Midyear Category Data Report
Data reveals opportunities for sales and profit stability amid uncertainty.
As this story is being reported, a political fault line threatens an American economy that has been teetering for more than three years.
Amid shaky economic indicators, rising fuel prices and the wrangling over the debt ceiling, the convenience-store channel is holding its balance, according to an exclusive midyear report compiled by CSP, SymphonyIRI Group, McLane Co. Inc. and Technomic Inc.
In the 52 weeks ending July 10, 2011, total c-stores dollars grew 2.5%, according to Chicago-based SymphonyIRI. Examined from a half-year-over-half-year perspective, c-store dollar sales grew 2.2% when comparing the 26 weeks ending June 26, 2010, vs. the 26 weeks ending June 26, 2011. Data is based on SymphonyIRI’s AllScan tracking service, which pulls scan data from more than 11,000 sample c-stores in the United States.
What’s driving the c-store momentum amidst this fragile economy? Energy drinks, sports drinks, cigars, bottled juices and refrigerated entrées saw the biggest unit increases when comparing the fi rst half of 2011 to the fi rst half of 2010. Examined by the fi rst two quarters of 2011, carbonated soft drinks, total chocolate candy, bottled water, salty snacks, sports drinks and beer are leading in share increases.
“You’re talking about the top 15 categories, and this is the engine for c-stores,” says Matt McCourt, director of convenience, retail client solutions, for SymphonyIRI.
Anecdotally, in his work with the industry’s 30 largest retailers, McCourt is hearing the general message that business is healthy. “They’re making strides with consumers,” he says. “A lot of people are seeing good spikes in their business.”
To highlight some areas of firm ground that may provide greater opportunity for retailers in the waning months of 2011 and start of 2012, CSP presents its first Midyear Category Data Report of c-store sales. A refresher of our annual Category Management Handbook, this update offers c-store sales highlights for the biggest in-store categories. But beyond the numbers, the greatest opportunity in 2011 exists in tying the black-and-white figures to the flesh-and-blood motivations of the c-store shopper.
“Categories are important—that drives the bottom line,” says McCourt. “But it’s really not about specific categories. ... It’s about how to put together a message for the consumer and keep them coming back.”
When you examine c-store categories growing fastest by dollar and unit sales in 2011, beverages rise to the top, led by energy and sports drinks and ready-todrink tea, according to SymphonyIRI. But even the largest of all beverage categories— carbonated soft drinks (CSDs)— has shown some upward lift after several years in a sales morass.
For the 12 weeks ending July 10, CSD dollar sales rose 8.3%, with units growing 8.9%. As a result, the channel was able to take a half-point of share from food, drug and mass, according to McCourt of SymphonyIRI. “Most of it is driven by low-calorie and diets, which are up 1%,” he says. Regular soft drinks were off 0.4%.
On the alcohol-beverage side, it’s high time for retailers to raise a glass and celebrate, especially after years of flat sales. Strong promotions from key suppliers such as MillerCoors and Anheuser-Busch InBev have encouraged consumers to embrace bigger-ticket premium and above-premium brews with greater frequency, according to Tom Fox, partner in beverage consultancy CM Profit Group, Troy, Mich.
“Based on what suppliers are doing with pricing, they’ve managed the gap between premium and below-premium products in a way where it encourages trade-up,” Fox says.
Other segments showing renewed promise are imports and progressive adult beverages (PABs)—or flavored malt beverages—which are up by double digits, according to SymphonyIRI figures.
Even after years of explosive growth, crafts still remain significantly underdeveloped in c-stores. Case sales rose 10.7% in the 52 weeks ending May 15. But given the increasingly manageable price gaps between the craft and premium sectors, crafts continue to represent a strong profit opportunity.
“Imports had some flat years with the surge on crafts … but that’s shifting with the likes of Corona and Heineken, which are already pretty well developed in c-stores,” Fox says. “With the economy improving, they’re very much affordable luxuries.”
