As the calendar turned and 2016 wound down, it seemed packaged beverages did the same thing.
In the four weeks ending Dec. 31, 2016, Nielsen all-channel data reported volume declines in carbonated soft drinks (CSDs), beer, sports drinks, juices and ready-to-drink teas. It was one of the roughest four-week periods in years for beverages. Even the categories that had volume growth—energy drinks and bottled water—experienced dips in that growth. Energy drinks saw what may be an all-time low of 1.4% growth over the previous month.
Surprisingly, the story was even worse in convenience stores: CSD volumes declined 4.9%, beer dropped 4.3%, energy drinks were down 1.7% and sports drinks fell 6.8%. Things weren’t quite so bad for the full year (see chart at right), but the data shows volume and dollar sales on a steady decline throughout the year.
CSP digs into which categories are growing, which are slowing and which are showing renewed vitality ...
“[Last year] was an OK but challenging year for us across all beverage categories,” one retailer in the upper Midwest told CSP on condition of anonymity. “December was particularly tough for beverages as we had some extremely cold temperatures.”
Analysts agreed, chalking up the challenging year to eroding consumer spending “as a result of weaker consumer confidence, higher gas prices and rising healthcare costs,” said Bonnie Herzog of Wells Fargo Securities, New York, in a research note.
Beverage watcher Gary Hemphill, managing director of research for Beverage Marketing Corp., New York, says the category itself is in flux.
“It’s both an exciting and challenging time for the beverage industry,” he said. “Many traditional categories are struggling to find their footing and many newer categories are thriving.” Here's our analysis ...
GROWING: COLD BREWED COFFEE
A year ago, cold-brew coffee didn’t exist as a packaged-beverage category that c-stores considered. Sugary, dairy-based drinks defined the ready-to-drink (RTD) coffee category, and where cold brew existed, it was a premium and generally bitter (in a good way) proposition.
But that’s the point. As a large segment of consumers moves away from sugar-sweetened
beverages, they’re willing to pay a little more for a premium and perceived better-for-you experience.
To meet that need, by the end of this year, RTD cold-brew options will be available in c-stores from Starbucks, Peet’s, Shamrock Farms and White Wave, as well as niche brands such as Califia Farms (above), High Brew and Steep 18, among others.
“The outlook for RTD coffee remains strong, with total sales projected to grow by 53% in the next five years.”
—Scott Tillman, director of retail channel strategy and commercialization for The Coca-Cola Co., Atlanta
GROWING: HEALTHIER BETS
Pressed juices, protein-added drinks and kombucha: In that order, these are three of the most eligible heathier product categories coming to market. Here’s why:
Pressed juices: Forget sweet, sugar-added juices. With consumers battling obesity and embracing healthier options, cold-pressed juices went mainstream in 2016. PepsiCo added a line of cold-pressed juices to its Naked brand in January, while Coca-Cola Co.’s 2015 investment in Suja brought it a brand of cold-pressed juices, in addition to probiotic waters and drinking vinegars.
Protein-added: No longer just for smoothies, protein is now enhancing energy drinks, RTD coffees, bottled waters, milks and sports drinks. Look for them to command a larger audience.
Kombucha: Speaking of vinegar, in upscale grocery, kombucha is one of the fastest-growing beverages (technically a tea) and is expected to grow by 25% each year through 2020, according to a MarketsandMarkets report. Two brands of kombucha—Humm (above) and GTS—are listed among Chicago-based IRI’s 2016 scan data of the best-selling refrigerated teas in c-stores, one up 200% in volume sales for the year, the other 34%, respectively. With its premium price and claimed healthy attributes (all intriguing and mostly unproven), the beverage seems like a natural fit for c-stores.
“Niche categories are likely to outpace most traditional categories in performance [in 2017].”
—Gary Hemphill, managing director of research for Beverage Marketing Corp., New York
RENEWED: ICED TEA
Is the c-store industry missing out on a booming RTD tea market? Rockville, Md.-based Packaged Facts estimates tea sales grew almost 6% in 2015 to top $7 billion and will grow to close to $9 billion by 2020. However, data from IRI shows c-store unit sales of RTD tea were flat to slightly down (declining 0.7%) during the 52 weeks ending Nov. 27, 2016, while dollar sales fared slightly better at 2.5% growth. With major suppliers Nestle Waters North America (Nestea), Coca-Cola Co. (Gold Peak) and PepsiCo (Pure Leaf [above]) all investing in innovation, the industry should be able to turn that around.
