Focus on function
5-Hour Energy maintains dominance in energy shot category
Centered on an otherwise empty wall in the lobby of the Farmington Hills, Mich., headquarters of Living Essentials LLC is a homemade wooden plaque for “2010 Runner-Up Worst Ad in America.” The plaque commemorates the company’s award from The Consumerist website for 5-Hour Energy’s “2:30 Feeling” TV ad. At the bottom, the plaque concedes, “We couldn’t even win this one.”
Manoj Bhargava, founder and chief executive officer of Living Essentials, explains that the homemade plaque for “2010 Runner-Up Worst Ad in America” sums up the company’s common sense attitude.
“The funny part about that ad is it grew our business 50 percent,” Bhargava says. “That one ad that they said was the worst ad in America grew our business. It aired early last year and it grew our business over 50 percent in just three months. It was the most successful ad we’ve ever had, and yet, it was targeted for being the worst ad.”
Bhargava takes pride in his company’s in-house advertisements, which target 5-Hour Energy’s core demographic of hardworking consumers who are in need of an energy boost to get through the day.
The “2:30 Feeling” advertisement was inspired by one of those hardworking people, he explains. During a visit to a potential 5-Hour Energy distributor, an office employee confided that she loses energy around 2:30 p.m. Bhargava didn’t think much of the statement, handed her a 5-Hour Energy shot and left the office.
“About a week later, I’m sitting with the creative guy and I said, ‘The 2:30 feeling,’ it all came out in 5 seconds,” Bhargava says. “We’re going to say, ‘You know what 2:30 feels like? Or 3:30? Or 4:30?’ and that 5 seconds defined that ad.”
The ad depicts office workers straining to finish the day’s tasks amidst yawns or tiding over their exhaustion with cups of coffee and vending machine purchases. The company has continued the program with an ad depicting office workers, a craftsman and a truck driver answering the question, “What’s your 2:30 feeling like?”
Proving the appeal of the ad, Living Essentials has seen the term “2:30 feeling” catch on in everyday language. “If you ask somebody about the 2:30 feeling, they’ll know it,” he says.
In addition to marketing 5-Hour Energy as a solution to the middle of the day slump, the company’s in-house creative team has created ads targeted to morning usage occasions and night shift workers. Bhargava says 5-Hour Energy also is a solution for consumers who need the energy to get motivated, “because once you’re not feeling lazy, you’re like, ‘OK, I can do this.’” At the center, 5-Hour Energy’s marketing works to appeal to its core users.
“We don’t advertise in the same place as Rolex and Bentley because that’s really not our target,” Bhargava says. “The harder you work for a living, the more chance you’re going to be our customer.”
Jumpstart to development
Bhargava, an experienced entrepreneur, has a history of building and fixing companies. Prior to launching 5-Hour Energy, he bought a plastic raw material manufacturer and grew the company to $25 million in sales, he says.
“At that point it was boring, and I was sort of retired on the job,” Bhargava says. “Then I did retire, but that lasted a month because it’s one of those Catch-22s: If you work hard enough to retire, you’re not the kind that can retire. So what happened was a month later I said, ‘OK, let’s start something else.’”
Bhargava founded a company that globally searched for technologies in the chemical industry. At the same time, Bhargava discovered an energy drink at a trade show and was impressed with its efficacy.
“I’m looking at my schedule, it’s all the way until 11 at night, so I said, ‘Mind if I try it?’” he says. “So I drank some and I thought, ‘This stuff is amazing.’ For the next six to seven hours I was just great.”
The encounter inspired him to develop an energy product. Within six months his company had developed a formulation and sold the product into GNC stores, he says. However, expansion beyond that initial outlet presented an issue, Bhargava says.
“We figured out how to make it, it works, and then we looked at the beverage space and I thought, ‘You’re going to fight for cooler space with Budweiser and Coke?’ That’s not a good idea,” he says. “Then I also thought, ‘It’s an energy product, but why do you have to be thirsty and tired at the same time?’ It didn’t make any sense. So for that we said, ‘Let’s make it small.’”
Offering the product in a smaller size also presented a new benefit, Bhargava explains.
“If we make it small, we serve the secondary customer, which is the retailer,” he says. “The retailer then can put it at the front, and now you’re competing with key chains and batteries, which is much easier to compete for space with than Coke and Budweiser.”
