THE BACKGROUND
In a clear signal that the sports and energy drink sector is bucking the general decline being experienced by carbonated soft-drinks brands, Coca-Cola recently announced the addition of not one but two energy products to its portfolio within a month. The first, a variant of its Relentless brand called Inferno, will aim to take share from market leader Red Bull. The second, the Glaceau enhanced-water brand Coca-Cola picked up when it bought US drinks firm Energy Brands in July, arguably has greater potential, as it taps into the trends for functionality and water-based drinks.
Coca-Cola's interest in sports and energy drinks naturally has a solid commercial basis: in 2006 the sector was worth 拢773m, an 11% rise on 2005, according to Mintel, and its value is expected to reach 拢800m by the end of this year.
But not every segment of this sector is enjoying a boom time. Stimulant energy drinks, in particular, are increasingly having to compete with more mainstream soft drinks and have their work cut out.
There are some clear differences between the products in this sector. Sports drinks, which are usually labelled as isotonic or hypotonic, are designed to replenish the levels of sugar, water and nutrients that are diminished during exercise. Energy and stimulant drinks, meanwhile, provide a boost to the system through ingredients including glucose, caffeine and taurine. Energy drinks, such as Lucozade Original Energy, generally rely on sugars to provide an energy boost.
Analysis shows that most of the growth experienced in the market so far has come from existing users drinking the products more often, rather than new users being attracted to the sector. There are key groups that have yet to be won over, most obviously older and female customers. The key target group, however, remains 15- to 34-year-olds. It may well be that the development of new products is necessary to tempt other consumer groups as existing products are not doing the job, but manufacturers are looking to broaden the appeal of their products to build sales.
Sports drinks have benefited from the wider societal trend of people wanting to be healthier and doing more exercise. As such, they have greater appeal than energy drinks. But although membership of gyms is on the rise in the UK, it is still a relatively small proportion of the population that takes an interest in exercise and sports to the stage where they join a gym or health club.
The role of energy drinks is potentially broader. The long working hours put in by the British, combined with commuting, means many employees could be an ideal target market for these drinks. Their strongest association is with young drinkers and clubbers looking to mix them with alcohol to keep them going through a night out.
In the coming years, however, this market will be affected by EU regulations that are being introduced to regulate health claims made by food and drink manufacturers. The purpose is to protect consumers from false or misleading claims and to ensure that all the companies are operating fairly. This means scientific evidence will have to be presented to back up any health claims made on bottles. Some anticipate that this will have an adverse affect on NPD. However, this practice may reduce some of the negative publicity that has dogged the sector since its infancy.
This market is under pressure from other sectors. Water manufacturers are eying its territory, which is also under attack from traditional carbonated drinks. Danone has introduced Volvic Revive functional water, Lucozade has Hydroactive and now Coca-Cola is to build its share with Glaceau.
In the on-trade, the performance of energy drinks is being hit by consumers switching to other mixers, while adult soft drinks and traditional cocktails are enjoying a renaissance. Vodka and Red Bull is no longer the automatic drink of choice among young clubbers.
Coca-Cola sits alongside GlaxoSmithKline and Red Bull in the group of manufacturers dominating this sector. GSK has kept its overall market lead with its now diverse iconic brand Lucozade. Once the ubiquitous drink for invalids and poorly children, the brand has successfully reinvented itself. It introduced Lucozade Energy in an effort to make more headway in the stimulant energy drink market and added the isotonic Lucozade Sport with Caffeine Boost variant in June.
Red Bull remains the market leader in energy drinks but has lost share as its fashionableness has waned. However, its dominant position has kept most of its newer rivals at bay. The brand spends heavily to achieve this - it is reported to invest up to 30% of its turnover on promotions. The focus of these is extreme-sports and cultural event sponsorships, and Red Bull also backs its own Formula One motor racing team. There is now a strong association between the drink and dangerous, adrenaline-fuelled activities. In 2003 it added a sugar-free variant to the range and this year it added a bigger, 355ml can aimed at drivers.
This sector's reliance on young male drinkers is a problem, and with almost two-thirds of consumers claiming never to drink one of these products, there is ample room for expansion. As consumer interest in health and exercise continues, the market for sports drinks should grow; the entry of more natural products should also boost the sector, while the introduction of more dilute 500ml cans of energy drinks, too, will help brands tap in to the mainstream.
By 2012 the combined sports and energy drink market is predicted to be worth 拢979m, a 17% increase on this year, according to Mintel.
SPORTS AND ENERGY DRINKS BY 2004-07 TOTAL ADSPEND (pounds)
Spend
1 Red Bull 18,755,580
2 Lucozade Energy 17,424,923
3 Lucozade Sport 9,291,440
4 Lucozade Hydro Active 7,126,596
5 Powerade 2,451,421
6 Sprite 3G 1,232,751
7 Lipovitan B3 492,659
8 Powerade Aqua+ 348,281
9 Lucozade Sport Caffeine Boost 90,584
10 Myoplex supplements 54,424
Source: Nielsen Media Research
SPORTS DRINK BRANDS BY SALES AND MARKET SHARE
2007 2005 05-07
pounds m % pounds m % % chng
1 Lucozade (incl Hydro
Active) 119 60 86 57 38
2 Powerade 32 16 24 16 33
3 Gatorade 5 3 4 3 25
Other brands 44 22 36 24 22
Total 200 100 150 100 33
Source: Mintel
Totals may not add up to 100 due to rounding
LEADING ENERGY DRINK AND STIMULANT DRINK BRANDS BY SALES AND MARKET
SHARE
2007 (est) 2005 05-07
pounds m % pounds m % % chng
1 Red Bull 271 43 249 45 9
2 Lucozade Energy 243 38 188 34 29
3 Sprite 3G 8 1 n/a n/a n/a
4 Relentless 7 1 n/a n/a n/a
5 Red Rooster 7 1 10 2 -30
6 Boost 3 n/a 1 n/a 200
Other brands/own-label 98 15 100 18 -2
Total 637 100 548 100 16
Source: Mintel
ANALYST COMMENT - JENNY FOULDS MARKET ANALYST, ZENITH INTERNATIONAL
The UK sports and energy drink markets appear to be undergoing a period of transformation, not so much in terms of volume - both categories continue to see good growth there - but more in terms of consumption occasions.
The UK is Western Europe's biggest energy drink market by far. Volume sales rose by more than 14% to an estimated 120m litres in 2006. With strong roots in the on-trade as a mixer for young party-goers, energy drinks are experiencing a swing toward retail.
Energy drinks' growth in the mainstream is a result of consumers' changing agenda, with the factors of health, convenience and provenance affecting purchasing decisions. While still the market leader, Red Bull is witnessing a gradual erosion of its market share as its competition proliferates and ever-more 'healthy' juice- and water-based alternatives appear on the market.
Sports drinks and waters have similarly entered the mainstream. Previously much more of a niche product for serious athletes with distribution predominantly via sports clubs, gyms or the internet, they are now on supermarket shelves in abundance.
With their 'lighter', less specific positioning, hypotonic sports drinks and waters are being used for all types of occasions, from a general post-sport 'pick-me-up' - with little interest in their potential as a pre-sport performance enhancer - to an energy drink alternative for drivers.
The latest launches by some of the category's major players, such as GlaxoSmithKline's caffeine-enriched Lucozade Sport and Taut UK's 'isotonic energy' offering, are serving to confirm sports drinks' apparent move toward a simple 'energy' positioning.