CPG Playbook   //   June 5, 2023

New energy drink startups are hoping to give people a better buzz

For decades, the energy drink category was dominated by major brands like Red Bull, Monster and Rockstar. While these brands remain popular, better-for-you variations have inevitably begun to pop up in recent years. 

While some entrants over the previous decade, like Celsius and Cellucor C, have seen recent bursts of success, no one brand has been able to dethrone Red Bull as the most popular energy drink around. Celsius, which went public in 2019, posted a record revenue of $260 million in the first quarter of this year, up 95% from $133 million the previous year. Other once-promising brands are struggling; the parent company of Bang Energy filed for Chapter 11 bankruptcy in October, and the company is currently up for sale.

In turn, more established beverage companies like Zevia and Buchi are now trying to get into energy drinks. But younger startups are also trying to disrupt the space with more premium formulas and packaging. With cleaner ingredient labels and more modern branding, these new brands are trying to bring a wellness flair to the energy drink sector.

Until now, this category has been dominated by big brands using a lot of artificial ingredients and sugar, said Ashley Selman, co-founder of functional beverage brand Heywell. “There’s a rise in people looking for healthier options that still deliver energy, but without extreme levels of caffeine.”

As a result, these startups are attracting more capital. In March, the mushroom-based functional energy drink Odyssey Elixir raised $6.3 million in Series A funding, following a $1.3 million investment the previous year. Format innovations are also occurring, with VAE Labs touting a spray device that promises to deliver the same amount of caffeine as a cup of coffee. In February, the startup raised $2 million in venture capital after two years of development.

The digitally-native energy drink entrants 

Interest in energy drinks was renewed amid the pandemic — with Nielsen reporting in April 2021 that energy beverage sales were up 12% year-over-year to $14.8 billion. Furthermore, energy drinks are the most popular supplements for teens and young adults in the U.S., with the majority of the demographic between men between ages 18 and 34. 

Coinciding with the interest in better-for-you beverages, new energy drink brands are trying to make a name for themselves in the space by touting what they believe is their own, superior combination of supplements, benefits and taste.

In January, functional energy drink Gorgie hit the market after months of building buzz on social media. Michelle Cordeiro Grant, founder of DTC lingerie brand Lively, started formulating the brand last August by using TikTok to taste test recipes with followers. 

“A year ago I noticed Red Bull is still the number one selling energy drink, and thought ‘what if I combined energy and wellness to make a clean, better-for-you version?’” she said. Gorgie contains popular supplements like L-Theanine, B6, B12 and biotin — with 150 mg of caffeine, zero sugar and five calories per can. Grant said the company was also conscious of the branding, steering away from the loud and dark packaging of most legacy energy drinks. 

Since launching earlier this year, Gorgie is now available at Whole Foods in the Northeast, along with other regional chains like Fairway and Shoprite; The beverage is also set to roll out at national locations this summer. 

Grant said that the ingredients have also been a key to getting into natural and organic grocery chains, giving it an edge over traditional energy drinks. For example, Gorgie meets Whole Foods’ criteria of being non-GMO Project Verified.  

While Grant set out to target young women looking to replace their afternoon coffee, she said the flavors and packaging is attracting a wider appeal. “We’ve been embraced by everyone from investment bankers, delivery drivers and nurses so far,” she added. Grant said that the idea for the bright and minimalist packaging is “meant to better reflect modern aesthetics.” This in contrast to the loud cans of Monster and Red Bull seen in young people’s hands.

Functional beverage brand Heywell launched in late 2019, and in February the company debuted its Energy + Focus drink. Co-founder Selman said the company spent a year developing the energy SKU — which contains 75mg of caffeine from organic green coffee beans.

“Right now, the combination of mood support and energy is a white space,” Selman explained. “We leaned into that with the orange mango, which contains ginseng and ashwagandha.” Heywell uses various so-called adaptogenic ingredients, like lemon balm and schisandra berry, whose benefits Selman said customers are still getting educated on.

The energy flavor first launched at Foxtrot, where Selman said it has consistently sold out. Heywell recently launched in Wegmans, Gelson’s and Meijerm, where Heywell cans are merchandised alongside kombucha and other functional sparkling beverages. The company,  which is currently growing 270% year-over-year, is in the process of raising a seed round of funding to support its next series of retail launches. 

Thus far, repeat purchases have been strong across Heywell’s portfolio, with the energy SKUs quickly becoming popular among customers. “People are expecting more from their food and beverage,” Selman said. “That’s not going away.” 

Tapping into a premium market 

Mike Jones, Managing Director of Science Inc., the venture fund that’s backed CPG startups like Liquid Death and Dollar Shave Club, said the better-for-you energy drink trend is part of the shift in the overall beverage category. 

“One of the problems with energy drinks is that they’re rarely all natural,” Jones said. “There’s an opportunity to target the U.S. consumer who’s bored with the legacy players.” He pointed to trendy ingredients like prebiotics and adaptogens, paired with low-sugar, as part of the current wave.

The larger players are also innovating in this area. In April, C4 unveiled its Smart Energy line with a major rebrand — that also features six new flavors including strawberry guava and blood orange yuzu. Nutrabolt-owned Cellucor C4 Energy uses a plant-based green coffee bean as the main ingredient and source of energy boost. 

Jones said that while Americans may be hesitant to pay more than a couple of dollars for a can, premium energy drinks are usually positioned as an affordable luxury during a down economy. “It’s on par with a craft coffee drink for when people want to treat themselves during stressful times,” he explained. 

As for taking market share away from the Red Bulls of the world, Heywell’s Selman said there is enough demand for various brands to compete. “The loud energy brands are great, but there is also an appetite for a premium version with more natural ingredients,” she said.

Similarly, Grant of Gorgie said the company “wants to create a new energy category, for people who don’t usually buy energy drinks can be pulled in through the branding.”