CHICAGO — Terry Messmer, category and sales manager for Nashville-based Twice Daily, the c-store brand of Tri Star Energy LLC, had two “firsts” in his cold vault last year. Dollar sales of energy drinks in 2019 surpassed Twice Daily’s carbonated soft drink (CSD) sales, Messmer said.
As a result, he’s pulling a shelf of CSDs for the first time to make room for products such as energy drinks and bottled water.
“The faucet was turned on and it just started rockin’ and rollin’, even stronger than it has been in the past,” Messmer said of the energy category.
Despite clear growth leaders, such as energy, in the beverage category, variety is key when it comes to c-store cold vaults, said Gary Hemphill, managing director of research for Beverage Marketing Corp., New York.
Consumers are looking for packaged beverage products that fit different occasions and times of day, he said. They also want healthier products and options that are convenient. Responding to this demand is critical because the beverage market’s volume growth slowed in 2019 to about 0.6%, compared to 1% in 2018, Hemphill said.
The biggest factors weighing down beverages were two of its largest categories. The last year saw an accelerated decline in CSD sales and slightly slower growth in bottled water, Hemphill said. Ultimately, the total beverage category still grew, and bottled water showed strong, albeit slower, growth: 4.9% volume growth in 2018 and 3.6% in 2019, he said.
“All water segments have been growing, with overall market gains driven in particular by single-serve plastic bottles (about two-thirds of total sales) and sparkling waters, which have been booming due to increased consumption of flavored varieties as alternatives to sugary, high-calorie CSDs,” according to Rockville, Md.-based Packaged Facts’ U.S. Beverage Market Outlook 2019.
Here's a look at how the subcategories shake out today ...
Dollar sales of bottled water grew more than 3% in c-stores in the 52 weeks ending Dec. 29, 2019, according to Chicago-based IRI. However, unit sales decreased by 0.2%. Dollar sales for seltzer, sparkling and mineral water, meanwhile, jumped 9.5%, with unit sales up 5.1% in the same period.
Innovation that delivers enhanced benefits beyond flavor and hydration will help bottled water continue to grow, Packaged Facts said. That could include customized packaging and delivery systems, increased functionality—both performance and health-related—and the emergence of bottled water infused with cannabidiol (CBD).
Private-label brands are also outperforming leading bottled water brands, according to Packaged Facts. At Casey’s General Stores, Ankeny, Iowa, all of these trends are playing out.
“Our bestselling water is Casey’s private label,” said Dana Sump, senior category manager for packaged beverages. “Smartwater continues to attract our guests and alkaline waters are growing, though at a slow pace.”
The growth of enhanced waters has encouraged two of the industry’s CSD giants to expand their offer. The Coca-Cola Co., Atlanta, is set to launch Aha sparkling water in March in eight fruity flavors. Keurig Dr Pepper (KDP), based in Burlington, Mass., acquired Chicago-based sparkling water company Limitless.
At Tri Star, Messmer is testing Ugly Drinks from Ugly Brands, a London-based company that offers flavored and caffeinated sparkling waters sold in 16-ounce tallboy cans.
Messmer of Tri Star considers 2019 “the year of energy” for packaged beverages.
“When you looked at the numbers of the categories that were growing this year, it was energy and water,” he said.
He is cutting some CSDs, an organic shelf and some teas to make room for two more shelves of energy drinks, which will include Coke Energy.
Hemphill said Coke Energy, which debuted in early 2020, has the potential to be successful and get wide distribution due to the Coke trademark.
C-store dollar sales of energy drinks rose 9.5% and unit sales rose 6.6% in the 52 weeks ending Dec. 29, according to IRI. There has been a lot of segmentation in the energy drink space, while competition from brands such as Bang Energy and Reign are creating healthy growth.
At Casey’s, Sump has worked to segment energy beverages so guests can find pre-exercise beverages and other energy drink options quickly and easily. Messmer has also adjusted his energy set at Tri Star by moving brands with 300 milligrams of caffeine—a higher caffeine content than what many energy drinks have—away from Red Bull and Monster to a new door that is adjacent to Body Armor and other sports drinks.
