Productive and Functional
No single magic bullet in the beverage category, but lots of smaller pellets pack a wallop.
If there’s one thing retailers attending the 2010 CSP Cold Vault Summit agreed on, it’s that there is no magic bullet in the beverage category this year. While in the past retailers seized on energy shots, energy drinks, bottled water and even craft and import beers for strong growth, 2010 entered like a lamb and is likely to remain a demure creature.
“A new decade begins the way the previous one ended, with many of the same issues,” said Doug Goodwin, vice president of beverage alcohol client solutions for Chicagobased SymphonyIRI Group (formerly Information Resources Inc.). Consumer confidence is down, the weather hasn’t cooperated and gas prices are back up to $3 a gallon in some markets, he pointed out. None of these issues has helped a beverage category rise to the top.
“I don’t see any one product or category that’s really rising above the others,” said John West, director of sales and marketing for Southwest Convenience Stores/Alon Brands, Odessa, Texas. “Really, the best things we see coming through are packaging innovations.”
Specifically, retailers called out Pepsi’s new 18-pack of cans and several beer companies’ 30-packs as packaging innovations that have driven sales. Others pointed to Coca- Cola’s mixed bag of 12-, 14-, 16-, 20- and 24-ounce singleserve bottles with varying degrees of respect and disdain.
But just what might lead packaged beverages to a healthy year of sales remained a lingering question. Sure, each retailer had a favorite product that’s making waves, most of them relatively new category entries—from Muscle Milk to Peace Iced Tea and Bud Light Golden Wheat to, believe it or not, a revived Pabst Blue Ribbon. But to most, these landed like Nerf darts rather than magic bullets.
Not to characterize beverage category managers as anxious, but the overall demeanor can be equated with speaker Kaumil Gajrawala’s summary of the U.S. economy: “Last year, I told you this is the worst we’ve ever seen it, and sadly, I was wrong. It got much worse.”
IT’S THE ECONOMY
In his opening presentation, Gajrawala, a beverage stock analyst with New York-based UBS, reflected on some of the economic benchmarks that have become part of the everyday lexicon:
- Unemployment.While citing the “alarming” loss of thousands of jobs through the last three quarters of 2009, Gajrawala said UBS economists are looking for positive job gains by the third quarter.
- Personal Consumption. This measure was on a steady decline from June 2008 through January 2009. Since then, things have “begun to improve slightly.”
- Stock Market. Following a solid year of decline, the stock market started a comeback in March.
- Restaurant Traffic. It’s still dropping in all segments—fast food, casual dining and family dining—but since July 2009, the trend has slowly reversed. “We’re still in negative territory,” Gajrawala said, “but it’s trying to get better.”
The overall result, he said, has “been tougher on convenience stores,” mainly because the stereotypical c-store consumers— the factory and construction workers—are seeing greater levels of unemployment than other employment sectors: “The national unemploy- ment rate is 10%; in construction, it’s nearly 27%.”
And it gets even worse when narrowed down to packaged beverages. A fall 2009 survey of consumer spending by consulting firm Booz & Co., New York, showed that 31% of those surveyed reduced spending on nonalcohol beverages in the previous 12 months, while 42% reduced spending on alcohol beverages.
In a twist not expected during a cold-vault meeting, Gajrawala said retailers may want to make up the difference by turning to foodservice and fountain drinks. “McDonald’s remains dominant, while other QSRs struggle,” he said. “But the foodservice opportunity remains robust. … Target those B and C [grade] or C and D [grade] QSRs in your neighborhood.
“Recessions are a great time to reimage your business,” he continued. “Companies that invest during a recession outperform others in the long term. Consumers are rethinking shopping habits, so now is the time to capture them. Think ‘value.’ ”
Advice from SymphonyIRI’s Goodwin, while more beverage-specific, wasn’t all that much different. “The new American dream is not as aspirational as it has been” in recent years, he said. Consumers today are more interested in “providing for myself and/or my family”; “having close friends and family”; and “owning my home” vs. “getting education or training to prepare me for my desired career” or even “being rich,” according to an FMI/SymphonyIRI consumer survey. As a result, 55% of consumers said they shop 10 or more retailers “to satisfy their goal of ‘stretching each and every dollar.’ The new loyalty is to value,” and 80% of shoppers are looking for a more simple shopping experience, Goodwin said.
