7 Highlights From CSP’s 2019 Cold Vault Forum

CHICAGO — Although the beverage market grew in volume for the fifth consecutive year in 2018, it experienced slower growth in the first half of 2019, according to Gary Hemphill, managing director and chief operating officer of research for Beverage Marketing Corp.

Hemphill and other experts in the field gathered in September with about 40 retailers and suppliers at CSP’sCold Vault Forum in Chicago to talk about trends in packaged beverages—from bottled water to energy drinks and the future of CBD beverages—and how convenience stores are affected.  

The beverage market is on track to grow in 2019 but at a moderate pace, Hemphill said. That’s according to data from New York-based Beverage Marketing Corp., which looks at all channels, not only c-stores, and measures growth by volume.

This is partially due to CSDs declining, Hemphill said. Niche categories continue to outperform traditional mass-market categories, except for bottled water.

The U.S. beverage market grew volume by 1.1% in 2018, but so far has only shown 0.4% growth for the first half of 2019. If the industry is treading water, it should grow by at least 1% to match the U.S. population growth of about 1% annually, said Hemphill.

Key trends affecting consumer beverage choices are environmental concerns, health and wellness, premiumization, consumer convenience and increasing beverage variety, Hemphill said.

C-store retail sales growth is underperforming other channels, said Bonnie Herzog, managing director of consumer equity research for New York-based Wells Fargo Securities. The average annual sales growth for total retail sales was 4.4% from 2011 to 2018, while c-store inside sales growth was 3.1%, Herzog said, according to data from NACS and Wells Fargo Securities.

Declining c-store trips, rapid unit growth across the dollar-store channel, small-format hybrids (including versions from Walmart and Kroger Express), labor shortages and high employee turnover, and more fuel-efficient vehicles all could be behind the underperformance, Herzog said.

There are several ways Herzog said c-stores can evolve from a commodity-driven business to one that is nimbler and service driven.

1. Strive for a better in-store retailer experience: C-stores should have a strong assortment of on-trend brands and products and tailor those products to local tastes and preferences.
2. Be first to market with innovation: C-store managers should look at new categories and brands as opportunities to gain a competitive advantage over other channels.
3. Ensure promotions are effective: Embrace analytics and use real-time data to guide and tweak promo spending.
4. Use digital tools to drive customers into the store: Make sure customers can find you online and develop better mobile applications.

In 2018, bottled water widened its gap over carbonated soft drinks (CSDs) as the largest category in the United States, Hemphill said. This was primarily driven by the single-serve PET segment, which continues to grow.

Bottle water is the biggest volume share gainer in the U.S. beverage market, while CSDs have been the largest share losers over the past five years when looking at volume share by category in the U.S. beverage market.

Bottled water had a 16.5% share in 2013, and CSDs had 21.1%. In 2018 bottled water had a 22% share, while CSDs' share was 19.4%. In the first half of 2019, bottled water had a 23% share, vs. CSDs at 18.7%. However, revenue for CSDs is somewhat brighter, because revenues have increased modestly over the past five years due to higher prices and changing packaging mix, Hemphill said.

Sparkling water is the fastest-growing segment in bottled water.

Alcohol sales in c-stores are trending up, according to Donna Hood Crecca, principal with Chicago-based Technomic.

Fifty-five percent of customers 21 years and older purchase alcohol at convenience stores, Crecca said, according to Technomic's C-Store MarketBrief. Twenty-six percent said they are purchasing alcohol more often now than two years ago.

Prices, brand and samplings are the top three factors that c-store customers said affect their decision of which c-store to visit for adult beverage purchases, according to Technomic's C-Store MarketBrief.

While beer purchases still lead the category, 74% of customers said they are purchasing hard seltzers more often now than a year ago. This is driven by millennials and Generation X, Crecca said.

When it comes to beer sales, single cans are the way to go. According to IRI data, single cans accounted for five of the top 10 fastest-growing beer package sizes between 2015 and 2017. C-stores can capitalize on this packaging trend by allocating more cooler space to single cans, Herzog said.

Energy drinks have experienced a surge in growth the last two years led by new brands and category innovation, according to Hemphill. BodyArmor is the first viable “third brand” in the category for a couple of decades and has proved so promising that Coca-Cola Co. acquired a minority stake in it, he said.

The new subsegment of performance energy drinks, such as Bang and Reign, have exploded in the past year, Hemphill said.

One innovation Herzog said c-store operators are excited about is Coke Energy, which plans to launch early 2020.

Retailers are allocating 32% of cooler shelf space to energy today, which is up from 17% three years ago, according to Herzog. However, retailers are expecting to allocate 28% of the total shelf to energy three years from now.

According to Wells Fargo Securities Beverage Buzz Surveys (August 2019), 48% of c-store retailers are selling CBD, 43% do not sell it and 9% are evaluating whether to sell it. Retailers are seeing the most CBD innovation in the food and beverage category, Herzog said.

While the current market for CBD beverages in the U.S. is $86 million, the estimated market for CBD beverages for 2023 is $1.4 billion (with an implied 75% CAGR), according to Ronan Levy, chief strategy officer with Trait Biosciences Inc., Los Alamos, N.M., a leading cannabis/hemp biotechnology company.

CBD beverages are expected to grow for several reasons: They’re easy to administer, they could be sold in a variety of channels, there’s some evidence to suggest CBD can curtail the effects of caffeine and infused beverages have a set dosage per serving. CBD could also be put in a variety of beverages, from beer and wine, to coffee, tea and kombucha.

Some reasons CBD beverages are behind include its legal status being unclear and the technology it takes to make the CBD drink taste good.