We therefore continue to be hopeful that management doesn’t continue to ‘throw good money after bad’ and reconsiders any further investment in the platform,” Herzog writes.

Meanwhile, if the future of CSDs will be any sunnier, it probably won’t sprout from a new sweeter. Some representatives of the CSD industry have compared the arduous hunt for the perfect sweetener to the search for The Holy Grail. They believe that the discovery could lead to the resurgence of the category. After her most recent survey, Herzog and an abundance of retailers aren’t so sure.

“It took a short time for the ‘unhealthy’ buzz to go viral on social media sites,” a surveyed retailer said. “I don’t think the statement correcting that unhealthy message will be as widely discussed. The damage may already be done.”