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.
Arik Ben-Zvi, managing director at WPP's Glover Park Group, said that while the products might be similar and fall within the same category, the brands' positions are different enough to warrant totally different crisis-communications strategies.
"Five-Hour has made a serious effort to become a mainstream product, not for clubbers or extreme sports enthusiasts. They've positioned themselves as the replacement for coffee for professionals, and even run sponsorships on NPR of all places," Mr. Ben-Zvi said. "Monster, on the other hand, has what appear to be younger consumers less concerned about the health [benefits or risks] of the products they consume."
"The situation is probably a little more threatening to 5-Hour," he continued. "Five-Hour is taking a strong stance. It's a high-risk, high-reward strategy to try to block a story so it doesn't erode the brand."
Five-Hour Energy, which has a 90% dollar share of the energy-shot category, according to SymphonyIRI Group, has come out swinging. Measured media spending for the brand is up 32% in the third quarter to $49 million, according to Kantar Media. Spending was also up in the first half. Banner ads around the web point to a video, also featured on the company home page, featuring founder Manoj Bhargava discussing the safety of the product. "If it wasn't good enough for my family, if it wasn't safe for my family, I'm not going to put it out there," he said. "I take it almost every day and twice when I play tennis."
Monster, the largest player in the energy-drink category with a 39% volume share according to Beverage Digest, has pulled back on measured media. Third-quarter spending (the brand first acknowledged it was being investigated in a July regulatory filing) is down 98% to just $138,000, according to Kantar Media. Spending in the first half was also down significantly.
Neither company has an outside agency of record.
Recently, Monster also joined the American Beverage Association, which released Guidance for the Responsible Labeling and Marketing of Energy Drinks in spring 2011. Previously, Red Bull was the only energy-drink-focused company that was a member. Christopher Gindlesperger, a spokesman for the ABA, said the timing was coincidental, as the group had been talking to Monster for "some time."
Gene Grabowski, exec VP and crisis expert at Levick, pointed out that there's value in banding together in a situation in which an entire category is implicated. "If the category is truly on the brink of regulation, the idea of strength in numbers is important," he said. "Then they can cooperate, go to the regulatory body and make a case [as a category]."
The case the ABA is seeking to make is that coffee has more caffeine than the average energy drink. "Policymakers should be aware of the slippery slope such a ban would create," Mr. Gindlesperger said. "To be consistent, coffeehouses would need to card young adults before serving them coffee or tea."