Source: Foodaily Daily Food (ID: foodaily)
Undoubtedly, energy drinks will become the next industry hotspot. But where is the next "Red Bull"?
On November 1, Coca-Cola announced it had acquired full ownership of sports drink maker BodyArmor. This is a complete acquisition following Coca-Cola's 2018 purchase of 15% of BodyArmor's shares at a discount.
This time, using $5.6 billion in cash to acquire the remaining shares may be aimed at strengthening competition with PepsiCo in the sports drink sector.
At the same time, Genki Forest quickly launched its second functional beverage brand, "Big Monster," shortly after releasing "Alien." Even the classic domestic sports drink Jianlibao broke its silence, partnering with the China National Research Institute of Food and Fermentation Industries to launch a new generation of "Oriental Magic Water" called Chaodeneng... It is undeniable that such frequent market moves signal that both international and domestic beverage giants are aggressively capturing the energy drink market.
However, upon closer inspection, one might notice: Why, despite such significant market activity, are there so few people around us who regularly consume energy drinks? Why do consumers' impressions of "energy drinks" still mostly remain at "Red Bull"? Is the energy drink market not large enough, or are the products not innovative enough? What does the future hold for energy drinks?
Both the US and Chinese energy drink markets started with Red Bull. Why has China's market growth been much slower than the US?
The development of energy drinks can be traced back to the 1920s. In 1927, Lucozade appeared in the UK as the first generation of energy drinks. In 1966, Red Bull was born in Thailand, entering the Chinese market in 1995 and the US market in 1997, after which various energy drinks were launched.
Image source: Pinterest
In terms of market entry timing, China even entered two years earlier than the US, but the industry's growth explosiveness and speed have been far inferior to the US. Why, when the US market has already seen new rounds of mergers and acquisitions among giants, is China only now preparing for continuous expansion? There are three reasons:
(1) Consumption environment. At the end of the 20th century and the beginning of the 21st century, the US urbanization rate had reached a relatively high level, with urban residents living at a faster pace and having a greater demand for "energy replenishment." In contrast, China had just entered the era of a full market economy, with a lower urbanization level.
(2) Consumption capacity. At the end of the 20th century, driven by new technology and the internet, the US economy continued to grow rapidly, with per capita disposable income reaching $22,304 in 1998 (while urban residents in China had a per capita disposable income of only 5,425 yuan). Residents' consumption levels and willingness to consume were high, and demand for beverages, especially non-essential energy drinks, began to rise.
(3) Category selection. Under the long-term cultivation of giants like "Coca-Cola and Pepsi," the US soft drink industry was more mature. In the late 1990s, carbonated drinks were at their peak and beginning to decline, juice sales were also struggling to grow and starting to decline, and there was a strong demand for diversified soft drink consumption. At this time, energy drinks became a way out for many companies to transform and seek new growth.
A large number of companies rushed in, completing consumer education and expanding the category in just a few years. At that time, China's soft drink market had many categories in the introduction and growth stages, presenting a situation of "a hundred flowers blooming," and companies had diverse options for entering the soft drink track.
How did the US energy drink market develop?
So, in the thriving US market, how did energy drinks develop?
First, under the major trends of personalization and health, carbonated drinks declined, and energy drinks ushered in a favorable opportunity.
Starting in the 1960s, sales of traditional carbonated drinks, represented by cola, accelerated in the US and became the largest beverage category in the early 1990s.
But after reaching a peak, decline was inevitable. In 1998, carbonated drink consumption peaked and began to show signs of fatigue, and after 2005, total consumption continued to decline. Behind the market decline, changing consumer demand gradually became the "invisible hand":
(1) Increased demand for personalization, with endless substitutes. Since the 1980s, with the continuous rise in US urbanization rates and per capita disposable income, consumers' pursuit of personalized attributes in consumer goods has also increased.
This drove category diversification—new categories such as flavored bottled water, various functional drinks, RTD coffee, and tea drinks were widely developed, filling previous market gaps and being warmly received by consumers.