Retailers are also finding strong profit potential in the wine sector; c-store unit sales rose 8.5% in the 52 weeks ending May 15. “The velocity of wine will never be that of beer, but it can be a good investment,” Fox says. “No doubt it can have an impact to the overall transaction size, and it does attract a valuable consumer.”
The balance continues to shift in the general-merchandise category, with a few key segments causing a stir. “The main growth is still coming from [energy] shots,” says Cassandra Matos, category manager for general merchandise, health and beauty care and automotive for McLane Co., Temple, Texas. She points out a few drivers: “One is that the consumer base is still growing for shots, and there are opportunities for stores to carry multipacks and do well with them.” Relaxation shots are another opportunity, she says, as well as different delivery methods such as sheets.
On the HBC side, the still-sluggish economy has conditioned consumers to fulfill their needs through weekly shopping trips, meaning c-store retailers have to be cognizant about not overpricing analgesics, cough/cold remedies and other such items at retail. “With HBC, you may be seeing a little increase in some areas, but on the whole everything is pretty much flat,” Matos says. “Flat is good; flat is the new up.”
McCourt of SymphonyIRI suspects a lack of focus among retailers for the continually soft numbers. “This continues to be a $1-billion category—and the channel just doesn’t communicate it very well,” he says.
With consumers self-medicating more often, retailers have an opportunity to boost sales of vitamins. Because some consumers favor larger package sizes, retailers should have a good mix of singleand multi-dose items, says Matos: “We haven’t seen c-store [HBC] sets continue to shrink at the rate they were, so this is a good trend.”
Other growing GM segments include lighters, gloves and batteries, as well as technology-specific items—cellphone chargers and other phone accessories— and in-and-out items geared toward kids, such as last year’s Wacky Bands and Wacky Erasers. In the automotive category, one hot seller that will likely endure: diesel exhaust fluid (DEF), which helps reduce nitrogen-oxide emissions for 2010 diesel vehicles or newer. “There’s a huge need right now for 2.5 gallons of DEF in stores, and that demand will increase for a while till it levels off,” says Matos.
First the bad news: After suggestions that industrywide foodservice sales were on the mend after a few years of soft performance, rising gas prices and food costs have conspired to once again make consumers more cautious of how and where they’re spending their food dollars.
“Wallets are being squeezed, with industry dollars up only 1% for the most recent quarter,” says Bonnie Riggs, restaurant industry analyst for The NPD Group, Port Washington, N.Y. “We’re forecasting for the balance of the year that traffic will be essentially flat. For 2012, we’re forecasting that industry traffic will be up 1.2% for the year … but it’s going to be a real battle for market share.”
An NPD report titled “The Changing Consumer Mindset” shows that 76% of respondents believe the economy will not improve for another three to five years, meaning they’ll continue their cautious habits.
Now the good news: As a group, convenience retailers are outperforming just about every other retail segment in terms of foodservice growth. For the three-month period of March through May 2011, c-stores showed a 4% increase in traffic and 42 million more visits than a year ago, according to NPD data.
“There has been a lot of focus on food activity in c-stores,” she says. “They’re doing well with the tried-and-true things of old, but you’re also seeing a lot of innovation. There are a lot more c-store operations adding better food and more variety, not just your typical hot dog and slice of pizza.”
Tim Powell, director of research and consulting for Chicago-based Technomic Inc., is bullish on c-store foodservice for the balance of 2011. “In the first six months of the year, c-stores are still poised to outpace what the overall industry is,” he says. While Technomic projects overall foodservice sales to drop 0.6% in 2011 on a real basis, c-store sales will rise 0.5%, he says.
The c-store industry is somewhat more insulated from economic conditions than full-service and fast-food restaurants because it serves as a one-stop shop, Powell suggests. Fountain drinks, with their high-margin, low-labor sheen, are helping keep the channel especially competitive. “C-stores have a good lead there because they typically offer free refills, and the portion sizes are enormous. They are supercheap, and you’re getting more bang for the buck,” he says.