To that end, Goodwin suggested six basic steps to help get today’s consumer into a store for beer and other products, most of them driven by the retailer working with a manufacturer or wholesaler:
- Implement improved value signage at the shelf.
- Enhance packaging with clear value statements.
- Align assortments, where possible, into simplified solutions.
- Use distribution to enhance cre- ative displays.
- Deliver consistent in-home to instore brand-promise messaging.
- Develop a precise understanding of market-relevant assortments.
Goodwin also outlined a relatively complicated measure SymphonyIRI uses to determine a ranking of the top beer brands based on sales momentum. Sure, it’s well known that Bud Light, Coors Light and Miller Lite are among the top-selling beer brands in country. But add in SymphonyIRI’s 11 criteria— from case sales to dollar share of price segment change vs. a year ago to average weekly dollar sales per millions of dollars of all commodity volume (ACV)—and a different story emerges.
“Now we can see that the top momentum beer brands in c-store for 2009 were Bud Ice, Natural Light, Modelo Especial, Keystone Light and Pabst Blue Ribbon,” Goodwin said. Rounding out the top 10 brands were Natural Ice, Busch Light, Yuengling Traditional Lager, Labatt Blue Light and Dos Equis XX Lager Especial.
That’s two premium beers, three imports and five subpremiums, for those keeping score. But SymphonyIRI is further breaking down the styles of beer into 35 different types, to be very specific, to help retailers define where there are growth opportunities.
“We’ve developed these equations to determine the ‘productivity’ of a beer brand or SKU,” Goodwin said. So while ice beers account for only a 5% share of the total c-store beer market, they grew by a healthy 9% in 2009. Wheat beers have less than 1% share but grew nearly 31% in 2009. Other growing subcategories include progressive adult beverages, malt liquors and India pale ales.
While some retailers said some of these hardly held enough share to warrant space in a c-store cooler, they were encouraged that a similar deep-dive measure could be made in their stores to determine true SKU productivity. Consumers “are willing to pay for a higher [quality product] in c-stores,” Goodwin said. “That’s not translating into grocery stores.” The bottom line, he said, is to “focus on products that will drive sales.”
LOOKING FOR INNOVATION
Goodwin may be on to a larger trend, one in which retailers will have to take smaller-share beverages more seriously as larger, more mature subcategories (i.e., carbonated soft drinks, bottled water and even energy drinks) see their sales trends flatten out or decline.
Retailers at the Cold Vault Summit seemed ready to go there, many of them showing an active curiosity about coconut water, a nascent beverage category that’s seen little activity in the c-store channel but has drawn the interest of both Coca-Cola Co. and PepsiCo in the form of bids for smaller start-up companies.
Retailers can expect this to be the trend for beverage growth for years to come, according to Gajrawala.
“Think about all the great beverage innovations that came up during the past few years,” he said. “With the exception of Coke Zero … none of them came from Coke or Pepsi. The recent growth has been mostly noncarbonated beverages—in other words, driven by someone other than Red or Blue.”
That’s where Ted Wright and Marty Brown come in. Wright is managing partner for Fizz, a Decatur, Ga.-based “word of mouth marketing” firm that focuses on beverages. “People don’t trust advertising,” Wright said. “Seventy- six percent don’t believe that companies tell the truth in advertisements.”
However, “92% cite word of mouth as the best source for product ideas,” he said. “That’s up from 67% in 1977.” Brands that are “talked about” are 1.45 times more likely to grow than other brands.