He admits the first-generation 5-Hour Energy shot had a taste similar to “cough syrup slightly gone bad.” However, Living Essentials remains dedicated to improving both the taste and function of the product. Bhargava estimates the current line is its sixth generation of product formulation, which contains functional ingredients, such as caffeine, B vitamins and amino acids.
“We have by far the most expensive amount of ingredients in the product than anyone,” he says. “Our target is to be the premium guy, and if you’re going to be premium you need to be the best. So that’s what we did.”
The company handles all of its own production and distribution. It operates two production facilities in Wabash, Ind., where it runs its products on state-of-the-art equipment with strict quality control procedures to check the product before it’s distributed, Bhargava says. Distribution is handled through its 1-million-square-foot warehouse space nearby, he says.
In addition to a team of about 20 in-house sales people who are dedicated to major chain retailers, Living Essentials also uses brokers to sell into smaller stores, Bhargava says.
Carving out a category
When the company started, going to market with 5-Hour Energy presented some obstacles, he says.
“In the beginning it was, ‘What are you now?’ because you’re not a beverage, you’re not a candy, there was no definition of us,” Bhargava says. “We’re like WD-40; it’s not a category, it’s really just us. Now people are much more aware of it and certainly it’s become more mainstream.”
Through the years, the company has grown from stocking 5-Hour Energy in convenience stores and truck stops where the product continues to perform, to front-end space in larger retailers, such as Walmart, Home Depot and Old Navy. Bhargava estimates that Walmart alone sells $120 million of 5-Hour Energy. It also has expanded to selling cases of the product in warehouse stores, including Sam’s Club and CostCo.
As the product gained velocity across retail channels, Bhargava noted the emergence of what he calls the “energy shot wars,” in which several large beverage companies released branded energy shots.
“Our market share on the shot side dipped to about 70 percent, but the war is over at this point and we’re above 90 percent today,” he says.
He says many retailers have expanded front-end space to accommodate racks of the 5-Hour Energy’s five flavors and three varieties. In some retailers, the display space has grown from single cases to three-tier-high, three-case-wide racks to larger floor displays.
“In many stores, we outsell the entire candy rack,” Bhargava says. “In the beginning, we used to gauge ourselves against the big couple of candies: Snickers … and Reese’s and so on, and then we sort of went past them and then it tripled per store in terms of what we sell.”
The growth helped 5-Hour Energy reach a milestone, he says.
“There are, from what I understand, about 50 consumer packaged goods brands in the world that are a billion dollars at retail, and we’re probably the latest entry,” he says. “We’re probably at $1.1 and $1.2 billion at retail. Most of those others are all international, and we’re just in the United States that much, [and] some in Canada.”
In addition to attaining billion dollar brand status, Living Essentials sees the brand continuing to expand. The growth is fueled by new consumers who might not have tried the product, Bhargava says. He estimates that the company has the opportunity to grow from its current audience of 5 to 6 million people to 50 million. He admits that the vast majority of the population might never try the product, but for those who do, they embrace 5-Hour Energy as a solution.
“For our customers, if you’re tired, just take a 5-Hour Energy and you’re done,” he says. “Especially these days when everyone’s working overtime, and then you go home and your job isn’t over. That trend of longer hours, higher stress level, children and families, that trend is going to help us incredibly because the more you’re tired, who you gonna call?”
When it comes to developing new formulations, Bhargava says he develops products with one group in mind: his family.
“Most guys, most companies, develop products for markets, for the old, the young, for this, for that. We don’t,” he says. “Basically, I have most of the input in developing new stuff and it’s really for my family. If my family doesn’t take it, then it’s not a good product.”
The company also has expanded its appeal in the market through the launch of flavors, which Bhargava initially thought was unnecessary.
“We put out Berry because after all, it’s functional,” Bhargava says. “This isn’t like, ‘Would you like cheesecake or would you like pie?’ This is a functional product. Then we found out that people want the function, but they are very interested in different flavors. To this day we have somebody who will take Grape, and they’ll say, ‘Grape is great, but I hate the other ones. What made you put out the other ones?’ Or they’ll say, ‘That Orange is awesome, but the others are awful.’”
