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Detroit’s 5-Hour Energy became a global beverage-industry legend by pioneering the energy-shot format and building a $1-billion business out of it within just a few years. Now, another upstart company based in metro Detroit, LXR Biotech, is intent on becoming the next big thing in the worldwide energy-shot business.
Launched by former 5-Hour operations executive Andrew Krause in 2011, LXR now employs about 25 people in a 40,000-square-foot plant in Auburn Hills, Michigan, and a 40,000-square-foot warehouse across the road, producing and packaging Eternal Energy shots and then distributing them in Michigan and throughout the Upper Midwest.
Many other energy-shot contenders have come and gone in the last several years, and dozens of small brands continue to nibble at the margins of the market. The biggest players in the beverage business, including Coca-Cola KO +0.56% and PepsiCo PEP +0.85%, never have been able to crack the code on energy shots. Even Red Bull , the energy-drink giant, failed to dent 5-Hour Energy’s dominance.
But Krause is convinced LXR will give 5-Hour Energy some significant competition in the years ahead.
“I waited for one of the big beverage companies to step up and do energy shots better” than 5-Hour, “but they couldn’t do it because they don’t understand this market,” said the 46-year-old Krause. “It’s not that difficult to crack the code. You just have to overcome the monopolist behavior of 5-Hour and win the battle, and nobody has.”
Krause believes LXR and its brand can make a run because of its two-pronged product strategy: Eternal Energy regular is priced lower than 5-Hour Energy shots and is effective for longer; and just-introduced Eternal Energy TR (for “Timed Release”) employs “microencapsulation” technology that stretches out the release of the active ingredients for as long as ten hours but is priced comparably to 5-Hour Energy.
Regular Eternal Energy, LXR’s first product, now is sold mainly at about 1,000 Walmart supercenters in 35 states as well as at a larger variety of outlets in Michigan. Eternal Energy TR, launched in July, has picked up distribution in 10 states in the Upper Midwest and West.
5-Hour’s parent, Living Essentials, in Novi, Michigan, and founder Manoj Bhargavacreated a beverage-industry sensation with 5-Hour shots in 2000, giving consumers a new two-ounce format for quickly getting a caffeine buzz without having to sip on a hot coffee or nurse a bulky energy drink. Energy drinks appeal largely to teenagers and Millennials, while shots attract an older demographic – maybe they’re just more tired than young people.
In any event sales growth in both energy formats has leveled off in the last few years. One reason has been rising consumer concerns, litigation and regulatory attention to cases of overindulgence by young people that have resulted in caffeine poisoning and at least one death, despite clear warning labels on all energy-drink packaging.
And shots’ growth has decelerated more than drinks’. “Shots are beginning to lose their way in large part because they don’t have the consumer appeal of a beverage,” said Tom Pirko, president of Bevmark Consulting, in Santa Ynez, Calif., one of the world’s leading beverage-industry experts. “People drink energy beverages because they’re also a form of entertainment. But shots are more like a specialized vitamin-supplement business and one without the pizzazz and flair.”
But Krause argued that “the functional experience of the energy shot will make the market solid forever … They’re a single-dose nutraceutical that performs a function. You don’t need to drink 12 or 20 ounces with it, so it has the benefits of not filling your bladder.”
So he saw an opening. Krause worked as a manufacturing expert at Living Essentials several years ago when the company switched to doing its own shot production after contracting it out in the early years. Once a three-year non-compete agreement expired, Krause launched LXR.
Eternal Energy’s biggest advantage is a suggested retail price point of little more than $1 compared with the $3 per shot that is still commanded by 5-Hour Energy. “We’ve brought people into the market who couldn’t justify spending $20 a week on energy shots but maybe would spend $5 or so,” Krause said. “And retailers have seen huge growth.”
Not only that, but LXR claims that Eternal Energy regular is 11-percent more powerful than 5-Hour Energy and relies on an amino acid called L-theanine to counteract the jitters that can be caused by caffeine.
But Krause believes Eternal Energy TR will become a true game-changer. It uses microencapsulation technology to roll out energy benefits over a ten-hour period and competes directly with 5-Hour Energy, at the same price point. Retailers, at least regionally at first, are flocking to it “because we have a premium-priced product – but one with innovative benefits that are scientifically proven.” He expects placement in large national retailers in the next few months.
And soon, Krause said, LXR will be bringing out similar time-released shots using microencapsulation technology that are aimed at other functionalities, such as mental focus, and sleep, the latter of which will slowly leach melatonin into the blood stream.
LXR also is developing a long-term-energy shot for the U.S. military, Krause said, that is to deliver 12 to 24 hours “of mental clarity and effectiveness.” Maybe someday even the Army will run on a form of Eternal Energy.