CHICAGO — The year 2020 has brought many changes to the cold vault.
Convenience-store retailers stocked larger pack sizes and even used some cold vault shelves for grocery items at the coronavirus pandemic’s onset.
At CSP’s 2020 Cold Vault Forum, which was held virtually due to COVID-19, industry experts shared where c-stores stand compared to other channels in packaged beverages sales, and how they can growth their share moving forward.
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Total U.S. beverage market grows
The total U.S. beverage market grew about 0.3% in volume so far in 2020, according to Gary Hemphill, managing director of research for the Beverage Marketing Corp. (BMC), New York. About 1% is considered good growth, he said, but with the global COVID-19 pandemic, 2020’s number isn’t so bad.
“It’s almost remarkable that the category is growing because we’ve had so much turmoil with the pandemic,” Hemphill told retailers during the Cold Vault Forum.
Ready-to-drink (RTD) coffee was among the best performers in terms of volume in the first half of 2020, when it saw just more than 12% growth. This is compared to 2019 growth of 6.6%, Hemphill said. RTD tea hurt the most in volume for 2020 with a 5.7% decrease.
When it comes to c-stores, energy drinks are the largest category based on retail dollars, while carbonated soft drinks (CSDs) are the latest volume refreshment beverage category.
When looking at the refreshment beverage market by category in c-stores, CSDs have 33% of the volume share of the category while energy drinks have 14.7% Energy drinks have a larger share of retail dollars, however, about 33.8% compared to CSD's 27% share, according to year-to-date numbers ending on Sept. 6, 2020, from BMC and IRI.
Fountain drink effects
Nearly half of fountain drink buyers stopped buying fountain drinks when many c-stores shut down foodservice and dispensed beverages because of the COVID-19 pandemic for health and safety concerns. However, many of those people shifted their c-store spending elsewhere, including to packaged beverages and alcohol, said Melisse Sullivan, associate director of retail consulting with Numerator, Chicago.
Numerator found 46% of c-store fountain drink buyers stopped buying fountain drinks during COVID-19, but only 16% of lapsed c-store fountain drink buyers left the c-store all together.
So what did those who stayed spend their money on?
More than 20% bought combustible nicotine products, 5.9% bought packaged beverages and 5.4% bought alcohol beverages, Sullivan said. Beer, spirits, sports and energy drinks specifically got the biggest boosts from the lapsed fountain beverage buyers.
When looking at c-store packaged beverage buyers, 35% stopped buying packaged beverages during COVID-19, and 31% of those shoppers left the c-store altogether, Sullivan said. Those who stayed continued to purchase tobacco products and alcohol, which c-store retailers can use to help draw shoppers back to the beverage category, she said.
Heavy c-store cold vault buyers also spend on beer, sports and energy drinks most, so that is another area c-stores should promote, Sullivan said. One way to do this could be using fountain drink space for in-store marketing to direct traffic to the cold vault.
C-stores lose share of energy, CSDs
C-store’s sales growth is underperforming compared to other channels, Bonnie Herzog, managing director at Goldman Sachs, New York, said. Sales in c-stores have rebounded after initially declining at the start of COVID-19, but have continued to lag sales in grocery, drug and mass channels due to several factors.
Because c-stores are more impulse driven, they’re tied to consumer mobility, which has declined during the pandemic, Herzog said. Customers are also prioritizing trips to channels where they can stock up on more products to minimize trips to the store.
Looking at packaged beverages, consumers have shifted some energy drink and CSD purchases to other channels than c-stores, Herzog said. Beer sales in c-stores dipped at the start of COVID-19, but are starting to pick back up again.
“We think c-stores should continue to step-up larger pack offerings if they hope to fully regain the share that’s been lost to other channels—particularly if consumers continue to prioritize fewer trips to the store,” Herzog said.
Efforts to boost packaged beverages sales will be worth it if successful.
Packaged beverages make up about 15% of total c-store sales, and 19% of c-stores’ gross profit, according to Goldman Sachs’ data.
“So the margins on this category are quite attractive, and I predict over time that’s going to continue to increase,” Herzog said.
Outside of foodservice, packaged beverages outpace all other major categories in the c-store in terms of growing profit, she said. Packaged beverage margins are even three times larger than cigarette margins in c-stores, Herzog said.
During COVID-19, consumers have stuck with more trusted and known brands over experimenting with new products, but that could change in 2021. Manufacturers are likely to pivot back to innovation and more experimental offerings in 2021, Herzog said.
Some products she said are generating buzz include Monster’s new Watermelon variant, Truly Iced Tea Hard Seltzer, a new high-energy line of Mtn Dew, a potential hard seltzer offering from Monster and Coca-Cola’s Topo Chico Hard Seltzer.
Opportunity in RTD spirits
When it comes to alcohol, RTD spirits are a rapidly expanding category and offers the c-store channel a premium option in the ideal pack format, Mitch Louch, director of shopper insights and the Center of Excellence at Beam Suntory.
While hard seltzers have skyrocketed over the past couple of years, RTD drinks are spirits-based, as opposed to hard seltzers, which are malt beverages, Louch said. Hard seltzers are considered part of the beer category while RTD spirits are part of the spirits category. RTD differs from regular spirits in that they are sold in single-serve multipacks.
RTD shoppers are like those of hard seltzers, Louch said, but over-index older with slightly stronger income and in lower-population markets.
Growing RTD could mean growth for the entire alcohol category, he said.
“Because that shopper base really shows tendency to be in a position to have stronger spending power, what we also see with current RTD shoppers and their engagement—not just within spirits, but also within beer and wine—shows us that they’re highly active [within total alcohol],” Louch said.