Ah, Saturday morning at the soccer field...

Packs of kids vying for goals.

Feverish dads motioning where junior should run.

Moms talking about what they pack in school lunches and tipping each other on XS Energy Drink.

Sorry if it sounds cliché, but the scene plays out every weekend, and last year XS reaped the benefits.

Haven’t heard of XS? You’re not alone. The brand registers all of 10 percent consumer awareness. It’s not sold in convenience stores—only online or through a dialed-in neighbor. Meet the energy drink category’s quiet killer. While competitors slug it out can by US$2 can at the mini mart, XS delivers by the US$24 case load right to customers’ doors.

“We see the big opportunity isn’t trying to launch another energy drink that competes with Monster and Rockstar and Red Bull,” says David Vanderveen, co-owner of XS Worldwide. “But one that significantly innovates the category and really brings new consumers in—particularly heads of household, mom and the sugar-free consumer.”

The XS brand has been making rounds since 2001. Originally XS Energy Drink was offered in two flavors—citrus and cranberry-grape. The line since has ballooned to 13 varieties. Juice-flavored offerings now include tropical, cherry and lemon. There are cola flavors, including root beer. XS also offers two tea flavors and three caffeine-free varieties. All the flavors are packaged in 8-ounce cans similar to Red Bull. None of them burn the throat on the way down. “The eureka response we get consistently is, ‘Wow! This tastes good!’” Vanderveen says.

Then he points them to verbiage on the cans: All of the energy! None of the sugar! “We’ve never sold it as a diet product,” Vanderveen says. “We always focused on the taste and the backup function was sugar-free.”

XS draws on a blend of artificial sweeteners and fruit essences to mimic the absent sugar. The energy comes from a proprietary blend of herbs, massive doses of vitamin B and (except in the caffeine-free varieties) an 80 milligram jolt of caffeine, which is notably less than other leading energy drinks. Vanderveen suggests the no-sugar, low-caffeine approach leads to a more sustained energy boost than one gets from competing energy drinks.

Cans in Hands
Whether or not the product tastes good, everyone knows the only way to keep the lights on is getting cans in hands. This is where XS literally stands apart from its peers. No retail outlet stocks the brand. In the US, XS Energy Drink is sold exclusively through the direct sales company, Quixtar. (You likely know Quixtar’s more analog sibling, Amway.)
Quixtar is powered by roughly 650,000 so-called independent business owners. These are neighbors, moonlighters, soccer moms—maybe even your cousin. They work as distributors of Quixtar’s family of products, buying the products at wholesale prices and selling them for slight mark-ups.

Vanderveen and his partners had been Quixtar distributors long before the XS line was hatched. Rather than commit huge sums to in-store tasting events and other common beverage marketing tactics, they lobbied Quixtar to sell the original two XS flavors in 12-can cases and then focused on engaging their independent business owner peers at quarterly meetings. “We were able to speak their language. Show them the profit potential. Show them how exciting and differentiated the product was and really capture a lot of their enthusiasm,” Vanderveen says.

In five years, XS Energy Drink has become Quixtar’s second-best selling product line, accounting for roughly 10 percent of gross revenues. “It’s a great product for our independent business owners because it’s so simple,” says Brian Geers, Quixtar manager of health marketing. “The product speaks for itself.”

This is where the Saturday soccer games come in to play—as do dinner parties and other social occasions. The independent business owners show up with cans of XS to share. If the people they encounter—and those peoples’ kids—like the product, they get instructions on how to buy it (by the US$24 case). They also get the sales pitch: shipping’s free when they place Quixtar orders of at least US$75, and there’s an automatic delivery program if they want routine shipments. “I would be shocked if we were reaching less than 70 to 80 percent of [Quixtar’s] customers,” says XS Worldwide partner Greg Duncan.

Growth Potential
Chicago market research firm Mintel forecasts domestic energy drink sales will grow to roughly US$6 billion by 2011. XS has an exclusive US distribution agreement with Quixtar, so any domestic growth of the brand will hinge on Quixtar customers. Duncan doesn’t mind. “We think this could be our best year ever,” he says. “I wouldn’t be shocked if we did 30 to 50 percent growth this year.”

Duncan qualifies the bold prediction by referencing the immediate access XS has to its customers. At every distributor meeting, the XS crew can gauge what people like and dislike about the product, and what they’d like to see more of. “They’re our best customers, so they’re giving us very enthusiastic and honest feedback,” Duncan says. “It’s really been a blessing for us.”

XS plans to continue unleashing new flavors every six months until numbers suggest they are cannibalizing sales of other flavors. “We ask a lot of families, ‘What are we missing?’” Duncan says. “Our goal is to fill that hole more and more, so we’re not only adding more people to the business, but we’re selling more to each family.”

XS also has opportunities to leverage the brand outside of the United States, where the exclusive distribution arrangement with Quixtar doesn’t apply. Discussions already are underway with Spain-based nightclub franchise Pacha to co-brand and sell the cherry variety of XS Energy Drink. A Pacha launch could happen as soon as this summer, Vanderveen says.

“We see the huge opportunity is not trying to push more energy drinkers kicking and screaming in to sugar free,” he adds. “But to bring the sugar-free consumer over in to energy.”

VITAL STATS
XS WORLDWIDE
CO-OWNERS: Josh Bradbury, Scott Coon, Greg Duncan, David Vanderveen
HEADQUARTERS: Seattle, Wash., USA
EMPLOYEES: 12
GOALS: Introducing sugar-free beverage consumers to the energy drink category.

From Beverage World March 15, 2008