Stormy Year Ahead?

 

It looked like the worst had passed for the energy drink category. After a rocky couple of years due to the recession, the category was beginning to grow again. And then came October 17, 2012. It was on that day that the parents of 14-year-old Maryland teen Anais Fournier filed a lawsuit against Monster Beverage Corp. essentially accusing the company’s popular energy drink of causing their daughter’s death.

The lawsuit’s filing would end up opening a Pandora’s box of sorts for what has been one of the stronger, more vibrant beverage categories in recent years. Sure, the category had suffered its share of pitfalls from time to time but its biggest challenge recently had been overcoming the drag on sales due to the economy. But then the Monster lawsuit hit, and a rash of media coverage ensued, presenting the category with what could be its biggest challenge to date—and one that could force brand owners to change their formulations, their labels, and their marketing. 

A major issue the FDA is currently looking into has to do with caffeine. Have today’s energy drinks been delivering consumers—especially consumers in specific demographic groups, such as teenagers or those with heightened sensitivities—too high a dose through a combination of their different ingredients? “I think the question is what happens going forward?” posits Gary Hemphill, Beverage Marketing Corp.’s managing director and COO of information services. “At this point, I think the impact’s been minimal. But if there are more incidents, more cases, it could snowball in terms of how the FDA responds and then how the politicians react and get involved. All of that could have a negative impact on the category. But so far there’s been minimal to no impact on the category and the question is what happens next.”

 

The Clouds Gather…

The Fournier lawsuit spares no words in its accusations against Monster, describing in detail how young Anais, only a few hours after drinking her second 24-oz. can of Monster Energy in two days, went into cardiac arrest, on Dec. 17, 2011 at 8:55 p.m. “In addition to other stimulants (some of which contain hidden amounts of caffeine),” the lawsuit reads, “the two cans of Monster Energy, together, contained 480 milligrams of caffeine—the equivalent caffeine content of fourteen (14) 12-oz. cans of Coca-Cola.” 

Complicating the case, the lawsuit goes on to say, is the fact that Anais was suffering from a disease known as Ehlers-Danlos syndrome, a disorder that can weaken the blood vessels and lead to cardiovascular problems. “According to the autopsy report and the death certificate,” it says, “the cause of death was ‘cardiac arrhythmia due to caffeine toxicity complicating mitral valve regurgitation in the setting of Ehlers-Danlos syndrome.’”

Later in its pages, the lawsuit goes on to claim Monster’s “product masks and otherwise fails to alert consumers like Anais of the significant risks associated with the consumption of Monster Energy”—risks, it claims, occur from its blend of caffeine, guarana and taurine. It also claims Monster has avoided “meaningful regulation of its product by the U.S. Food and Drug Administration. By classifying Monster Energy as a “dietary supplement”—in other words, not a “food”–Defendant manufactures its Monster Energy drinks without any restrictions on caffeine content.”

Monster’s co-founder and CEO Rodney Sacks, was quick to defend his product during a Nov. 7 meeting with investors: “First and foremost,” he said, “we reiterate that our products are safe. More than 8 billion cans of Monster Energy drinks have been sold and safely consumed in the United States and around the world since 2002. Additionally, tens of billions of energy drinks manufactured and distributed, not only by us, but by other companies, have been sold and safely consumed worldwide for 25 years. We believe that consumers are justified, based on that long track record, in having confidence in our products.”

He then addressed the formulation of his drinks. “A principal area of attention relates to caffeine. Unfortunately, there has been some misinformation published recently regarding the caffeine content of Monster, so let me give you the facts. Monster Energy drinks generally contain approximately 10 milligrams of caffeine per ounce from all sources. By comparison, the leading brands of coffee-house brewed coffee, for example Starbucks, contain on average in excess of 20 milligrams of caffeine per ounce. In other words, a 16-ounce can of Monster Energy contains about half the caffeine of a 16-ounce cup of coffee-house brewed coffee. Even a 24-ounce can of Monster Energy, which contains about 240 milligrams of caffeine from all sources, has about 30 percent less caffeine than an average medium-sized 16-ounce cup of coffee-house-brewed coffee. So again our products are just as safe for consumers as a cup of coffee purchased at your favorite coffee house. Even an extra large size single serving of a Mountain Dew fountain drink, which is regularly available throughout America, contains about 234 milligrams of caffeine.”

Sacks then went on to address Monster’s decision to classify its products with the FDA as “dietary supplements” rather than as “foods.” “In the case of Monster Energy products,” he said, “this is a red herring. Our products could be labeled and sold as foods if we chose to do so…Whether Monster Energy drinks are classified as dietary supplements or as a food is a distinction without a difference. Either way, the current ingredients, none of which are secret or hidden, are fully permissible as a food and a supplement. In other words, we are confident that if we chose to do so, we could recategorize Monster Energy Drink as a food. Apart from minor changes in form, the labels of Monster Energy as a food would be almost precisely the same and contain the same details as currently appear on our cans.” He went on to point out that from the time Monster was launched more than 10 years ago, the labels on all Monster Energy drinks have stated the product should be consumed responsibly and are not recommended for children, people sensitive to caffeine or pregnant women. 

But the lawsuit was only the beginning of Monster’s problems. 

On Oct. 22, five days after the lawsuit’s filing, i>The New York Times reported that Anais’ mother, Wendy Crossland, had obtained records from the U.S. Food & Drug Administration (FDA) through the Freedom of Information Act showing the drink may have been linked to five deaths since 2009. The FDA specifically made it clear the records do not prove any link between the consumption of Monster and the deaths. But the report immediately caused Monster’s stock to plummet by more than 14 percent. 

