5-Hour Energy

Friday, February 17th, 2012

I don’t quite understand the allure of 5-Hour Energy, which packages the caffeine of a large coffee or over-the-counter pill into a vile-tasting two-ounce “shot” — but it has made Manoj Bhargava, now 58, a lot of money:

Bhargava was born into affluence in Lucknow, India, thriving capital of the northern state of Uttar Pradesh. His family left their comfortable villa to move to America in 1967 so his father could pursue a doctorate at the University of Pennsylvania’s Wharton School of Business.

Their new residence — a third-floor walkup in West Philadelphia that rented for $80 a month — offered a potentially dispiriting contrast to life in Lucknow. But young Bhargava was, if anything, inspired, using his talent for mathematics to win a full scholarship to The Hill School, an elite private academy.

When he was 17, Bhargava became an entrepreneur, purchasing a Chevy dump truck for $400 and removing debris from demolition sites in poverty-stricken North Philly. He banked $600 over a summer, then resold the truck for what he’d paid for it. This was his first taste of profit, and he liked it — no matter the squalor that surrounded the enterprise (rats larger than cats, murders taking place nearby).

Bhargava made it to Princeton in 1972, but what he found — a snobbish social scene and insufficiently-challenging math courses — didn’t agree with him. He left after one year, moving back in with his parents, who had relocated to Fort Wayne, Ind., where his father had a PVC plastics company.

The country was in the economic doldrums, and Bhargava was adrift. He began to read about a Hindu saint whose life had been spent on a spiritual quest; it struck him as a worthy pursuit. By 1974, he was back in the country of his birth.

Bhargava wasn’t, strictly speaking, a monk, but “it’s the closest Western word,” he says, for what he did in India. He spent 12 years on and off in ashrams, trying to learn to “still the mind,” but came back to the U.S. from time to time, where he took odd jobs such as cab driver. Once he returned to America to stay, he obliged his parents, who had been rather upset about his dropping out of Princeton, by going into the family business.

Despite having absolutely no interest in plastics, Bhargava became something of a turnaround artist. By 2001, the company had become a serious success, with $25 million in annual sales. Financially secure, he moved to Michigan, where his wife’s family lived, and declared himself retired.

But Bhargava had learned an important lesson from his time in PVC manufacturing: “Chemicals are really simple,” he told Forbes. “You mix a couple things together and sell it for more than the materials cost.” He applied that simple idea in the spring of 2003, after attending a natural products trade show in Anaheim, Calif. There he encountered a booth whose attendants were hawking a 16-ounce elixir that purported to raise productivity for hours. Bhargava drank it, and was impressed. “For the next six or seven hours I was in great shape. I thought, Wow, this is amazing. I can sell this.”

But not exactly that. Sixteen ounces was too much — too much like the recently-released Red Bull, and sure to have to compete head to head with Coke and Pepsi. So Bhargava looked over the ingredient list, and cooked up his own, much lower-in-volume version.

The formula: “a blend of B-vitamins [like niacin], amino acids [such as taurine] and nutrients,” and “about as much caffeine as a cup of premium coffee,” according to 5-Hour’s website. But as Forbes reports, a 2010 independent analysis by ConsumerLab.com determined that 5-Hour contained levels of vitamins “thousands of times higher than recommended daily allowances,” as well as “207mg of caffeine — a massive amount per ounce, but less than the 260mg in a Starbucks tall coffee.” Still, it clocked in at only four calories and contained no sugar at all — major selling points featured prominently on 5-Hour’s diminutive, shrink-wrapped bottle.

It took Bhargava only six months, from the time he sipped that inspiring potion, to get 5-Hour into stores. Then his sales team went to work, convincing GNC (GNC) to carry it, then Walgreens (WAG), Rite Aid (RAD), and regional grocers like Sheetz.

But his greatest triumph was landing 5-Hour in the Walmart (WMT) checkout aisle. (Every Walmart store in the U.S. sells all four flavors of 5-Hour; Sam’s Club carries 24-packs.) “Getting it next to the register isn’t hard,” Rise Meguiar, Living Essentials’s vice president of sales, told Forbes. “Keeping it there? Very hard. Anything that sells, the stores will try. To own that space is really hard.”

“What we did wasn’t rocket science,” math whiz Bhargava told Forbes. “It’s not the little bottle. It’s not the placement. It’s the product. You can con people one time, but nobody pays $3 twice.”

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