On the food side, healthier or lighter options such as salads, yogurt and items that trumpet fresher or more wholesome ingredients have become of increasing importance for a small but vital segment. It may be less than 10% of the population that craves or requests such items, but, according to Riggs, “Nine percent of 60 billion visits is a lot of business.”
With commodity costs of core ingredients such as beef on the rise, many retailers are focusing on less-expensive menu options—namely, chicken. Some of the strongest-performing menu items include breaded-chicken sandwiches and chicken nuggets, as well as breakfast wraps and breakfast burritos. Furthermore, cost is a core consideration, but it’s all in the eye of the beholder, according to Riggs.
“Deal-related traffic seems to be declin-ing for the last three quarters,” she says. “After deals are in place, they tend to become the norm and consumers no longer consider them to be a deal; either that, or they’ve grown tired of buying on deal and want to take advantage of something else.” Either way, it’s going to be the most creative operators who can deliver on consumer expectations that will continue to come out a winner, she says. Powell says roller grill is a great opportunity for 2011, with a flood of new products, better roller grills and retailer focus keeping consumers engaged. Despite the growth, c-store foodservice remains small, ringing up about $10.5 billion compared to $530 billion for the total foodservice industry, he says: “The key drivers for c-stores— because they are still in that growth stage and trying to understand foodservice—they have a customer base, so they just need to expand offerings to help increase check averages.”
Despite a less-than-stellar start to the year, the tobacco category is once again smoking.
“The year started out poorly,” says John Mayer, product director, cigarettes and tobacco, for industry wholesaler McLane Co. January is always a poor month for cigarette and tobacco sales, he says, possibly because of New Year’s resolutions to quit smoking. This trend, which typically affects January and February, lasted longer in 2011. The softness was likely prolonged by an end-of-year 2010 price increase and rising state-tax increases across part of the country. However, the category rebounded nicely in the convenience channel by the second quarter. SymphonyIRI data showed cigarette units up 7.1% for the 12 weeks ending July 10, with carton dollar sales rising 4.2% and single packs up 7.2%.
“Cigarettes continue to decline in volume, with fewer and fewer cartons being sold, but from the c-store side of the aisle, the category is actually up slightly for the first half of the year,” says Mayer. “That speaks particularly well to the category’s performance in the second quarter.”
While the price-value segment, driven by R.J. Reynolds’ Pall Mall and Lorillard’s Maverick, has provided momentum, much of the category’s growth is from strong premium brands, he says. Cigarette manufacturers are offering sustained promotions and incentives to lessen the price disparity between premium and price-value brands, incenting smokers to trade up.
“There’s a lot of promoting by the key manufacturers—Altria, RJR, Lorillard— that’s helping the category stay strong, especially in premium, which still represents 80% of the category with us,” says Mayer.
Other tobacco products, driven by moist smokeless, little cigars (cigarillos) and single cigars, have had an especially good year, according to Mayer. By SymphonyIRI figures, cigar unit sales rose 9.9% during the 52 weeks ending July 10, but were off 5.7% for the latest quarter. In the latest 12 weeks, sales of spitless were down 3.6%, while chew and snuff were up 5.9%.
The emerging segment known as snus and other forms of tobacco delivery are also contributing.
“RJR is doing a great job with Camel Snus, but I think a lot of it has to do with more pouches out there from the likes of American Snuff (formerly Conwood) and Swedish Match,” Mayer says. Some of the growth is from cigarette smokers looking for a smokeless alternative, as well as new consumers who find pouches to be an easy way to enter the market.
Meanwhile, the “loose” side of the moist-smokeless business continues to show great strides, with McLane’s shipments of smokeless-can business in c-stores growing at a clip of 12% to 13% per week. “There are a lot of possibilities out there with the moist segment,” Mayer says. “That’s why the c-store can’t lose sight of the category.”