(2) Rising consumption levels led to increased health awareness. According to a survey by the American Fitness Products Review Committee, in just the ten years from 1987 to 1997, the number of Americans exercising on treadmills surged from over 4 million to 36 million, and "Uncle Sam" reached an unprecedented peak in attention to physical health.
The fitness craze swept through, and consumers increasingly focused on "working out hard and eating healthy," while also strengthening their awareness of the unhealthy attributes of high sugar and high calories in traditional carbonated drinks. At this moment, sports drinks rose to prominence. In the years when carbonated drink sales reached their peak, functional drinks in the US formed an independent category after Red Bull entered the market, quietly preparing for the subsequent explosion.
The "branding" era of US energy drinks began with Red Bull.
In 1997, European Red Bull, headquartered in Austria, fully entered the US market, first selling Red Bull energy drinks in Southern California, and then gradually expanding nationwide.
It is worth noting that before Red Bull's entry, there was no place for the energy drink category in the US market, and Red Bull initially had only one product.
Facing mature large-scale distribution networks such as Coca-Cola and PepsiCo, Red Bull targeted convenience stores, trendy clubs, and bars, and formulated targeted sales plans based on several divided sales regions. It relied on small specialized distributor warehouses and logistics vehicles printed with the Red Bull brand logo for deep distribution, and only after the market matured did it invest in media advertising to strengthen brand awareness.
After this series of operations, Red Bull was quickly accepted and became popular among Americans who increasingly valued sports and health and had caffeine consumption habits.
Under Red Bull's leadership, the US energy drink market began to expand rapidly. Around 2000-2002, various brands entered the market, and the track gradually evolved into two categories:
One category was energy drink brands launched by traditional beverage giants through acquisitions or self-cultivation, such as Pepsi's Sobe and AMP, Coca-Cola's KMX, and Budweiser's citrus-flavored 180;
The other category was emerging brands newly established or transformed from other soft drinks, such as Rockstar and Monster. In the seven years from 2000 to 2007, US energy drink retail sales grew from an initial $310 million to $7.76 billion, with an average annual growth rate of 58.7%.
Here we must mention a rising star—Monster, which overtook Red Bull in just a few years to become the number one in the US energy drink industry.
Monster's predecessor was Hansen Natural Corporation, headquartered in California. As a local manufacturer mainly engaged in natural juices and soda water, it keenly sensed the industry's development direction when facing growth pressure and tentatively launched energy drink products in the early stages of market growth.
In 2002, Hansen Beverage completed a comprehensive transformation and officially launched the Monster brand. By focusing on young people, closely following consumer demands, and innovating, Monster seized the personalization trend in the US beverage industry and became the core brand of the company and the market.
The following year, its popularity began a nearly 10-year period of high-speed growth. During this period, the company actively expanded overseas and reached deep cooperation with Coca-Cola to strengthen product portfolios and distribution capabilities, basically forming global market coverage.
By 2015, Monster's retail sales market share in the US energy drink market reached 43.6%, surpassing Red Bull's 41.8% to win the crown.
Breaking through tea, coffee, and alcohol: How can Chinese energy drinks overtake?
Compared with other traditional categories, energy drinks are a latecomer in China. Although the market size is not as large as the US, it is still in its infancy and has great potential.
Horizontally, tea drinks, coffee, and alcoholic beverages are currently the three hottest categories in the market, with similar (addictive) attributes. Energy drinks themselves are also "addictive beverages," meeting consumers' daily needs for refreshing and energy replenishment, and have the potential to take over from tea, coffee, and alcohol.
Currently, the functional beverage track is mainly divided into three camps:
First, the giant Red Bull, which holds a 55% market share (2020); second, local brands such as Dongpeng, Lehu, and Tizhi Nengliang; third, emerging brands represented by Genki Forest. In addition to traditional energy drink companies, cross-track players such as Yili, By-Health, and New Hope have also entered the market.
