Back in Black
After two years of volume decline, packaged beverages began to turn things around in second half of 2010.
New package sizes, a growing desire for healthier products, a willingness to splurge on premium products: All of these issues were cited as driving consumer trends in the packaged-beverage category in 2010, but still the overriding theme behind it all was the economy.
“The economy has put a damper on virtually everything, beverages included,” says Gary Hemphill, senior vice president of information services for Beverage Marketing Corp., New York. “[Beverage] volume declines in both 2008 and 2009…This has never occurred before.”
“For 2010, we don’t have final numbers yet, but the best way to describe it is as improving market,” he says.
“The first half of the year was tough; the third quarter was better, and fourth quarter appears to be even better.”
CSP examines how things shaped up and looks ahead to the rest of 2011.
Beer: Premiums Grow as Packaging Shrinks
After two years of trading down from premium beers to subpre-mium brews, consumers appear to have had enough. And luckily, pack-aging trends have shifted in a way to give them another option. “Single-serves have come up tre-mendously. That’s probably one of the biggest-growing categories for us,” says Tami Caputo, chief operating officer of Fills Fuel Centers, a four- store chain in Las Vegas. “[Consum-ers] want higher-quality beer, but they’re buying it in a single-serve. It’s easier for people to justify it.”
The recent availability of higher- quality beer in single-serve packages has made the move smoother.
“There used to be a very limited selection in single-serve: Bud, Bud Light, Coors, Coors Light,” Caputo says. “Now you can buy Pacifico, Newcastle, St. Pauli, Corona. So there are a lot of single-serves that didn’t exist even two years ago.”
“Heineken 16-ounce can growth trends more than doubled in 2010 to 61.9%,” says Kheri Holland Till-man, vice president, trade marketing and sales strategy, for Heineken USA, White Plains, N.Y. “The attitudes of beer consumers have made a shift toward value, but value means more than just price. Consumers demand the best return on investment, mean-ing they may pay more for better ingredients and higher-quality beer.”
Adds Jeffrey Schouten, director of c-store solutions for MillerCoors, Chicago, “We believe more retail-ers should embrace the advantage they have in single-serve packages. Singles can easily reach 50% of store beer transactions. Singles are the fast-est growing and the most profitable [margin percentage] package seg-ment in c-stores.”
Chris Williams, vice president, national retail sales, for St. Louis-based Anheuser-Busch, says, “Singles con-tinue to grow and offer a profitable point of difference from other chan-nels; therefore, it is critical they are properly spaced and merchandised.”
This runs counter to trends of a year ago, when retailers were see-ing customers buying larger pack-ages of less-expensive beers. “We’ve eliminated 30-packs out of our set,” Caputo says. “So the larger sizes that we carry are 18- and 20-packs.”
Elsewhere, larger pack sizes con-tinue to sell well, while craft beers are seeing a growing consumer base, even as those consumers find less discre-tionary income to spend on beer.
“We continue to see people mov-ing to the value packs, so we’ve had to focus our attention on promoting those larger sizes, shifting [prices] down on a brand level in some cases,” says Mark Schumacher, corporate director of fuel management and convenience operations for Super-valu Inc., Eden Prairie, Minn. “But … we’ve had to expand our microbrews because customers are just all over them these days.”
Schumacher also has seen success with flavored beers, such as Bud Light Lime, a trend Phil O’Neil, president of Mike’s Hard Lemonade Co., Seattle, expects to continue into 2011.
“Consumers are continuing to look for natural tastes and flavors,” he says. “As always, we are focused on testing, developing and bringing new, natural flavors to market while con-tinuing to grow our new and seasonal product line in 2011 and beyond.” —Additional reporting by Jennifer Bulat
Bottled Water: Finally Flowing Uphill Again
Bottled water is back on a growth path after a couple of down years, thanks mostly to a healthy second half of 2010. “The category is back,” says Rex Griswold, vice president of sales for Nestlé Waters North America, Green-wich, Conn. “From June through October, we were at double-digit growth, and that’s just in c-stores. The business was flat for the category at the end of first quarter. When April and May got here, we started to see growth. We were about 15% to 20% growth this summer, and we’re still in double-digit growth.”
The category overall for the full year will likely see single-digit growth, a welcome relief from the unit-sales declines of 2% and 3% of the pre-vious two years, according to data from SymphonyIRI Group, Chicago. C-store-specific data for the 52 weeks ending Oct. 31, 2010, shows unit sales were up almost 1%.
