Packaged beverages account for 15% of in-store convenience-store sales—second only to cigarettes’ 30%. However, this category is a bigger driver of the industry’s gross profits, representing 19% of in-store gross profit, second only to foodservice’s 35%.
These stats were among a bevy from Bonnie Herzog (pictured), managing director at Goldman Sachs, during a talk on packaged beverage trends at CSP’sConvenience Retailing University in Orlando, Florida, on March 1.
When it comes to c-store margins by category, packaged beverages are above average, at 42%, versus the total in-store average of 33.9%, Herzog said, citing NACS data. For context, ice is No. 1, at 72%, and publications are last, at 13%.
“The consumer channel preferences for beverages continues to evolve since COVID,” Herzog said. “Beverage sales have really improved, and that’s encouraging.”
Consumer beverage preferences continue to evolve since COVID, Herzog said, with high retail fuel prices leading to fewer fillups, dampening in-store conversions. In addition, consumers are shifting to smaller package sizes, which are a smaller ticket but a higher profit margin, Herzog said.
Other highlights from Herzog:
- Carbonated soft drinks continue declining in favor of other channels. In March 2019, for example, about 29% of CSDs were sold in c-stores. As of January 2023, that number dropped to about 23%.
- Sales of energy drinks in c-stores also are falling, from nearly 70% before the pandemic to about 62% in January 2023. Consumers have shifted some energy drink demand to the food, grocery and mass channel, Herzog said.
- Beer, meanwhile, has been on the upswing of late after c-stores lost share to other retail channels. Currently, about 53% of beer sales are in c-stores. This percentage is closer to historic levels, Herzog said. In terms of category growth, beer is more subdued, with retailers expecting the category to grow about 3% in 2023 versus 6% in 2022, according to a Beverage Bytes survey from January.
Herzog said c-store retailers are “broadly cautious” in their outlook for the total beverage category, though concerns still revolve around:
- Broader economic pressures and fears of a recession
- Shits in consumer spending and stronger elasticities
- Elevated gas prices
The percentage of retailers who in the last three years are more positive in their outlook in the packaged-beverage category has been shrinking since a high of 64% in April 2021, Herzog said, citing Beverage Bytes data.
The percentage of positives is now 23%, from a January survey; however, also falling is percentage of retailers whose outlook for the category is more negative, falling from 39% in April 2022 to 27% in January 2023.
What is growing is those whose outlook is neutral, growing from 28% in April 2022 to 50% in January 2023.
Herzog calls retailers’ most recent outlook “broadly cautious.”
Retailers surveyed in January expect sales growth of about 6%, a healthy figure, in c-stores in 2023, she said.
“About 85% of retailers are expecting more price increases from manufacturers in 2023, with about half expecting a pretty substantial increase of 3% or more,” she added, noting that with these added costs, retailers will most likely pass on an increase to consumers. The 85% contrasts with 100% of retailers in a 2022 third-quarter survey who expected price increases.
In energy drinks, sales remain robust, Herzog said, with Monster and Red Bull driving growth. Category growth, despite recent price hikes, was 17% in 2022’s fourth quarter, according to NielsenIQ data, Herzog said.
Elsewhere, current promotional trends are broadly subdued, with about 62% of retailers not seeing signs of increased promotions. However, 46% think manufacturers will have to start promoting more while 54% think manufacturers will raise prices, according to a Beverage Bytes survey, Herzog said.
Hard seltzer continues to disappoint, Herzog said, with category volume growth expected to remain pressured in 2023. “The outlook quite frankly is pretty cautious,” Herzog said. Total category growth was 94% in first-quarter 2021 and has fallen quarterly since, with 2022’s fourth-quarter a negative 3%.
“The feedback I’m hearing is consumer interest is pivoting into RTD cocktails,” Herzog said. “Everyone is bringing in a new RTD cocktail.”
However, the consumer doesn’t think about the category and is just looking for a product that tastes great, possibly comes in a seek, slim can, and calories, she said.