Since 2016, Red Bull has been mired in trademark disputes, and internal brand friction has caused its market share to decline rapidly. At the same time, because the addition of synthetic caffeine requires health product approval, and the application cycle takes 4-5 years, most latecomers have entered with natural coffee extracts, tea, ginseng, and other plant-based ingredients, focusing on more natural and healthy new energy replenishment.
Therefore, more attention naturally focuses on the second camp, represented by Dongpeng and Lehu.
According to data from Ranshu Technology, in 2020, the top three functional beverages in online total transaction value were Red Bull, Mizone, and Dongpeng. The overall brand effect in the e-commerce market is obvious, and the leading brands' positions are stable. Electrolyte water became a new growth point in the industry with a growth rate of 224%.
In this year's Double 11 Tmall "Functional Beverage Best-Seller List," two different specifications of Red Bull occupied the top two positions, Dongpeng ranked sixth, and Monster entered the top ten. At the same time, in Tmall's "Functional Beverage Praise List," Red Bull still firmly ranked first, but Dongpeng jumped to second and third, with Lehu following closely.
From this, it can be seen that consumers' acceptance and preference for local brands are rising. Although Red Bull still leads the Chinese functional beverage market by a large margin, the catching-up momentum of "rising stars" should not be underestimated, especially its largest local competitor, Dongpeng Special Drink. "Leading brands" are rapidly rising and have become an important driving force for category growth.
The above data does not include discounts, returns, etc.
Image source: Ranshu Technology official account
Of course, even though the overall demand for functional beverages is on the rise, it does not mean the market is resting on its laurels.
On the contrary, brands should follow the current rapid momentum, stabilize the needs of traditional consumers, pay attention to the diverse needs of emerging consumers, and carry out product innovation. Looking at the global energy drink market, there are four significant innovation directions worth our reference:
First, break through the traditional consumer base and win over marginal consumers. In the early days, due to ingredients, the core consumers of energy drinks were male, and consumption scenarios were mostly focused on sports, overtime, staying up late, etc., to meet functional needs such as refreshing, anti-fatigue, and energy replenishment.
But with the gradual advancement of modernization, people finally realized that men's functional needs are not just refreshing and energy replenishment. Similarly, the functional needs of women and other consumer groups have not been noticed and satisfied. In addition, under the background of the "she economy" sweeping the world, paying attention to the female market is even more urgent.
Go Girl is a Clean Energy Drink born in California, USA in 2005. Just by looking at the name, you can tell it is a herbal functional beverage designed specifically for women.
Its ingredients include inositol and taurine needed for energy, as well as B vitamins rich in the human body, and it also incorporates mild herbal appetite suppressants. The overall calorie content is less than 5 calories, and carbohydrates are less than 1 gram, fully addressing women's desire for beauty and light body.
In addition, Go Girl also specifically emphasizes "isn't just a drink — it's a way of life!" fully embodying its brand purpose and winning the love of many women who pursue a healthy lifestyle.
Image source: Go Girl official website
Not only women, but children have also become a group of concern for energy drink brands. Berri Lyte is a set of electrolyte drinks for children, providing natural hydration solutions for children.
It is made with organic clean ingredients, natural and clean raw materials, and has half the calories and more than 30% less sugar than traditional sports drinks. Most importantly, it is certified by pediatricians, fundamentally eliminating parents' concerns about it being a "functional beverage."
Image source: amazon
The domestic market also has similar products developed for children. Nongfu's Scream (fiber drink) has won the love of many teenagers and even children due to its unique suction bottle packaging and light taste. But considering the huge child population in China, the current children's energy drink market still has great potential.
How to design products that match children's physiological metabolic characteristics and are highly matched in drinking methods and amounts remains a deep consideration for domestic brands.
Second, energy drinks are beginning to explore multiple circles and scenarios. At present, the consumer group of energy drinks has not only broken through gender but is also extending to various age groups and occupational levels.