Consumers are frequently so loyal to their favorite flavor that they’re unaware of the other options, Bhargava says.
In addition to its Pomegranate, Grape, Berry, Lemon-Lime and Orange flavors, 5-Hour Energy also is available in Decaf with a Citrus flavor and an Extra Strength variety. This summer, the company expanded the Extra Strength line with a Grape flavor, which caters to the flavor’s loyalists, Bhargava says.
“Grape is funny because even the regular Grape is a relatively recent new flavor for us, and it turns out that Grape people are the most dedicated to that flavor,” he says. “You may find a Berry person going to Pomegranate or a Pomegranate person going to Berry, but a Grape person never moves.”
To support its growth, the company remains dedicated to its TV ads as well as introducing new ventures. The brand is a sponsor of a NASCAR racecar and team, which fits its key demographic of hardworking people who need a boost to get through the tasks in a given day, he says.
Following the focus of its “2:30 Feeling” ad, Living Essentials rolled out a sampling team of about 500 people who visit workplaces around the country. Bhargava says the program allows consumers who might have questions about the product to ask face-to-face before they try it to alleviate their mid-afternoon slump.
Sampling is at the core of 5-Hour Energy’s growth, Bhargava says.
“One person will buy it, and they’ll tell five others or 10 others, and that’s what’s really effective,” he says. “But getting that one person is really important; otherwise you can’t get to the other 10.”
The company recently designed a new platform to target baby boomers, which is a group who Bhargava learned were embracing the energy shot category. The demographic is a logical target for 5-Hour Energy, he says.
“The definition of old is you’re tired,” Bhargava says. “If you’re not tired, you’re not old. Obviously there’s a huge need because people want to keep a lifestyle in order to stay active. If you take something and you get active, that’s good for you.”
Living Essentials partnered with American Association of Retired People (AARP) to advertise to the association’s membership of people ages 50 and older. The AARP maintains a practice to investigate products before they can be advertised to its membership, Bhargava explains. Upon passing the investigation, the company rolled out print advertisements in AARP The Magazine featuring actor John Ratzenberger best known for the 1980s-90s TV show “Cheers.” The company does not normally align its marketing with celebrities, but chose Ratzenberger because he is recognizable and is known as an active guy, Bhargava says.
Bhargava says the AARP partnership will continue as the group has “millions upon millions of potential customers.”
5-Hour Energy’s website and social media sites host a long list of appreciation letters from consumers who have tried the energy shot and found it to be efficacious.
“For a lot of people who work long hours, it affects them in a very significant way so they get pretty fanatic about it,” Bhargava says. “They say, ‘This changed my life,’ so we communicate with them. We always find out what it is that they want.”
Driving each of the company’s new ventures is Bhargava’s common sense approach to business, which is embodied in its signature advertisements that explain what the product is and what it does, he says. The common sense approach stems from Bhargava’s background, he says.
“Partly I have an unfair advantage, and that is that I don’t have a degree,” he says. “People actually think that that you did it in spite of the fact that you don’t have education. My view is that it’s because I don’t have education that we’re able to see a lot of stuff that the [Master of Business Administration (MBA)] guys don’t see. You have hundreds of thousands of people out there with MBAs that think a certain way, but from my position, there are very few that are in business — that are in this size business — that don’t have an MBA.”
He explains he makes decisions, such as on new product pitches and marketing programs, through the simple question, “Is it a slam-dunk?”
“Everybody knows what that is,” he says. “In other words, ‘Do you have a doubt?’” he says. “If you have a doubt, don’t do it. Wait for something that is a slam-dunk, and that’s just common sense.”
He also maintains a platform that a task needs to be useful or entertaining. If it’s not either of those, it’s useless, he says.
“We look at common sense,” he says. “We look at simple things. We always think in terms of, ‘I’m the customer,’ not ‘which market.’ If I’m the customer, how do I want to be told something? How do I want to be treated? What kind of a product do I want?”
Overall, Bhargava says the company will continue to target hardworking consumers through marketing and its renowned TV ads.
“We have a saying in our company for the art director, the day he wins an award, he’s out of here,” he continues. “Awards are given for creativity, but not for success. Our ads are fairly simple, they communicate, this is what you use it for, this is what happens, and that’s it.”
That is unless an ad wins a “Worst Ad in America” award.