US energy drink slowdown due to Red Bull’s ‘lack of innovation’: analyst hints

A recent slowdown in US energy drink growth rates could be due to the lack of innovation from brand leader Red Bull, as it fails to address the needs of ageing millennial consumers, one analyst suggests.

Jonas Feliciano, non-alcoholic drinks industry at Euromonitor International noted that energy drinks posted a CAGR of 28.8% in the US from 2001 to 2011, one of only three categories to do so.

The US energy drink market hit 1.4bn litres in 2011, despite health and wellness concerns and the global recession – which hit carbonates and even fruit juice in the States, he added.

But, despite this strong performance, the recent dramatic growth slowdown for energy drinks (from around mid 2004) meant that the category had reached saturation point faster than expected, Feliciano said.

One concern was that, while the product has reached a high level of penetration, manufacturers had historically lacked innovation to attract new customers or keep old ones, he added.

Red Bull’s steadfast belief

US value leader ($800m) with a 43.2% market share, Red Bull, was the case in point, Feliciano said.

He noted that the brand had discontinued its Energy Shot and Cola brands in 2011, while Sugar Free and Zero launches were obvious reactions to customer concerns regarding high calorie intake.

“Red Bull's steadfast belief in its truly singular brand profile is a testament to the idea that it has a loyal consumer base who views…functionality as synonymous with the unique “Red Bull” flavor.”

Given such strong flavor recognition, it was unsurprising that, beyond diet options, the company had refused to develop twists to its signature brand, Feliciano said.

“However, the lack of innovation from the energy drink giant may be contributing to the category's deceleration. While energy drinks have enjoyed universal channel acceptance, its consumer segment penetration is still far from universal,” he warned.

Other edgy pop culture energy drink brands with a ‘Generation Y’ consumer background were tweaking flavors and brand names to retain their ageing fans, Feliciano said.

Monster, Rockstar, Full Throttle and AMP all began by riffing on the ‘You Only Live Once’ fad popular with the ‘Millenial Generation’, he added.

Derivative line extensions

Beyond the edgy brand names, such brands used distinctive and traditionally black labeling and oversized 16oz cans, the analyst said, and advertised at non-traditional sporting events.

Such positioning initially generated interest among the young, but was also polarizing, alienating older and more conservative consumers, Feliciano said.

“And as these Millennials themselves begin to age, many are seeking ‘healthier’ alternatives such as RTD teas and coffees or organic energy drinks.”

Given that complete product repositioning risked alienating core consumers, brands such as Monster had tweaked brand names via derivative line extensions to tap new consumers, Feliciano noted.

For instance, Monster Rehab is an energy/hydration beverage available in several tea flavors, while Rockstar Energy’s Recovery line included real fruit juice and tea flavors.

But the hybrid hydration/energy trend showed that the ‘energy era’ carried a consumer demand that a beverage ‘do something’, he added, rather than simply quenching thirst, since while taste was paramount it was not enough.