The Emergence of Health and Wellness as the Leading Trend in Energy Drinks

Celsius energy drinks are currently being sold in Los Angeles, as of 25 October 2021 (Photo courtesy of The Image Party // shutterstock.com).

For people from a specific time period, the phrase "energy drink" may bring to mind a young person wearing a hooded sweatshirt who is isolated in their bedroom, either playing video games or watching extreme sports until the wee hours of the night.

The exaggeration about energy drink consumption is not unfounded. An academic investigation conducted in 2018 revealed that 41% of teenagers in the United States had drunk an energy drink during the last three months. Moreover, a different examination indicated that 28% of adolescents in the European Union had consumed this type of beverage in the last 72 hours.

Big players in the energy drink industry like Red Bull, Monster Beverage Corp. and PepsiCo may not publicly acknowledge it, as they are cautious about the negative impacts of excessive caffeine on youth, but their marketing strategies over the past decade have shown a clear inclination towards this stereotype. Monster, for instance, endorses various extreme sports events like snowboarding and mountain biking through its flagship energy drink. Similarly, Red Bull has formed its own professional e-sports team and organizes tournaments across different locations worldwide, attracting millions of viewership. These events have undeniably been successful in attracting a new wave of young caffeine enthusiasts, whether or not the companies admit to it.

It's not just teenagers who are consuming energy drinks these days. The global energy drink market is now valued at a whopping $87.2 billion and is predicted to grow at a rate of 7.05% between 2023 and 2027, as reported by GlobalData. This popularity is reflected in the incredible amounts of money that multinational beverage companies are willing to invest in this market. For instance, last August PepsiCo spent $550 million to purchase an 8.5% stake in Celsius Holdings, while in December Keurig Dr Pepper agreed to pay $863 million for a 30% share in Nutrabolt, the maker of C4. These companies wouldn't be throwing around such large sums of money if they didn't see huge potential in the energy drink market - this isn't just a fad for a handful of rebellious teenagers.

According to Nick McCoy, who serves as the managing director at Whipstitch Capital - the biggest independent investment bank in the US that concentrates on the "better-for-you" industry - one factor that propels CSD behemoths to finance the category is its prevalence in the convenience channel.

According to him, beverages benefit greatly from energy being the top option in convenience. The reason being, people immediately purchase and consume them, which adds to what they would have already bought from elsewhere.

When asked why energy has become a significant aspect of convenience stores, McCoy provides a straightforward response: "Because it's a popular item to sell," he explains. "The demand for it is immense. After all, everyone requires gasoline, correct?"

Every day, in the United States, there are individuals who work in various professions such as labor, trade, plumbing, and contracting. These workers often stop by convenience stores to purchase a sandwich and energy drinks.

Transforming Energy Drinks into Health-Boosting Beverages

Despite blue-collar laborers and teenagers remaining a significant portion of the primary energy consumers, numerous emerging brands are now targeting a more extensive range of consumers. These brands concentrate on providing an assortment of practical benefits besides caffeine and also offer features like zero sugar and fewer calories, catering to the demands of health-conscious individuals.

There's a new company called Machu Picchu Energy that just started in California, and they sell drinks that have caffeine from organic green coffee beans, as well as Peruvian maca and B-Vitamins. They say it's all-natural!

The CEO, Daniel Scharff, has a belief that the perception of energy drinks among consumers is changing due to the increase in demand for health and wellness.

He stated that there used to be a certain notion about energy beverages not too long ago. If someone mentioned the phrase "energy drink," many individuals would have immediately had a negative reaction.

In all product categories, individuals seek healthier alternatives and are becoming more aware of the contents of the items they consume. As a result, numerous new customers are entering the market and are not necessarily classifying themselves as consumers of energy drinks.

According to Scharff, a fresh and varied group of shoppers in the church of consumers are looking for items that obtain their power from nature and are not filled with added sugar and artificial tastes.

According to him, people are being very careful about reading the labels of the products they purchase. They have a keen interest in knowing the ingredients used, especially when it comes to sugar, artificial flavors, and man-made caffeine. While they need products to provide them with energy, they want the best energy they can get.

The outbreak of Covid-19, while not its root cause, has played a part in driving up the demand for healthier options. According to a survey conducted by GlobalData in 2021, 82% of consumers in the US reported that they took into consideration the presence of immunity-boosting ingredients when deciding what to purchase. In that same survey, 73% of US consumers considered energy-boosting ingredients to be either "essential" or "nice to have" in their purchasing decisions. In the 2022 "Global Soft Drinks Performance and Outlook" report, GlobalData observed a "strong positive impact" on the projected future value sales of energy drinks due to the shift towards clean-label and natural products.

When combined, all of these factors create a great opportunity for energy drink brands that market themselves as "healthier" options to succeed.

According to Scharff, retailers are also searching for what consumers seek, which is healthy sources of energy. They are aware that individuals desire products that are nourishing and when they have room available in their cold storage, they aim to stock it with such products.