“We’ve successfully expanded what we refer to as our guilt-free product lineup. Pure Leaf Tea is an example, a premium line of ready-to-drink teas.”
—Indra Nooyi, CEO of PepsiCo, Purchase, N.Y.
RENEWED: IMPORTED BEER
After a remarkable five-year run, craft beer saw cracks in its development in 2016. Its rate of volume growth slowed to about 8% in the first half of 2016, down from 12.2% in all of 2015, according to data from the Brewers Association, Boulder, Colo.
Where are those shoppers going? Perhaps to imported and domestic superpremium beers, which grew 11.7% and 7.6%, respectively, in c-stores in the 52 weeks ending Nov. 27, 2016, according to IRI.
“There’s a sweet spot that those beers are capturing,” says Tom Fox, beer retailing expert and partner with CM Profit Group, Troy, Mich. “There are people who want something more, but they don’t want to go up to the heavier craft [beers].”
“Craft has been enjoying a run driven by local pull, variety and consumer experimentation. Imports have been the consistent ... and reliable option for years, and will continue to experience growth in the short and long term.”
—Ray Faust, chief sales officer for Heineken USA, White Plains, N.Y.
RENEWED: BOTTLED WATER
The American Heart Association’s annual Jump Rope for Heart fundraiser encouraged grade-school kids to collect donations for healthy activities, including being “physically active for 60 minutes a day.” Another option was “choose to drink water instead of sugary drinks.” This form of institutional bias—one most parents have a tough time arguing against—keeps bottled water front and center for consumers.
During the 52-week period ending Nov. 27, 2016, c-store bottled-water sales volume grew 5.9%, according to IRI. And for the first time, bottled water outsold CSDs in all channels combined. Watch for continued innovation, as well as health and wellness, to continue to drive sales.
“High-end water with quality packaging and a story will continue its strong growth as people continue to look for something that satisfies health and image.”
—Kevin Klock, CEO of Talking Rain Beverage Co., Preston, Wash.
SLOWING: HARD CIDER
Contrary to sales trends, hard cider wasn’t new five years ago. Records show variations of it in the United States as far back as the 1600s. But 2012 was the year brewers decided to bring hard cider to the masses. All the major brewers—MillerCoors (Crispin [above]), Boston Beer (Angry Orchard) and Heineken USA (Strongbow)—introduced one that year. (Anheuser-
Busch was the most conservative with its cider play, introducing Michelob Ultra Light Cider in 2012 before launching Johnny Appleseed in 2014.) It boomed, relatively, growing by double and even triple digits for a few years (up 30% in c-stores in 2015, according to IRI) but never earned more than 1% of market share. With growing competition for drinkers with a sweet tooth for hard sodas and a variety of malt beverages, volume sales of hard cider dropped 11% in c-stores in 2016.
“[Hard cider] was booming for a while. Then it was hard soda, but that category is slowing down, so we made room for hard seltzer. But it’s always, ‘What’s next?’ ”
—Corrie Burdick, category marketing manager for Global Partners LP, Waltham, Mass.
In a world in which CSDs are often maligned and lumped in with cigarettes—challenged by sin taxes and the fight against health concerns—one of the three major beverage makers has found a way to keep sales growing. Perennial No. 3 Dr Pepper Snapple Group (DPSG) grew companywide volume by 1% even as the CSD market saw volume decline for the 12th consecutive year. (However, in c-stores, CSD sales were up 1.5% in 2016, according to IRI scan data.)
Wall Street often points to DPSG’s package and price mix as driving revenue, but the company’s emphasis on flavors that aren’t cola—such as namesake Dr Pepper, Canada Dry Ginger Ale, 7UP, Sunkist and A&W Root Beer—have long been not-so-secret weapons for the beverage maker. And these weapons are clearly hitting targets as younger generations seek out a broad range of flavor profiles.