An energy shot, founded by Manoj Bhargav and launched in 2004, gradually took over the market with over $1B in retail sales netting approximately $300 M and gaining 90% market share by 2011. The success of this product is an example of exceptional marketing, efficient operations and a solid business model.
5-hour energy is a 2 ounce energy shot that is available in 6 different regular flavors, 5 extra strength flavors and 1 decaf flavor. As per the bottle, the drink contains zero herbal supplements, B vitamins and amino acids, 4 calories and as much caffeine as a leading cup of premium coffee. To prevent a sugar crash, the drink was made sugar free. It was targeted at a slightly older working demographic than other energy drinks that mostly targeted teenagers and young adults. Over time, given the flavorsome taste, everyone from truckers, students, and professionals started using it.
Soon after its launch, 5-hour energy was fending off hundreds of knock offs with similar packaging, look and feel. The energy shot, priced at $3 per bottle – which did not seem very economical for 2 ounce bottle, also had to compete with more established energy drinks such as Red Bull. On the other side, the customers had health concerns with the product given that it was one of the first few, if not the first, “energy shot” in the market.
- Packaging: The company chose a 2 ounce bottle since it didn’t want to address fatigue and thirst at the same time – in which case a larger bottle would have been used. More importantly, a bigger bottle would be competing for cooler space with Pepsi, Coke, Gatorade etc. The small size allowed the bottles to be placed near the check-out counter of stores competing with key chains, chocolates and other small items making it more likely to be picked.
- Business Partnerships: 5-hour energy convinced vitamin stores such as GNC to sell its products initially. Subsequently, 5-hour energy was being sold at Kroger, Walmart, Walgreens, gas stations, drug stores and other quick mart locations. The company chose to sponsor sports teams / personalities and their partnership with a NASCAR’s Michael Waltrip racing team and driver Clint Boyer especially helped them gain visibility. Among others, PGA Tour golfer Jim Furk and professional soccer player Oribe Peralta were also sponsored.
- Sampling: They held several free sampling events at work places, sports events, restaurants and bars to promote the brand.
- Efficient Operations / Staying lean: The founder states in his TiEcon 2013 talk (link below) that despite being one of the largest selling packaged consumer products in the world, the company limits its sales and marketing team to just 18 whereas competing firms have up to 300 people. He credits his highly efficient sales force (and other operations) to the fact that the average age of hire is ~48 (more experienced) which is very different from other companies gunning for young adults and MBA’s. He focuses on hiring extremely passionate people who are there for the love of their job and not for incentives and hence maintains a very low turnover rate.
- Simplicity: Part of the mission of the company is to keep things simple. This is stressed several times and they are able to do this by having extremely short to the point meetings, being decisive and following a “fast to failure” approach (try a plan quickly to check whether it works). The company also normally stays away from consultants who according to them, “complicate stuff.”
Conclusion: The company has done an amazing job at providing a range of flavors/strengths for its energy drink. It’s innovative marketing and seamless distribution via various channels have positioned it strongly hence aligning its business and operating models to build a very sustainable business.
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