Both Messmer and Sump plan to add Adrenaline Shoc, or A Shoc, to their sets; however, Messmer is uncertain of A Shoc’s long-term potential, arguing that 300-milligram energy drinks have already found their niche customers.
CSDs stick around
Although he pulled a shelf of CSDs, Messmer still considers it an important category.
With more than $8.6 billion in c-store sales in the 52 weeks ending Dec. 29, carbonated beverages are second only to energy drinks in terms of size. But growth has been much more elusive, with c-store dollar sales up 0.8% and units off 4.5% in the same period, according to IRI.
“We are noticing a shift as people purchase less sugary beverages and more ‘better for you’ beverages. It will be interesting to see if the ‘zero’ movement in soda has any impact,” said Sump of Casey’s, referring to PepsiCo’s newest zero-sugar drinks, such as Mtn Dew Zero.
Hard seltzers bubble up
For c-store retailers, it can be tough to predict which new hard seltzers will stick and which ones will fizzle out. Marat Yeshchin—category manager for Loop Neighborhood, owned by Fremont, Calif.-based Vintners Distributors—said he’s focusing on innovation in the category rather than older, slower-moving SKUs.
Loop Neighborhood went aggressive with seltzer at the beginning of last year and it saved the alcohol category, Yeshchin said. He added as many SKUs as possible—including White Claw Variety 12-pack, White Claw Black Cherry 19.2-ounce cans, Truly Variety 12-pack and Truly Berry six-pack—and saw Loop’s flavored malt beverage (FMB) sales rise about 150% as a result.
“Everyone’s going for that better-for-you option,” Yeshchin said. “Whether it’s in the seltzer format, or something that doesn’t make you full or bloated like a beer, people are choosing alternatives. They’re going for something a little more fruity, a little better on the taste profile.”
For 2020, Yeshchin plans to increase, if not double, his FMB offer. To make room, he’s removing a few craft beers and multipacks of domestic premium beer.
“We’re definitely going to ride the wave as best we can,” he said.
Sump of Casey’s said White Claw and Truly continue to lead the category, and it’s too early to know how Bud Light Seltzer will perform in the long term; however, “out of the gate, it’s getting good distribution and trial,” he said.
FMB sales increased 34.7% in c-stores during the 52 weeks ending Dec. 29, according to IRI, and case sales rose 32%. Hemphill said these alternative adult beverages will continue to have strong growth in 2020.
Growth in beer, meanwhile, is more modest.
Total c-store beer dollar sales increased 4.3%, while case sales rose 1% for the 52 weeks ending Dec. 29, according to IRI.
CBD filters in
While some c-store retailers are stocking CBD beverages, regulatory hurdles continue, Hemphill said. Every state is different.
“Ultimately, it would be great if there were national regulations that were broader than what we have now,” he said.
There is a market for CBD beverages, though. While the current market for CBD beverages in the U.S. is $86 million, it is estimated to grow to $1.4 billion by 2023 (with an implied 75% compound annual growth rate), according to Ronan Levy, chief strategy officer for cannabis/hemp biotechnology company Trait Biosciences Inc., Los Alamos, N.M.
One Yeshchin said he’s giving a try: Daytrip Beverages’ CBD-infused sparkling water, which is available in select states, has 5 calories per serving and 10 milligrams of CBD per can. It retails for $4.99.
The bankruptcies of Borden Dairy and Dean Foods Co., both based in Dallas, in the past year are reflective of “turmoil” in the category, churned up by changing consumer habits and category disruptors, Hemphill said.
“The trajectory of milk has been down for quite a number of years,” he said.
This is mainly driven by rising milk prices and declining consumption. Hemphill said he expects milk will continue to struggle in the years ahead.
Dairy milk also has seen competition from plant-based alternatives such as hemp, almond and oat milks that have a lot of product innovation, including from companies such as Los Angeles-based Califia Farms, Hemphill said.
C-store dollar sales of milk fell 6.8% and unit sales dropped 8.2% in the 52 weeks ending Dec. 29, 2019, according to IRI.