“The pricing of the water category has been very aggressive, which has helped,” says Gary Hemphill, senior vice president of information services for Beverage Marketing Corp. “It’s not going to grow [more than] 20% like it did in the 1990s, but it has rebounded. … And a lot of that growth is taking place … in the private-label and more value-priced waters.”
Also sparking growth is interest in flavored waters, as illustrated by the growing success of Pepsi’s SoBe zero-calorie LifeWater and Coca- Cola’s smartwater, which is now the No. 1 premium water in the channel, according to the company. “The flavored waters [are doing well],” says Mark Schumacher, corpo-rate director of fuel management and convenience operations for Supervalu Inc., Eden Prairie, Minn. “Custom-ers want something that tastes good. Certainly, hydration is important to them. So we’re seeing our flavored- water sales enhanced.”
Adds Tami Caputo, COO of the four-store chain Fills Fuel Centers in Las Vegas, “The new flavored waters—the ones with the flavoring in the cap, like Activate—those are getting pretty big. … When you twist the cap, it releases all of the vitamins or the flavors into the water, and then you shake it up. So your water becomes a flavored beverage.”
“It all goes back to healthy bever-ages,” says Griswold. “What we’ve seen in the past 10 years is a decline in ‘unhealthy’ beverages and a rise in more healthy beverages: natural, good for you, zero-calorie. It’s something for the base water drinker: to have a flavor indulgence without any calo-ries. It’s not a gigantic business but a subcategory that’s growing double digits.”
One of Griswold’s marketing sug-gestions for 2011: sell “anything with a flavor in the convenience channel.”
CSDs: Growth Eludes Largest Subcategory
First the bad news: Still no growth in the carbonated-soft-drink (CSD) category in 2010. Now the good news: Sales won’t be down as much as in the two previous years. No one wants to see the largest subcategory shrink. CSDs accounted for nearly 43% of packaged-beverage dollar sales in 2009, according to The Nielsen Co. So when the category shrinks—even by only 0.5% to 1.0%, as expected for 2010—it hurts.
“The category I’m most concerned about is carbonated soft drinks,” says John Zikias, vice president of sales and marketing for Thorntons Inc., Louisville, Ky. As Thorntons, a chain of 165 convenience stores in five states, increases its focus on foodser-vice, it finds itself at an uncomfort-able crossroads in marketing CSDs.
“One of the categories we’re focus-ing significantly on is dispensed bev-erages, and in doing that, I’m sure there’s some impact on packaged beverages,” Zikias says. “But you can’t tell exactly how much unless you’re talking to customers directly and ask-ing, ‘Did you buy this vs. that?’ ”
Packaging played a major role in how CSDs sold during the past year. “Entry-level” packaging—16- and 14-ounce PET bottles introduced by the major CSD manufacturers—have provided a new value price to keep customers coming back.
“These [bottles] have helped entice customers inside c-stores for immedi-ate consumption via effective messag-ing and an attractive price point,” says Russell Baker, channel planning and development leader for convenience, drug, value and specialty retail for Coca-Cola, Atlanta. “The packages were launched in late 2008, helping convenience-store retailers maximize their sparkling business.”
Meanwhile, flavored CSDs con-tinue to show strength, according to Derek Dodge, senior vice president of national accounts for Dr Pepper Snap-ple Group, Plano, Texas. “We believe this will continue in 2011 in the c-store channel, where flavors have overtaken colas in market share,” he says. The major challenge facing CSDs remains: “You have all these new product categories coming into the marketplace, and consumers have more choices,” says Gary Hemphill, senior vice president of information services for Beverage Marketing Corp. “They’re wanting healthier options, wanting more variety, and the volume has to come from somewhere.”
For 2011, PepsiCo plans to keep its Mountain Dew and Sierra Mist CSDs in front of consumers to drive growth. It also will bring back its Pepsi and Mountain Dew Throwback lines, which have drawn attention with their use of natural sugar and clas-sic packaging. A spokesperson says, “Mountain Dew was the best-selling 20-ounce brand in convenience stores in 2010.”
Energy Drinks: Reaching for New Demographics
Energy-drink sales inched back into double-digit growth in 2010 after a year of 6% growth in 2009. While far below the 55% growth per-formance from as recently as 2005, the relatively young category is still the envy of the beverage world.
“That’s another example where premium-priced beverages have done well and the category is growing” in spite of the lagging economy, says Gary Hemphill, senior vice president of information services for Beverage Marketing Corp. “Beverage marketers know that consumers will pay for a functional benefit in their beverages. Energy has been the most successful functional benefit.”