The three keys of word-of-mouth marketing, Wright said, are that the “story” being told about the brand must be interesting, relevant and authentic. Wright can cite successful word-ofmouth- marketing stories till the cows come home. But a recent one, and one his company spearheaded, is the recent success of chocolate milk.
The International Dairy Foods Association came to Fizz with the goal of selling more chocolate milk. “It’s had declining sales since the 1970s,” said Wright. Associated studies showed that teens and tweens haven’t been getting enough calcium in their diets.
Fizz’s research showed chocolate milk (any kind of milk, really) is a great drink to have after strenuous exercise. It literally helps build muscle.
With research to make the story interesting (Who doesn’t like chocolate milk?) and relevant (No one wants to be an 89-pound weakling) Fizz needed an authority other than parents to tell the story. “High school kids are surly, cynical and rebellious. If your parent tells you drinking chocolate milk is good for you, they get the, ‘Yeah, yeah,’ treatment,” Wright said.
The final piece of the puzzle was putting the “story” into the hands of high school athletic coaches. Why high school? “Remember ‘High School Musical’?” asked Wright. “The kids that went to see ‘High School Musical’ weren’t in high school. They were grade-school kids. … To reach middleschool [kids], you’ve got to sell to highschool kids.”
With coaches preaching the chocolate- milk gospel, dubbed “Refuel! With Chocolate Milk,” beginning in late 2008, sales increased 48%, according to Wright, and more than 1,000 new points of distribution have been added since.
Similar results have been slow to make their way into many c-stores thus far. SymphonyIRI data shows flavoredmilk unit sales were down 6.6% in c-stores in 2009, but some retailers have seen the results, both at the office and at home.
“We have a hard time keeping it in stock,” said Dana Sump, category manager for Casey’s General Stores, Ankeny, Iowa, which offers three facings of chocolate milk. It’s his stores’ No. 1 single- serve SKU in the cold vault.
Closer to home, he said, “My son is a runner, and he heard the same story from his coach. So yeah, he’s got to have his chocolate milk after a run.”
ON THE DRAWING BOARD
Then there’s Marty Brown, president of Power Brands Consulting LLC, Van Nuys, Calif. Brown is one of the guys actually creating many of the start-up beverages that come to retailers year after year.
“I talk to about 1,500 people every year who want to create and develop a beverage,” he said. “We actually develop about 100 brands each year.” His company is responsible for recent product launches such as RelaxZen, drank, Neuro, eFusjon and Go Girl, among others.
Saying that his typical client is “a guy who has an idea but doesn’t have a lot of money,” Brown shared his thoughts on what the future is likely to bring to the beverage industry.
“We get to see a lot of what’s being done all over the world,” he said. “But I’ve got to be honest: If someone had come to me 15 years ago and told me the idea for Red Bull, I would have said, ‘Good luck.’ ”
However, “functional beverages continue to drive growth in the liquidrefreshment- beverage category, led by enhanced waters, energy drinks and RTD tea,” Brown said.
With that in mind, he highlighted these categories (For more on several of these, see related story on p. 57.):
- Coconut water
- Protein shakes and meal replacements
- Mental performance
- Relaxation and mood enhancement
- Sleep enhancement
- Sexual performance
Ultimately, Brown agreed with Gajrawala’s assessment of where the next big beverage trends will come from: “Historically, true beverage brand innovation comes from the entrepreneur, not large corporations.”
