What’s Up With GNC Offering $1 Energy Drinks?
Over the back-half of 2019, GNC started offering flash sales on select branded “performance” energy drinks. They have named these promotions “Dollar Days” because they are offering the popular energy beverages for just one dollar. For my obsessed energy drink consumers, you know that even getting a traditional Monster or Rockstar Energy full-size can for only $1 is almost impossible. Even inside the largest sales channel for energy drinks, convenience stores will usually rotate its deepest discount level on the category at 2/$4 or 3/$5.
So, why is GNC undercutting convenience stores?
When these sales have been announced on the various supplement industry news social media accounts, many followers’ comments head straight towards the perceived fact that GNC must be struggling to the point that they will going out of business any day now…especially if they are selling energy drinks for that low of a price. While I concur that GNC is certainly not the keystone physical retailer for financial strength, there is much more at work here than some fruitless “race to the bottom”…
GNC = “Better for You” C-Store
Have you been to a GNC lately? What about any specialty supplement retailer in the U.S.? If you answered yes, you likely noticed that the convenient nutrition category, such as ready-to-eat (RTE) and ready-to-drink (RTD) offerings, has grown to demand more merchandising square footage within these stores. Fact is, specialty supplement retailers are starting to slowly resemble “better for you” convenience stores. It is not abnormal for a customer to stop in and only grab a protein bar or an energy drink. The latter became especially true when Bang Energy’s popularity was gaining momentum (2016 and on), but the company hadn’t fully secured its food, drug, mass, convenience (FDMC) nationwide distribution network yet. With Bang Energy lacking a reliable national retail option in those earlier hyper-growth years, the company started to point its growing fan base towards GNC’s ~5000 locations.
Defining GNC’s Biggest Problem
While analysts can point to many problems at GNC, I believe it all starts at their inability to stop the multi-year trend of decreasing top-line revenue. There are many different variables causing the loss of sales, from GNC store closures to the increased categorical competition from other retailers, but it all circles back to needing more customers to step foot in the door!
Decreasing revenue is directly linked to decreased foot traffic…
Consider this perspective, if GNC had less foot traffic next year, the retailer would need to either increase the average ticket size or conversion rate to replace having less total possible transactions.
How does this have anything to do with selling $1 energy drinks? Foot Traffic!
GNC sees the organizational and macro data that confirms performance energy drinks are really hot, so why not utilize that trend to its advantage?
Note: To understand an additional retail strategy that GNC is deploying to address this foot traffic problem, check out this YouTube video that I created on exclusive “influencer-heavy” third-party partnerships.
Loss Leader Pricing Strategy
GNC “Dollar Days” deploy what is traditionally called a loss leader pricing. Loss leader pricing is a marketing strategy that involves selecting one or more retail products to be sold below cost, in order to get customers in the door. The loss leaders are the products being sold at such low prices as an enticement to buyers to step foot in the store.
According to proponents of the loss leader philosophy, by running certain popular products below market price, it’s expected that more customers will buy additional items while in your store, thereby making up for any loss you’ve accrued. During these flash sales, if GNC has properly trained its staff, they will be able to convert a percentage of customers to additionally purchase items that have higher profit margin/dollars to offset the $1 energy can purchase
Price Economics on $1 Energy Drinks
Let’s take a quick look at the price economics at play here (round numbers to make this easy):
- COGs on 12-pack case of Energy Drinks= $6
- National Customer Pricing on 12-pack = $12
- GNC revenue on 12-pack on “Dollar Days” = $12
If we add in all the direct and indirect costs that are associated with any $1 energy drink sale, GNC would be losing money on every sale. That being said, I am extremely confident that GNC is not actually losing money on these sales. GNC knows that the brand still have margin dollars on these sales and they would be asking for concessions to fund these deals. That means to offload some risk, GNC likely will ask energy drink brands for a one of the following:
- Cost Reduction per item sold
- Cost Reduction on bulk buy
- Increase in high-margin marketing spends to offset losses
Note: #2/#3 is not likely because of GNC’s current cash to debt position
Why Would a Brand Participate?
Currently, I have only seen the “Dollar Days” promotion being used on Bang Energy, Cellucor C4 Carbonated, and Alani Nu Energy. In my opinion, each of these brands would have a different reasoning for partaking in this promotion with GNC…
- VPX Bang Energy = reinvigorate the base consumer that might have abandoned them when they started to focus on FDMC retailers
- Cellucor C4 Carbonated = create trial and hope that customers will switch from leaders like Bang Energy
- Alani Nu Energy (only offered at select franchise locations) = introduce energy drinks to a new female customer base that might not enjoy the higher caffeine content in other category offerings
The REAL Reason For GNC “Dollar Days”
With any challenge in business, especially in publicly-traded companies, the best solutions address its short-term and long-term aspects. Yes, getting extra customers in the door with $1 energy drinks and training staff in upselling will help alleviate pressure in the short-term, it doesn’t solve the long-term problem…
The real reason GNC is selling $1 energy drinks is to drive consumers into the store and get them to sign up for their free MyGNC rewards program.
GNC currently has around 10 million loyalty members and they make up 80% of their sales! Once a customer is in the MyGNC rewards program, GNC will start personalized omnichannel marketing campaigns, which has shown can create a higher customer lifetime value (CLV). It is this higher CLV that will help GNC solve its long-term problem to replace its loss of foot traffic and help its battle to recreate top-line revenue growth.