Another challenge therein is the burgeoning energy-shot category, which, as the name suggests, should steal share from energy drinks. How-ever, it hasn’t had an overwhelming effect, signifying the two categories either attract different consumers or are sold in tandem.
The leader in the energy-drink category since Day One, Red Bull continues to sell well, even as Han-sen’s Monster comes on strong and Rockstar performs well in select mar-kets. So as retailers rationalize their cooler sets, the challenge now, many agree, is extending the products to new audiences.
“Expanding the user base and increasing household penetration are our highest priorities,” according to Red Bull. “With the household pen-etration of the category at 12%, there remains tremendous opportunity for Red Bull to continue its growth for years to come.”
Hemphill agrees: “While energy drinks traditionally are consumed by male teens to twentysomethings—and that’s still the core consumer—there’s an opportunity with other age demo-graphics because everybody can relate to a need for energy at some point or another in the course of their day, regardless of their sex or their age.
“We think there’s a lot of upside to the category; there’s potential for growth still to come in the category.”
Sports Drinks: A Dramatic Return to Form
Gatorade and PowerAde continue to have the sports-drink cat-egory locked up, which is good and bad for retailers. In 2009, Gatorade was hurting. As a result, the sports- drink category was hurting to the tune of an 8% drop in unit sales.
The brand spent much of 2010 smoothing out its mistakes—namely, reaching too far for new consumers as an economic collapse was forcing con-sumers to tighten their purse strings.
The folks at PepsiCo, Gatorade’s parent company, appear to have been successful; both unit and dollar sales in convenience stores have returned to positive growth, with unit sales hit-ting nearly double-digits. And as 2011 neared, PepsiCo had outlined a return to form in its Gato-rade marketing plan that suggests isotonic beverages could be on the road to fresh new growth.
Prior to the recent recession, “we brought a lot of people into the fran-chise,” said Sarah Robb O’Hagan, chief marketing officer for Gatorade, in December. “People were drinking it because it tasted great, not because it was functional.” That worked fine in boom times, she said, but when the economy shriveled up, people stopped buying.
As a result, the company now is returning to its roots of marketing to athletes, providing hydration before, during and after a workout or sport-ing event.
“The Gatorade G-series has reshaped and refocused the category,” says a PepsiCo spokesperson. Meanwhile, eager competitor PowerAde from Coca-Cola has expanded to include Protein Milk, adding a new wrinkle to how the brand is marketed as an exercise recovery drink. It also has expanded the “zero” branding established by Coca-Cola Zero to PowerAde to draw in the weight-conscious consumer.
Still, retailers—who primarily say the sports-drink category is doing well—are counting on an economic recovery to really get the category back on track.
“There’s a certain market that drinks Gatorade as an isotonic,” says Tami Caputo, COO of Fills Fuel Cen-ters, Las Vegas. “With the loss of our construction industry here, we don’t have any nail pounders coming in, which is a huge convenience-store customer for Gatorade and Propel and Powerade. With the loss of that in our economy, we just don’t move the numbers on that anymore.”
Debate all you want about whether these are beverages or HBC products; 30% growth for products that cost $1.25 an ounce—led by 5 Hour Energy—makes these the “must” product category of the decade.
Ready-to-Drink Iced Tea
Admittedly, this one can be regional, but RTD iced tea has remained a consistent product category for years.
Yes, the growth in wine in c-stores overall was small, but trends show adult consumers are catching onto wine at younger and younger ages, making this a category ready to pop.
Up & Comers
Most of the subcategories below have yet to gain enough volume to warrant third-party data, but these categories are showing promise.
- Relaxation Drinks & Shots: The flip side to energy drinks and energy shots, these products are looking for their niche. Key Products: iChill, Tranquila, RelaxZen, DreamWater, Koma Unwind
- Coconut Water: Many beverage watchers say this is a category ready to take off. “It’s a bit of an acquired taste for consumers, but its positioning as ‘nature’s sports drink’ is good,” says Gary Hemphill of Beverage Marketing Corp. Key Products: O.N.E., Vita Coco, Zico
- Sparkling Waters: Far from new, this subcategory is getting revived promotion by Nestlé Waters North America. A healthy—and bubbly—alternative to CSDs. Key Products: Perrier, San Pellegrino, Poland Spring Sparkling
- Fitness Drinks: Arguably, Muscle Milk is responsible for getting these post-workout drinks out of the sports-nutrition store and into the c-store, while others, such as Celsius, provide additional functional benefits. Key Products: Celsius, Muscle Milk, CytoSport, Rockin Refuel, Zoic.