FUNCTIONAL BEVERAGES FROM ENERGY TO RELAXATION WHITE PAPER // TREND RESOURCES. Lisa Demme, Beverage

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1 page 1 FUNCTIONAL BEVERAGES FROM ENERGY TO RELAXATION Lisa Demme, Beverage In 2011 the energy drinks and energy shots market sales were estimated at $8.1 billion, which represented a dollar sales growth of 16% over The market has regained its growth after experiencing a dip in 2009, which is generally attributed to the influence of the recession. Mintel projects the market to attain 92% growth during on the strength of a steady stream of innovations from the top energy drinks/shots manufacturers like Red Bull, Monster Energy, Rockstar and 5 Hour Energy. Some of these new products such as Rockstar Recovery, Monster Rehab, Rockstar 2X, and 5-hour Energy Extra Strength already show signs of success, evidenced by impressive dollar sales growth in these line extensions.

2 page 2 The relatively young status of the category itself, especially within energy shots, holds great promise for growth. To enjoy uninterrupted growth across the category, there absolutely will be the need to engage new consumers and the need to extend beyond the energy claim. To accomplish this, energy drinks and energy shots will need to broaden their functional platforms while allaying consumers concerns about product safety. Energy drink makers do not own energy and we see a proliferation of energy bars, chewing gums, strips and sprays positioned to take share of the energy platform. The newest format we ve seen is a 2012 innovation, AeroShot a lipstick-size inhaler that contains caffeinated and vitamin B-fortified powder that the users can inhale through the mouth to get energy boosts. Invented by Harvard professor David Edwards, AeroShot so far has been sold as a dietary supplement a positioning questioned by the Food and Drug Administration. Many of these formats are cheaper energy boost options so it becomes important that beverage manufacturers offer experiential benefits and functional benefits not easily imitated by other energy-boosting formats. Energy drink manufacturers will therefore need to move beyond this single claim of energy to grow their consumer base and ultimately their sales. Additional benefits that beverages can deliver to differentiate themselves beyond energy include promoting benefits of hydration and unique flavor experiences. Many energy drink manufacturers are now crossing over into other nonalcoholic beverages to create these unique flavor hybrids. Monster and Rockstar in 2011 and 2012 have exhibited a move toward this strategy where both brands, gauging the popularity of RTD tea and lemonade flavor, successfully introduced lemonade flavored and tea-based products. Natural or clean energy is some of the new buzz surrounding this category as is the emergence of innovation that addresses the opposite need-state of energy and one that promotes calm or relaxation. In the following report we will explore a few of these game changers and cite relevant examples of manufacturers and retailers who have led the innovation from the polar opposite need-states of energy to relaxation. We will close with an overview of trending U.S. flavors across the energy drinks and energy shots beverage categories. CLEAN/NATURAL FINDS FAVOR WITH ENERGY SEEKERS Natural energy drinks claim to have all-natural ingredients, especially the source of their caffeine. Most natural energy drinks derive their caffeine from green tea extract while some use green coffee bean. In comparison, most energy drinks use synthetic caffeine. The trend toward eating all-natural foods has created a space for natural energy drinks. Mintel s exclusive survey reveals that half of all energy drink drinkers find the made from all-natural ingredients claim influential when purchasing energy drinks. Therefore, all-natural energy drinks may have sustainable growth potential. In addition to being healthy, consumers looking for natural energy likely consider it safe compared to regular energy drinks. However, it is likely that allnatural energy drinks may contain as much caffeine as regular energy drinks, albeit from natural sources. Therefore, natural energy drinks could differentiate by listing the amount of caffeine on packaging, if the product has less caffeine than regular energy drinks. Natural energy drink products initially were launched by relatively unknown beverage manufacturers, which evoked little confidence in consumers. FRS Healthy Energy is the only brand that has exhibited impressive growth of 109% in FDMx in the 52-week period ending March 18, However, the brand s sales at $9 million remain miniscule compared to the top three brands in the segment. In 2012, Starbucks entered the energy drinks category through its all-natural Starbucks Refresher. The company, with its marketing muscle and high brand awareness, may gain consumer trust. Should natural energy drinks proliferate, Mintel believes they are not likely to create direct competition for regular energy drinks because key energy drink consumers, adults aged 18-34, are less likely than average to express interest in all-natural ingredients in energy drinks.

