CHICAGO -- 2018 has been a curious year for the packaged-beverage category. Retailers, dealing with slower store traffic, have seen a variety of innovation from manufacturers, competitive threats from other channels of retail and supplier actions signaling strategy changes that have them waiting for the other shoe to drop.
In September, nearly 30 retailers gathered at CSP's Cold Vault Forum in Chicago to consider trends in the industry, retail realities and a ramped up merger-and-acquisition pace by suppliers that are moving the category in new directions.
Here are eight highlights from the session ...
Photograph by CSP Staff
1. A category turnaround
In 2017, nonalcohol packaged beverages accounted for nearly 16% of in-store c-store sales and 20% of gross-profit dollars, according to NACS State of the Industry data. That means the softening sales of beverages in c-stores over the past two years were reason for concern. According to data from Wells Fargo Securities, the growth of nonalcohol beverage sales was on a steady decline for an almost two-year period. Now, three quarters of the way through 2018, that trend appears to have turned around. "The tone for the industry is more upbeat," said Bonnie Herzog, managing director of consumer equity research for Wells Fargo, New York.
Image courtesy of Wells Fargo Securities
2. What's working
Herzog offered several reasons for the turnaround in beverage sales growth:
- Weather trends. Looking specifically at Labor Day Weekend, average temperatures across the United States were higher (70 degrees) in 2018 than they've been in 12 years, while weather was dryer (average precipitation 0.13 inches of rain) than it's been in four years, according to Wells Fargo data.
- Elevated consumer confidence. In April 2018, consumer confidence hit its highest point (indexing at about 130) in more than 11 years, according to data from FactSet, a data research firm.
- Beverage promotions. The number of manufacturers' holiday promotions was up 1.8% and 2.5% for Independence Day and Labor Day 2018, respectively, after hitting low points the previous year, according to Wells Fargo's Beverage Buzz surveys of c-store retailers. Perhaps more important, those promotions "are also increasingly effective at targeting consumers," Herzog said. "Manufacturers are becoming more effective with the promotions they're offering."
Image courtesy of Wells Fargo Securities
3. Battling headwinds
The news for the beverage category wasn't all rosy. Throughout the Cold Vault Forum, speakers and attendees cited several headwinds that could limit category growth. These included:
- Fewer trips and less foot traffic. During the NACS State of the Industry Summit in April, retailers lamented a decline in foot traffic. During the Cold Vault Summit, Mary Corona, Keurig Dr Pepper's shopper insights associate manager, said new KDP research conducted over the 26-week period ending Sept. 2 shows c-store beverage buyers are making 21% fewer trips to convenience stores. (See chart above.) "Shoppers no longer feel c-stores' value proposition is unique enough to rationalize price premiums," she said.
- Disruption. From Uber Eats and other third-party delivery services to Amazon Go and a collection of other technology-based entrants into the world of convenience retail, alternative ways and places to buy packaged beverages are increasingly encroaching on the traditional c-store customer. How retailers react could spell opportunity or demise.
- Prices. Record-low unemployment across the United States has many trucking companies struggling to find drivers. For some retailers, that's meant out-of-stocks as they wait for deliveries. And as those trucking firms raise wages to draw job candidates, the increased costs are passed on to product manufacturers, retailers and, ultimately, consumers. At the same time, aluminum prices have increased nearly 40% since early 2016, and that's before the Trump administration's 10% import tax took effect.
Image courtesy of Keurig Dr Pepper
4. Beer shoppers prefer c-stores
Convenience stores account for 40% of all off-premise beer volume sales, said Tim Davis, director of category management for Anheuser-Busch, St. Louis. In fact, c-stores are ranked best by consumers among other channels of retail for their beer selection (33%) and new-product offerings (20%).
Image courtesy of Anheuser-Busch
5. Booming bottled-water sales
Bottled water is increasingly meeting consumer beverage needs more often, said Andy Baran, national sales director, convenience store channel, for Nestle Waters North America. Sparkling waters are expected to grow 18.4% and still waters by 3.1% from 2017 through 2020, according to Nielsen and Nestle Waters data. That growth is being driven by four macro trends, Baran said.
- Health and wellness: Shoppers are making healthier purchase decisions.
- Demographic shifts: Millennials and Hispanics are driving new market trends and assortment.
- Quality and purity: Consumers are increasingly attuned to beverage integrity and purity standards.
- Anywhere, anytime: The ubiquity of beverages and expanding retail channels opens new opportunities.
Image courtesy of Nestle Waters North America
6. Alcohol occasions
Davis of Anheuser-Busch presented four alcohol occasions that could open the door to additional beer, wine and spirits sales:
- A.M. stockup. In Hispanic markets, many blue-collar laborers stop by c-stores in the mornings before work for 12-packs of beer for lunchtime sharing.
- Hispanic lunch. In Hispanic and urban markets, shoppers are open to foodservice and enjoy beer singles during the lunch hour near c-stores, alone or in small groups.
- P.M. relaxation. Many weekday blue-collar shoppers start earlier and get off earlier than others (3 p.m., for example) and will visit a c-store to pick up a six-pack for a relaxing night at home with TV or low-key meals and entertainment.
- Meals at home. In neighborhood markets, many tired shoppers visit local stores after work (5 p.m. and later) for an evening relaxation trip. These trips are closer to dinner, so shoppers may seek easy meals with their beer.
7. Driving functional beverages
Randy Smith, vice president of field sales and national accounts for Celsius Holdings, Boca Raton, Fla., cited an ADM Nutrition study that identified four trends driving more consumers to functional beverages, such as energy and protein drinks.
- Clean and clear labeling. More than 50% of consumers said they would be more interested in purchasing an energy drink if they recognized and understood all of the ingredients on the label.
- Probiotics. A third of energy-drink consumers replied they would purchase more energy drinks if they contained probiotics.
- Protein-enhanced. Protein in the most sought-after nutritional claim in grocery stores, when more than 60% of consumers said they actively look for protein in their purchases.
- Sport-drink correlation. As consumer need states remain dynamic, the category lines between energy drinks and sport drinks are beginning to blur.
8. Is cannabis the future?
With protein and hydration as major beverage drivers today, a new ingredient stands as a possible traffic driver for the future. Cannabis found its way into several beverage-related headlines over the past year, including investments by Constellation Brands and Molson Coors and consideration as an ingredient by Coca-Cola Co. and Diageo. In states where cannabis products are legal, retailers reported brisk sales of waters and beers made with the substance, both those that contain the psychoactive ingredient THC and those that don't (cannabinoidal, or CBD, products), which promise various medicinal benefits such as relief from stress, insomnia, and aches and pains.