With c-store foodservice sales performing well, snacks are reaping some of the reward as customers augment their sandwich, salad or other meal purchase with a bag of chips or other snack. And whether as a stand-alone or market-basket buy, snacks are retaining their strength as a core c-store category.
C-store sales in several salty-snack segments grew over the past year, reports SymphonyIRI, with the largest subcategory— potato chips—seeing a 3.4% bump in unit sales and 4.2% growth in dollars to reach $1.2 billion for the 52 weeks ending May 15, 2011. In packaged sweet snacks, sales continued to soften for cookies, bakery snacks and muffins.
Clearly, snacking in the United States continues to evolve. For example, U.S. retail sales of natural and organic snacks, foods and beverages increased 9% in 2010 to more than $39 billion, far outpacing growth in conventional snacks, according to industry research firm Companies and Markets.
Despite the sluggish economy, sales of this sector are expected to reach $78 billion by 2015. Such bold growth got its kick-start in 2011, when Frito-Lay switched half its snack portfolio to allnatural formulations. Other major consumer product companies are following suit by developing natural/organic items internally, or acquiring brands already strong in this space.
Another trend likely to affect how American consumers snack: portion control and other elements tied to healthier eating. Snack foods promoting benefits such as “naturally sweetened” or “reduced sugar” will likely gain importance, especially among female and under-25 shoppers. Also, according to a market-research report from The NPD Group, 43% of more than 5,000 adults surveyed recently indicated they ate smaller food-and-beverage portions always or most of the time in the past year. Furthermore, 57% of adults say they aspire to eat smaller portions in the coming year. Finally, in a trend that’s spanning multiple categories, what’s old is new again: Many big snack brands such as Doritos are looking to revitalize entrenched products by stoking consumers’ nostalgia, according to Chicago-based research firm Mintel. To counter the dread related to today’s tough financial climate, manufacturers are reintroducing brands, packages and formulations, backed by retro advertising campaigns, in an attempt to remind the consumer of seemingly simpler times. The strategy appears to be working.
Thanks in large part to the triumph of king-sized chocolate bars, the confection category has had a royal first half of the year in convenience stores. Unit sales are up 5.2% and dollars up 6.8% in the 52 weeks ending May 15, according to SymphonyIRI.
Buoyed by king-sized bars, confection is benefiting from a number of stars in 2011, according to Lance Smith, confections category manager for wholesaler McLane Co. He highlights Hershey’s Minis and Drops and Mars’ Snickers Peanut Butter Squared.
Nonchocolate also is scoring some wins in the form of equally impressive gains from the likes of king-sized Starburst and Twizzlers.
And, for the first time in years, mints are once again showing encouraging growth. SymphonyIRI shows dollars up 6.3% and units growing 5.4% for the same 52-week period. As frontrunners, Smith cites Ferrero’s Tic Tac and Hershey’s new Ice Breakers Frost, which will be adding more SKUs in the near future. In addition, mints have benefited from a sustained strong performance by Mentos and a revitalized Altoids brand.
In a year of confectionary cost increases, however, Smith cautions retailers to manage and market smartly: “Confectionary (non-gum) sales might be up 6% or 7% in dollars, but … growth of those rates can be partially attributed to inflation. Be mindful that this is a year of inflation and make well-informed decisions based on unit sales.”
He suggests retailers follow manufacturers’ lead by sticking to the core and “getting back to basics.” That means change plan-o-grams at least every six months, promote heavily, determine strategic secondary merchandisers in high-traffic areas, and execute rapid speed to shelf. The latter, says Smith, will be especially important for the rest of 2011, which will give rise to a host of new items.
Gum has been the only notable frustration. Smith expects increased innovation from the likes of Wrigley, Cadbury and Perfetti Van Melle—“not just line or brand extensions but new kinds of gum,” he says—to kick-start the segment and turn it around by the fourth quarter as long as retailers maintain their dedication to the segment.