Energy and sports drinks are big business

The energy and sports drinks market is big business and is up £200m on last year. Ben McFarland reports.

When GlaxoSmithKline first launched Lucozade Sport more than a decade ago, few would have predicted the impending boom in the energy and sports drink sector. Over the last five years the category has come out of the sports locker and has taken up residence in pubs, clubs and bars and is no longer the exclusive domain of a small number of isotonic thirst-quenchers designed to enhance the physical performance of athletes.

In 1995, the arrival of runaway market leader Red Bull heralded the birth of a new "functional" energy drink segment aimed at providing stimulation for those struggling to keep up with the accelerated pace of modern life.

According to a report by drinks analysts Zenith, this functional segment is driving the vast majority of the unprecedented growth within an energy and sports drink sector currently worth an estimated £700million, up 40 per cent (£200million) on the year before.

The functional energy drink category, characterised by caffeine-based drinks containing active ingredients such as amino acids like taurine to herbs such as guarana, has enjoyed phenomenal growth during the past two years. Spearheaded by the incredible success of Red Bull, the value of the functional segment has grown from £22.9million in 1998 to a staggering £166.6million last year.

With on-trade sales of energy drinks rising by an astonishing 58 per cent to more than £340million last year, much of this expansion can be attributed to the success of energy drinks in pubs and clubs - and in particular the penchant for mixing the likes of Red Bull with vodka and other alcoholic drinks.

Despite this unparalleled growth, there is a general consensus that both the manufacturers and pubs aren't doing enough to exploit energy drinks within the on-trade.

Although Red Bull accounts for 91 per cent of all on-trade energy and sports drink sales, an amazing 59 per cent of outlets, mostly leased or tenanted pubs, do not yet list the brand while a huge 94 per cent do not stock Lucozade.

Furthermore, while tenanted pubs account for 45 per cent of soft drinks sales in licensed outlets, they are responsible for a mere 27 per cent of all Red Bull sales in the on-trade - which suggests a need for increased distribution.

Although, the majority of these outlets are made up of community locals, where the tempo of life doesn't lend itself to high-energy supplements, it would be foolish to dismiss the category entirely.

Energy drinks deliver huge profit margins, massive returns and industry observers predict that the energy drink sector will further encroach on the soft-drink market over the next few years.

More than 20 new energy and sports drinks were launched last year, including brands from four of the top five UK soft drink companies. Furthermore the majority of these newcomers, eager to exploit a market that is yet to fire on all cylinders, are investing heavily in marketing - more than £20million was spent on advertising by energy drinks manufacturers last year.

Having previously insisted that they had no plans to enter the energy drinks sector, last year soft-drinks giants Britvic and Coca-Cola surprised many by respectively launching Carbon and Burn in an attempt to clip the wings of Red Bull which currently boasts 70 per cent of the UK market.

Burn, a fruity energy drink containing caffeine, was the first new product to be launched by Coca-Cola in six years and is spearheading the company's new marketing approach.

In a move that imitates a strategy used by rival Red Bull six years ago, a shroud of secrecy and mystery has surrounded the launch of Burn.

When Red Bull was first launched, instead of a high profile and advertising-led campaign, empty cans of Red Bull were left in a number of the top UK style bars while in the US, staff working in the leading hip and happening Hollywood bars and restaurants were given free samples to attach to their tray to help them through the night and handed strict instructions not to sell any cans to customers.

Word of mouth among the "opinion-making" elite did the rest, to overwhelming effect.

Inspired by this clandestine "viral marketing" approach, Burn opted for a similar low-key launch late last year.

Consequently, save a handful of trendy young movers and shakers, few people have even seen or heard of Burn, and despite Coca-Cola's tendency to be extremely active in promoting the fact that it is under no circumstances promoting the product, Burn is yet to make any impression on the energy drinks market. However, patience is key and it remains to be seen whether Burn will manage to emulate the runaway success of Red Bull.

But it would be an error to suggest that Red Bull has it all its own way. It is positioned as a premium stimulant rather than a refreshment or mouth-watering drink. A spokesperson for Red Bull said: "We have only two dimensions, people who are mentally fatigued and people who are physically fatigued or both.

"If they find that the product keeps them awake, in a good mood, focused, vigilant, then the chances are they will buy it again. If you do it right, you can get up to 75-80 per cent re-purchase rate."

However, by leading on effect rather than taste, Red Bull leaves itself open to less expensive competitors that are willing to undercut the brand on price.

Furthermore, it remains to be seen whether a recent ruling by the Advertising Standards Authority (ASA) will help to level the playing field.

Following a four-year investigation, the ASA took Red Bull by the horns and censured the brand over claims that the brand's ingredients, which include sugar, caffeine and the amino acid taurine, help to improve endurance and concentration.

It's too early to tell whether this de-mystification of Red Bull's powers will open the door to brands such as Red Devil and Lucozade Solstis who are similar in both taste and ingredients.

During a year when it spent £1million on a high-profile advertising campaign featuring the infamous footballer and Hollywood star Vinnie Jones, the lower-priced Red Devil became the fastest growing emerging brand in the sector with a 185 per cent increase in sales.

Similarly, GlaxoSmithKline's Lucozade Solstis, which embarked on a comprehensive press and poster campaign, has enjoyed impressive 86 per cent growth and is gaining an ever-increasing share of fridge space.

Oasis Revitaliser, Purdey's and Indigo are beginning to gain momentum while the likes of V, Virgin dt and Lipovitan are some of the few brands who have jumped on the energy drink bandwagon and not fallen off.

Despite the launch of numerous new energy drinks the total market share of the "big three", Red Bull, Lucozade Energy and Lucozade Sport, has increased since 1999 and no other energy or sports drink brand registers more than a 0.9 per cent distribution rate in the on-trade. Consequently, the wealth of choice is not getting through to the pub-goer.

If you consider the potential for high sales, high margins and huge profits and combine it with an eclectic range of brands designed to meet all our high-octane needs, it is bewildering why licensees do not dedicate more time and shelf space to an energy sector that looks set to run and run.

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