Over the ensuing weeks, thei> Times published a series of articles about energy drinks, eventually leading the FDA to publicly release additional incident reports about Rockstar Energy and 5-Hour Energy, possibly linking the latter to 13 fatalities. By Nov. 16, market leader Red Bull was in the crosshairs, with the FDA posting 21 incident reports online since 2004, some citing hospitalizations. 

Red Bull also has reaffirmed the safety of its products. A spokesperson tells i>Beverage World: “Red Bull Energy Drink is available in 164 countries because health authorities across the world have concluded that Red Bull Energy Drink is safe to consume. 4.6 billion cans and bottles were consumed last year and about 30 billion cans since Red Bull was created 25 years ago.”

The spokesperson continues: “The US Food and Drug Administration (FDA) regulates all conventional foods/beverages and dietary supplements through its authority under the federal Food, Drug, and Cosmetic Act. Red Bull Energy Drink is a conventional food/beverage, not a dietary supplement. Most important, the product fully complies with all detailed safety and labeling requirements of the FDA. Further, Red Bull voluntarily places the product’s caffeine content on its cans, in addition to a voluntary advisory statement. Red Bull adheres to the American Beverage Association’s Guidance for the Responsible Labeling and Marketing of Energy Drinks. These industry-leading guidelines can be found on the American Beverage Association’s Web site.”

 

… And the Clouds Part

But then, just as suddenly for the category, the tide seemed to turn. 

The industry breathed a sigh of relief on Nov. 21, when Michele Mital, the FDA’s acting associate commissioner for legislation, sent a letter to Senator Richard Durbin of Illinois, who had been pressing for more investigation of any health risks from energy drinks. The letter seemed to suggest that, at least for now, the FDA would not take any immediate action against the industry. In the letter, Mital says, “Although these products have the potential to raise safety or regulatory issues, there is a long history of safe use of other caffeine-containing products in the United States. FDA is aware, however, that new products and patterns of use require us to remain vigilant, and we are working to strengthen our understanding of the nature of energy drinks and any causal risks to health.” 

Mital did suggest, however, that the FDA would convene a panel of outside experts to investigate its greatest concern: “the vulnerability of certain populations to stimulants and the incidence and consequences of excessive consumption of energy drinks, especially by young people.” Later, she adds: “Although FDA has yet to identity any safety studies that call into question the safety combinations of various ingredients added to ‘energy drinks’ under intended conditions of use, if we determine that any such combinations are of concern in our continuing review of ‘energy drinks,’ we will consider regulatory actions as well as other options, such as conducting needed specific studies.”

As for caffeine, Mital states, “Energy drinks contribute a small portion of the caffeine consumed, even for teens,” based on a study the FDA contracted out that was concluded in September 2009.

Mital concludes her letter saying that “depending on the outcome of our ongoing review of ‘energy drinks,’ which includes caffeine alone and in combination with other ingredients, we will take action as needed with respect to the levels of caffeine in these products. In addition, based on our safety review and within the bounds of our authority, FDA will consider taking appropriate action with respect to the labeling of these products, limitations on intended use, or warnings about possible adverse effects.”

A few weeks later, the industry was buoyed again when investment bank Stifel Nicolaus upgraded its shares of Monster Beverage to buy from hold, stating, “We believe shares largely reflect slowing sales growth, due mainly to difficult year-on-year comparisons, which we anticipate will re-accelerate beginning in 2Q13. We also think regulatory concerns are overstated… An examination of FDA incident reports for major beverage brands, acquired through the Freedom of Information Act requests, reveal they are more widespread and less meaningful in proving product safety than portrayed in recent press reports highlighting deaths loosely tied to energy drinks.” 

Specifically, the firm pointed out that:

• “Reports can be filed by anyone and do not need to be verified, provide context of consumption or medical history, or prove a causal link between the reported event and the product.

• “Since 2004, major beverage and energy brands have generated a total of 859 incident reports, compared to our estimate of more than 900 billion 16-oz. servings of soft drinks consumed over the period.

• “Monster had the second-highest percentage of incident reports citing life threatening conditions or death, 26 percent, but also the third-lowest total reports, 35, and compared to more than 8 billion cans of Monster sold.

• “We believe this is a contributing factor to the FDA’s November 21, 2012, letter to Senators Durbin and Blumenthal indicating the agency is unlikely to materially increase energy drink regulation.”

 

The Jury’s Still Out

So as the new year dawns, it is too soon to say whether all of the controversy that has erupted in 2012 will result in any new regulation of the energy drink industry. Just prior to the holidays, Tamara Ward, a spokeswoman with the FDA, said, “FDA is considering next steps including a possible expert panel review. We expect to be able to confirm that decision relatively soon but cannot at this point.”

All of the controversy comes at a time when the energy drink category had been on a strong rebound after slowing significantly during the recession. According to Beverage Marketing Corp., the category recorded 27.7 percent volume growth in the U.S. in 2007, before retreating to 8.3 percent in 2008, and then just 0.2 percent in 2009, as the U.S. felt the full brunt of the recession. But by 2010, the category was already springing back, with 5.6 percent growth, and could barely be contained by 2011 when it had 17.2 percent growth, reminiscent of its pre-recession heyday. And, at least so far, the controversy doesn’t seem to be having any impact on the category in terms of sales. The category’s volume had risen to 18 percent the first half of 2012, comparable with what it did in 2011. Hemphill, of BMC,  says it remains to be seen what effect, if any, the controversy has on the business. “If it does come down to reformulation but the product still works as well as it did before, I’m not sure it would have much of an impact. People are paying for the functional benefit. But if they feel it is not delivering that function as well, then they might look to other products for their source of energy.”  

 

 

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