Give profits a boost

25 June, 2010

Sports and energy drinks now have a market value approaching £950 million, which, to provide some context, puts the sector ahead of every spirits category except blended Scotch and vodka. It’s also comfortably bigger than Champagne and sparkling wine, and not far off stout.

It is also, as Victoria Milne, senior analyst at market intelligence firm Zenith International, recently observed, a market segment which is “driven by continuous innovation”.

This is something of a double-edged sword. The raft of new entries, variants and pack sizes can be problematic for retailers, but the sales opportunity that sports and energy drinks provide makes the sector worth understanding in a little detail.

Mintel calculates that sales rose 51% between 2004 and 2008 – a period in which many soft drinks were blighted by the recession. This increase was driven by a relatively small group of consumers: only about a third of the population buys such drinks, suggesting there is potential for even bigger growth if marketing teams and retailers are persuasive enough.

Stimulating sales?As it stands, the category’s primary audience is young men, who are buying sports and energy drinks more often than they used to – hence the growth.

Retailers and consumers alike can get confused about the terminology. Energy drinks, which account for the vast majority of category sales, are stimulants, typically containing ingredients like caffeine, glucose and taurine.

Sports drinks are intended to rehydrate after exercise and to supply the body with nutrients.

Red Bull remains the most visible brand in the overall category – thanks partly to its ongoing TV advertising, Formula One racing team, freestyle motocross sponsorship and air races – and is by far the biggest seller.

Trade communications manager Tom Smith says: “Independent and convenience retailers are hugely important to the ongoing success of the energy drinks category. With many purchases being impulse buys and for immediate consumption, the nature of their stores and set-up means they are well equipped to meet consumer demands and usage occasions.  ?“What’s interesting about the shopping habits of sports and energy drink consumers is that there are three main consumption time peaks throughout the day. The first is mid-morning, where consumers want that pick-me-up to help get them through to lunchtime.

“Then early afternoon hits, which is when the category sees the biggest peak of the day, with around 20% of products consumed at this time. This is when consumers are beginning to hit that post-lunch slump and need that extra bit of energy to get through the afternoon. Finally, early evening comes and people need that final bit of drive before the gym or on the way home to ensure they’ve been energised throughout the day.”?Energy shots have recently added a new dimension to the category, though their long-term impact remains to be seen. “With the right focus from retailers, it could be an area which will put a lot of cash in the till,” says Smith. “The key thing to remember is to stock energy shots at the till, away from chillers, to maximise impulse purchases. As part of that, merchandising units have been developed to ensure the category is prominently displayed and that counters are kept clutter-free, while helping to communicate the usage occasion to the shopper.”?Don’t crowd the till?Smith adds: “On too many occasions, till points are awash with many different products which don’t add value and take up space – space that can be given to categories which will deliver growth.”?Simon Gray, managing director of Boost Drinks, recently warned that the market is likely to get more, rather than less, complicated.

He predicts that consumers will make a clear distinction between premium brands, on which they are prepared to pay higher prices – and commod-?itised rivals which are far more price sensitive.

He says: “At the lower end of the market, which has undoubtedly been benefiting from the downturn, brands cannot sustain rock-bottom prices if they are to achieve business prosperity in the long-term without offering consumers a strong value proposition. They must listen to the consumer.

“If the energy sector is to maintain market growth, brands must focus on out-thinking, not necessarily out-spending, to give consumers what they really want.”?One new entrant which claims to offer something new is Voltz Energy Shot. “Voltz is unlike other energy drinks on the market which tend to rely on calories and rehydration agents for energy,” says spokesman Fraser Lakin. “The healthy Voltz Energy Shot is made up of a complex of B vitamins and amino acids. It’s ideal for consumption before sports activities to give consumers an energy boost when they need it most.

“Compared with other products, Voltz is low in caffeine and does not contain sugar, so it avoids the crash often experienced after consuming other energy drinks.” Another new arrival in the UK market is New Mountain Dew, the PepsiCo brand which first tried its luck in the UK in 1996 but withdrew two years later. With a reformulated recipe for the British market, the brand is being repositioned as a glucose-based stimulant and Britvic believes it can “revolutionise the energy drink industry”.

New Mountain Dew is targeting the convenience sector ahead of a wider roll-out next year, and packaging the citrus-flavoured drink in 50cl PET bottles.

If past performance is any guide, the future will be full of more launches, formats and formulations for retailers to choose between. Energy drink producers are evidently consuming their own products.

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