From the main consumption circles, the main force has gradually expanded from drivers, blue-collar workers, couriers, etc., who work long hours, to white-collar workers, students, and other groups. Consumption scenarios are also gradually expanding from various "fatigue" scenarios such as overtime, staying up late, and after sports to more leisure consumption scenarios such as parties, travel, and daily life.
Energy replenishment after mental work is running parallel to physical labor, and foreign markets are becoming more targeted in replenishing energy for different scenarios.
For example, Mawé is an energy drink launched specifically for outdoor travel enthusiasts and professionals. Its biggest feature is low sugar, no caffeine, and it adds a variety of B vitamins as a substitute, making it a truly vegan-friendly beverage.
Image source: Mawé official website
In addition, brands have also noticed the increasingly large esports field. Not only does Dongpeng Special Drink exclusively sponsor esports events domestically, but Japan's Otsuka brand has also invited well-known Japanese esports players and game characters to endorse its products, perfectly targeting consumer groups such as esports players and busy office workers who need long periods of mental work.
Image source: www.excite.co.jp
Third, with the rise of healthy lifestyles, natural, clean, and compound energy replenishment is more favored. Currently, countless physical diseases are caused by accumulated life and work pressure. At the same time, under the normalization of the epidemic, more and more people are paying attention to their own health, and people tend to choose more natural, green, and healthy products.
As a result, more and more "0 sugar, low calorie" beverages are beginning to cater to this preference. In the energy drink track, traditional ingredients are dominated by taurine and caffeine, but their inherent "addictive" characteristics also deter many consumers, and even during use, they may experience a certain degree of psychological pressure.
Up To Good Sparkling Energy Beverage from the US noticed this gap and used discarded coffee fruit as the main ingredient, with natural plant extracts such as lemon juice as the formula, to create a new sugar-free energy drink.
Image source: facebook
In addition, single energy replenishment is no longer the only pursuit of consumers. They hope to satisfy several needs in one product at the same time, and compound energy drinks are therefore quickly pre-dividing market share.
In San Diego, an organic cashew vanilla mate energy gel has achieved the "three-in-one" function of "energy supply, anti-inflammatory and antibacterial, and trace element supplementation," and this is just a 30g ready-to-eat beverage, which is in line with the fast-paced modern life. It is not surprising that it can win consumer favor.
Image source: Muir official website
Finally, ingredients and forms blur traditional definitions, and cross-border energy drinks are becoming a trend. There is cooperative innovation within the same category, and cross-border integration is also being attempted in different tracks.
In a previous article, we analyzed that Crown Royal, to cater to young consumers' taste needs, strongly launched a "whiskey + fruit + brewed tea" 14-level cocktail, building a bridge between whiskey and cocktail lovers.
It can be seen that major beverage markets are breaking out of their own fields to seek cross-border integration, and energy drinks are naturally following suit. For example, Revive's newly launched series of energy drinks looks no different from traditional tea in appearance and packaging, but in fact, the product uses traditional kombucha as the base, adding ginger and green tea caffeine.
If you have the chance to taste it, you will likely be captivated by its "strange taste" of slight ginger flavor and the astringent aftertaste of black tea, thereby changing your understanding of fermented beverages.
Image source: foodaily
Coconut water giant Vita is also eager to try, launching Vita Coco Boosted, a beverage based on coconut water, still following its "natural, unprocessed extract" product characteristics, providing consumers with a new way to obtain energy and vitality.
Image source: amazon
Conclusion
Innovation in energy drinks, in addition to dimensions such as product ingredients and forms, consumer groups and scenarios, actively embracing the background of urbanization rate improvement and focusing on developing cost-effective products is also an opportunity point worth paying attention to for brands.
A new round of consumption boom has arrived, and China's energy drink industry has both growth and structural opportunities. Under the background of continuous expansion of the consumer market, if energy drink brands can learn from the growth experience of overseas exemplary brands, closely embrace the most mainstream consumer groups, focus on their real needs, and create a brand image that truly enters consumers' hearts, perhaps the next "Red Bull" and "Monster" will be born!
Reference: China Energy Drink Industry In-depth Report, Guotai Junan
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