McCoy agrees and states that although products labeled as 'clean label' or 'better-for-you' currently have lower energy indexes compared to other grocery and convenience categories, this segment is experiencing fast growth.

He believes that healthy and nutritious items can definitely make up at least 10% of the $18 billion industry in the United States.

Not only are newly established energy drink companies catering to this trend, but also big players in the carbonated soft drink industry are taking advantage of the chance to increase profits and avoid strict regulations on sugar, caffeine, and unnatural components by promoting energy drinks with no sugar, fewer calories, and added functionality.

Prominent companies in the CSD industry enter the market for nutritious energy beverages.

In 2001, Red Bull introduced a version of its famous energy drink that doesn't have any sugar. Later, in 2018, the company decided to offer sugar-free options for all of its flavors. Monster Beverage Corp has also joined the trend and is launching a sugar-free version of its popular 'green' flavor this year, despite already having several zero-sugar products available.

PepsiCo is doing some interesting things when it comes to creating healthier energy drinks. Some of the beverages they offer under their energy drinks category include Mountain Dew, Rockstar Energy and Celsius. These brands have all been experimenting with adding various functional ingredients to their products. Celsius, in particular, is an exciting development from PepsiCo, as it started out as a supplement for fitness enthusiasts. Today, the brand continues to promote the metabolism-boosting effects of their beverages, and they even have a line of dietary supplements available.

Bart LeCount, who is the vice president of global brand marketing for PepsiCo's hydration and energy, mentioned that the company has been adapting to the increasing demand for health and wellness products with innovative products like Rockstar Refresh (a line with low calories, zero sugar, and fortified with vitamin C) and Celsius. This shows how the Gatorade brand owner is keeping up with the changing needs of consumers.

"We will keep looking for ways to expand the range of products we offer which must adapt to changes," he says. "We have experience in energy, but we want to focus more on what the consumers want and take advantage of the growing demand in this market."

LaCount acknowledges that a considerable factor behind the shift of numerous energy drink companies is the worldwide surge in regulations concerning the levels of sugar and caffeine in their products. Nevertheless, LaCount maintains that the boost in demand is also driven by the consumers themselves.

"It's a combination of factors," he explains. "They're interrelated. The laws are raising consumer consciousness. Meanwhile, this was already a prevailing tendency. At PepsiCo, we're open about our aims, such as reaching, by 2025, a minimum of two-thirds of our drink assortment consisting of items that contain no more than 100 calories from artificial sugars."

This is a trend that we notice in various product categories, not only limited to energy drinks. It presents itself as a chance for us to create new and improved products to add to our selection.

The development of new energy drink options, like Rockstar Refresh, has involved breaking free from the usual cliches and taste preferences of these products. According to LeCount, the next wave of innovation from PepsiCo will center around tailoring flavor options to different emotional states. By doing so, the company can expand the variety of situations where their products could satisfy consumers' demands.

The future of sustainable energy for a healthier planet

McCoy thinks that there is even more potential for the development of healthy energy products in the future. He points to an increase in interest in the US for unique and protected combinations of amino acids that provide practical advantages, like helping with dehydration, lessening the symptoms of diarrhoea, and improving gut health.

The focus on functionality has always been important, but I have noticed a rise in the use of unique, patented blends of amino acids as a functional addition to beverages,” the speaker explains. “Although there isn't currently a blend that directly replaces caffeine, these blends could still make a significant impact on the energy market within the natural channel. It may take a few years for this trend to fully develop, but it's definitely an exciting and noteworthy concept that I am actively keeping an eye on."

I have observed that some brands are implementing this strategy in the consumer industry, and it is already being used in healthcare. However, it has not yet become a common practice in the general market.

Still, many people feel that the larger companies are not keeping up with product innovation and the potential for energy drinks to be consumed in new ways. Scharff believes that Machu Picchu's upcoming release of two sugar-free yerba mate drinks goes beyond what bigger companies can achieve.

As someone who comes from a large consumer packaged goods company, I understand the challenges they face when it comes to creating new and innovative products that appeal to their target market. It's not an easy task to accomplish by having a group make decisions together. In fact, more often than not, these companies end up purchasing new and innovative products from other companies who have already developed them.

Regarding new sub-categories and developments in the field, LeCount explains that PepsiCo is constantly seeking out inventive products that can fulfill changing consumer demands around the world. He explains that they keep an eye on these trends over time to determine if they are worth pursuing further. Additionally, he notes that their current portfolio of products is already impressive and they plan to continue expanding it in the future as opportunities arise.

At the moment, though, the food and drink giant is not completely abandoning its primary audience of people who enjoy watching extreme sports and playing video games.

LeCount insists that they do not target children in their marketing efforts. Instead, they focus on reaching the consumers who prefer traditional energy drinks. Though this group is substantial and consumes a lot of energy drinks, they have no intention of abandoning this market.

Note: Whipistich has a limited understanding of what falls under the category of ‘better-for-you’ products, which is based solely on data from the Natural Products Industry provided by IRI/SPINS. This means that certain brands like Celsius Holdings would not be considered in this segment.