3 page 3 FRS Healthy Energy Cherry Limeade Energy Drink is said to be a delicious performance product, powdered by a patented formula containing quercetin, green tea catechins and essential vitamins. The all-natural product contains 90 calories, 3% fruit juice, and is free from artificial sweeteners, colors and flavors. Starbucks Refreshers Orange Melon Sparkling Green Coffee Energy Beverage is a lightly carbonated blend of 25% fruit juice, B vitamins, ginseng and green, unroasted coffee beans without any coffee taste. This energy boost beverage contains only 60 calories. Vuka Think Sparkling Energy Drink is a lightly carbonated mix of pomegranate and lychee, with DMAE, ginkgo biloba, and panax ginseng and natural caffeine to keep one alert and active. It further contains vitamins B-3, B-5, B-6, B-12, and grape seed extract, is free of preservatives and sweetened with all natural stevia. Nestlé Jamba Strawberry Banana All-Natural Energy Drink is free from artificial colors, artificial flavors, and taurine and contains natural caffeine to help support mental alertness. The product contains 70% juice. NEW INNOVATION IN ENERGY DELIVERY = SUPER CONVENIENCE Energy drink mixes represent the smallest segment in the market. However, this segment has exhibited impressive growth during The growth could be attributed to a couple of energy drink mix brands that offer on-the-go convenience: Kraft Foods Crystal Light On-the-Go and Four C Foods 4C Totally Light 2Go Energy Rush. In addition to dry pack stick pack mixes, in 2012 Kraft Foods unveiled its MiO water enhancer line extension with an energy component. Gauging MiO s success in the bottled water category, this product holds great promise for growth in the energy sector as well. MiO Energy Liquid Water Enhancer is available in a Green Thunder, a natural and other natural black cherry flavor. Crystal Light Energy has a series of flavors: Wild Strawberry, Grape, Citrus and Peach Mango exclusive to Walmart. 4 C Totally Light 2Go Energy Rush is available in Berry, Orange, Strawberry and Half and Half and has two variety packs. OTHER FUNCTIONAL BEVERAGES VIE FOR ENERGY SHARE Outside of the energy drink and shot category there are numerous beverage manufacturers creating products with functionality designed to meet the general consumers need for additional stamina and endurance required to support their busy and active lifestyle. An example of such a functional beverage is the segment newcomer to the juice category coconut water. Coconut water introductions like Zico and Vita Coco made from green coconuts, are free from added sugar and therefore naturally low in calories, are a natural source of potassium and are positioned as natural hydration to support sports and workout recovery. Directly marketing itself as a sports drink alternative, it is also a realistic assumption that coconut waters are crossing over and taking share from energy beverages as well. Both Vita Coco and Zico lines have quickly innovated and produced numerous flavor line extensions that add natural flavor and variety through addition of 100% fruit juice for a natural refreshing element to better compete and combat flavor fatigue amongst its followers. Flavors often reinforce the tropical origin of the coconut like Vita Coco introduction last summer of Tropical Fruit, which combines coconut water and pink guava, orange, red dragon fruit and pineapple juices. OPPOSITE END OF THE SPECTRUM RELAXATION The success of energy drinks suggests that there may be opportunity to tap into the opposite need-state or occasion and market relaxation beverages. Within the drink category (including alcohol) launches of drinks described as supporting relaxation have remained fairly steady these past four years with an average of 230 launches per year between In 2012 we are seeing an increase in relaxation beverage introductions. A few examples that were early entries with the positioning claim of relaxation are: Marley s Mellow Mood Citrus Flavored Drink (also available in Berry flavored) is lightly carbonated, all natural and is said to reduce stress and relieve tension.

4 page 4 Slow Cow 100% Natural Relaxation Drink is calorie-free with no artificial sweeteners, colors or preservatives and is said to help improve the memory and learning capacity. KickBack and Relax Relaxation Drink is a grape flavored drink made with herbs and is claimed to relax without hangovers or side effects. The demand for functional beverages that offer relaxation and/or stress relief is high in the U.S., suggests Mintel s research published in Functional Beverages U.S., May 2010, where 48% and 36% of all functional drink buyers aged 18+ indicated an interest in functional drinks that help relieve stress and elevate mood, respectively. More importantly, adults aged 18-24, who exhibit the highest incidence of drinking energy drinks, show the highest interest in functional drinks with relaxation attributes. Therefore the conclusion can be drawn that both energy drinks and relaxation drinks share the same key consumer. Even though relaxation drinks and energy drinks both have the same target consumer group, no brand in the relaxation drinks category has made marketing efforts matching those of Red Bull and Monster. Additionally, the ingredient list melatonin, kava root, etc. of many relaxation drinks has drawn scrutiny from the FDA. Nevertheless, the energy drink makers have noticed the competition and some have decided to participate. In 2012, Rockstar, the number three energy drink manufacturer, introduced its relaxation drink Rockstar Relax and new entries in the shot format came forth from Mini Chill and I-Chill. RockStar Relax Tropical Guava Relaxation Drink is a sugar-free herbal blend that incorporates the calming extracts from chamomile and passionflower into a noncarbonated drink. Mini Chill Berry Bliss Flavor Relaxation Shot is a sugarfree natural stress relief drink. According to the manufacturer, it acts into mood and focus, and is said to be non-drowsy and free from caffeine. I-Chill Blissful Berry Shot is a proprietary blend of melatonin, valerian root, rose hip and B vitamins, which is said to be the perfect formula to help consumers unwind from the grind. TOP FLAVORS FOR ENERGY & RELAXATION DRINKS Berry, Orange, Pomegranate, Citrus and Lemon are the top 5 flavors used in new drink product introductions ( January 2007-December Energy Drink, Juice & Tea Categories) with an energy claim or the word energy used in the label or description. When we draw out the top five flavors with a relaxation claim or relax in the label or description the top five flavors are Lemon Balm, Pomegranate, Tropical, Raspberry and Pineapple. When flavoring energy drinks, beverage scientists are looking for flavors that go well in high-sugar/high-acid bases, while covering or complementing the functional ingredients.

5 page 5 TOP 20 TRENDING FLAVORS FOR ENERGY Categories of: Energy Drinks, Juices, RTD Teas in the U.S. January 2007 December 2011 TOP 15 TRENDING FLAVORS FOR RELAXATION Categories of: Energy Drinks, Juices & RTD Tea in the U.S. January 2007 December 2011 FONA CAN HELP! Flavoring energy drinks and functional beverages can be tricky due to certain properties of ingredients such as caffeine and ingredients like vitamins, minerals and amino acids. Let FONA s flavor experts help create your perfect flavor. From concept to manufacturing, we re here every step of the way. Contact our Sales Service Department at to request a flavor sample or visit Green-Indicates Over Average Index to Prior Year; Red-Indicates below Average based Upon Prior Year. Green-Indicates Over Average Index to Prior Year; Red-Indicates Below Average based Upon Prior Year SOURCES Mintel GNPD Mintel Food & Drink Functional Beverages U.S., May 2010, Mintel.