Energy drinks and shots, which racked up nearly $7 billion in sales last year, aren't just on fire-- they're under fire. And two marketers in the middle of the firestorm are responding in distinctly different ways, but with the same purpose: to protect brands dominant in a lucrative and fast-growing beverage segment.
The Food and Drug Administration said it will consider asking companies to disclose the amount of caffeine in food products, as well as imposing limitations on the products' use and warnings about possible side effects. That comes in the wake of an investigation into five deaths that could be linked with Monster Beverage's energy drinks, and 13 deaths that could be tied to 5-Hour Energy, the popular energy shots.
Bill Pecoriello, CEO of Consumer Edge Research, said roughly 65% of all teens and adults are aware of the recent news surrounding deaths that could be linked to energy drinks. Seventy-nine percent of those who are aware of the reports say they believe or somewhat believe them.
And that 's already having a negative impact on the category. In recent weeks, 27% of consumers have stopped or reduced their usage of 5-Hour Energy, with 10% saying it was because of the news and 26% citing health or concerns over side effects. Meanwhile, 20% of consumers said they had stopped or reduced their usage of Monster, with 7% citing the news and 36 % blaming health and side effects.
"It's early days. The news is still evolving on a daily basis," Mr. Pecoriello said at a Beverage Digest conference last week.
Indeed, energy drinks came up repeatedly throughout the day-long conference, held in New York. Joe DePinto, president-CEO of 7-Eleven, said he was "concerned" about the category, a strong seller for the chain of convenience stores. "We need to be responsible and [help] those that we're selling to, to understand the danger of putting an energy drink with alcohol," Mr. DePinto said. "Used responsibly, it's no different than drinking coffee."
A significant amount of money is at risk. The energy-drink category reached $5.3 billion in wholesale dollars last year, with growth in the mid-teens through the first half of 2012, according to Beverage Marketing Corp.. That excludes the fast-growing energy-shot category, which recorded $1.3 billion in sales during the 52 weeks ended Oct. 7, according to Symphony IRI Group.
"The energy-drink category is probably approaching some potentially tricky times, depending on what the FDA and FTC decide to do or not to do," said John Sicher, editor and publisher of Beverage Digest. "It's been a high-growth, high-profit category, and I think the threat of potential new regulations certainly creates a question mark, which is going to linger over the next year or two."
Indeed, even before the FDA investigation, the category was dealing with a negative perception among the general population, according to YouGov BrandIndex. Take, for example, the Red Bull Stratos "space jump," which garnered global media attention. While it significantly boosted brand perception scores, it still failed to move Red Bull into positive territory among the general population.