And so, the search continues for a magic beverage bullet …
Participants in CSP’s Cold Vault Summit,
held March 15–17 in Dallas:
7-Eleven Iris Yost
BP Products North America Inc. Mike Adams
Casey’s General Stores Dana Sump
CEFCO Convenience Stores Dan Dolgner
Circle K Great Lakes Ken Dillon
Circle K Midwest Norman Beck, Tony McDaniel
Circle K Inc. Worldwide Franchise Versal Lindsey
Cumberland Farms Inc. Kevin Platt
Douglass Distributing Retail Co. Diane McCarty
Forward Corp. Lundy Edwards
GPM Investments/Fas Mart Chris Postlewaite
Handee Marts Inc. Bruce Earhart, Jim Monroe
Holiday Stationstores Steve Lunderborg
Jaco Oil Inc. Fred Faulkner
Love’s Travel Stops & Country Stores Wade Hollis
Pacific Convenience and Fuels LLC Tedd Hupp
Pilot Travel Centers LLC Chris Cope, Brett Riddle
Prima Marketing LLC James Barberio, Charles Newman
Quick Chek Corp. Bill Tencza
Robinson Oil Corp. Kris Kingsbury
Southwest Convenience Stores LLC/Alon Brands John West
Speedy Stop Stores Chris Peters
The Spinx Co. Inc. Brad Eaton
Thorntons Inc. Todd Siegel
TravelCenters of America Kirk Matthews
Wawa Inc. Tammy Altman, Krisanne Flamini
Wayne Oil Co./Ballpark Stores Richard Shortt
Worsley Cos. Terry Taylor SUPPLIERS
Dr Pepper Snapple Group Vincent Gerber, Chris Parks, Greg Phillips, Dan Thomas
Nestlé Waters North America Rob Ditzhazy, Jim Donker, Jeff Flaig, Eric Keeler, Christopher Silk
Red Bull North America Fredo Guarino, Jennifer Hancock, Brian Kuz, David Reynolds
Anheuser-Busch Inc. Paul Meder
Celsius Inc. Richard Cardamone, Shawn Green
Cytosport Inc. Xavier Bagala, Dean Pulver
Dean Foods Amy Carey, Marty Eskenazi
Dr Pepper Snapple Group/TravelCenters of America Jessica Kleinman
Funktional Beverages Inc. Darrell Duchesneau, Tim Lucas
Mike’s Hard Lemonade Co. Chris Bierman, James Foley
MillerCoors Robert Farquharson, Michael Gallegos, Todd Hankins
Presence from Innovation LLC Don Miller, Addison Thomas
The Boston Beer Co. Brandon Kelmar
VPX Sports Rick Briley
Who: Doug Goodwin, vice president of beverage alcohol client solutions, SymphonyIRI Group Inc.
Vital Statistic: Beer case sales dropped 3.9% in convenience stores in 2009 and were down another 3.6% in the first five weeks of 2010.
Notable Quotable: “In a beer [vault], price point isn’t that important.”
Opportunity: Focus on highly productive brands and packs.
Who: Christopher Silk, manager channel development—c-stores, Nestlé Waters North America
Vital Statistic: Single-serve PET continues to be the largest segment in the water category; however, its share is down 8.2% in c-stores to 57%. Multipack PET is gaining and is up 11.1% to a 20% share.
Notable Quotable: “The recession has pushed many retailers to reimage their private-label [bottled water] and promote that,” generally with success.
Opportunity: Multipacks can drive sales. Silk suggests offering two price points for cases: a $3.99 budget water and a $4.99 premium water
Who: Dan Thomas, category manager, Dr Pepper Snapple Group
Vital Statistic: Total CSD dollar share of liquid refreshment beverages in the United States grew 1.1 points in 2009, but dollar sales dropped 1.1% in convenience stores.
Notable Quotable: “[Consumers] are leaving convenience, and they’re going to [dollar stores and warehouse stores] and spending more when they get there.”
Opportunity: 95.5% of conveniencestore customers purchase CSDs somewhere. However, only 34.9% purchase them in convenience stores. “Is there something you can do to keep that shopper in your store?”
Who: Brian Kuz, director of business insights, Red Bull
Vital Statistic: 81% of energy drinks are purchased in convenience stores, in terms of dollar sales (in measured FDMC channels).
Notable Quotable: “We expect energy-drink sales to be back up into double-digit growth within two years.”
Opportunity: “There is absolutely no relation between the energy-shot and energy-drink consumer. Provide an optimal shopping experience for both shoppers.”