Beverage sales in the convenience-store channel strengthened in the second quarter, and retailers are slightly more optimistic in their outlook as they now expect beverage sales to increase about 6% this year, versus about 5% previously.
This is the outlook from New York-based Goldman Sachs’ second-quarter Beverage Bytes survey, which represents about 36,000 retail locations or about 24% of the c-store channel.
Overall, retailers remain very positive about the growth trajectory for Constellation Brands, Los Angeles, with about 11% year-over-year growth expected this year, and about energy drinks, which are expected to enjoy double-digit percentage growth this year. Retailers remain concerned, however, about broader economic pressures and fears of recession, effects from cooler weather in the second quarter and negative effects from the recent Bud Light controversy.
Other Notable Takeaways
The pricing environment remains healthy/rational with the majority of retailers expecting incremental pricing by both non-alcohol beverage makers and brewers this year.
Beer promotional activity has increased in the last few months, particularly in the wake of the Bud Light controversy, as well as in non-alcohol beverages where Goldman Sachs’ retailer contacts highlighted that manufacturers and brewers have started to promote more to try to stem volume pressures.
The big winners of incremental shelf and cooler space in 2023 are energy drinks—particularly Celsius Holdings, Boca Raton, Florida, Monster Beverage Corp., Corona, California, and C4, Austin, Texas—Constellation Brands, Victor, New York, Molson Coors, Chicago, and Monster’s new the Beast Unleashed.
The hard seltzer category growth declined again in the second quarter.
The hard seltzer category growth declined again in the second quarter and retailers are incrementally more negative with their outlook for the category, now expecting a 5% drop this year.
Out-of-stocks remain an issue in both alcohol and non-alcohol segments, with non-alcohol beverage out-of-stocks getting incrementally better, whereas alcohol beverage out-of-stocks seem to be worsening.
“Given retailers’ broadly optimistic outlook for beverages, we reiterate our buy ratings on both Monster and Constellation Brands given their exposure to attractive categories and accelerating trends,” Goldman Sachs said. “They remain two of our top stock picks.”
Highlights for Non-Alcohol Beverages
Energy drinks remain very strong (including Monster), though the outlook is incrementally more cautious versus Goldman Sachs’ first-quarter survey; however, there are expectations for sustained double-digit percentage growth in 2023, which would mark the third consecutive year of double-digit percentage growth.
Retailers are bullish on the recent performance of Monster Energy Zero Sugar, with nearly half of all respondents suggesting sales have been “very strong” while 33% suggest sales have been incremental to Monster.
Non-alcohol beverage sales grew about 7% year over year over the July Fourth weekend despite many retailers citing poor weather trends. Traffic was nearly flat year over year.
About 40% of all retailers suggested there are no out-of-stocks in the non-alcohol beverage space.
About 40% of all retailers suggested there are no out-of-stocks in the non-alcohol beverage space, the first time any retailer has indicated this in the past two years.
Most retailers view Monster’s acquisition of Weston, Florida-based Bang favorably as it gives Monster access to a huge state-of-the-art production facility in Arizona to help grow the Monster brand.
About 36% of all respondents allocated or plan to allocate incremental shelf/cooler space to non-alcohol beverages this year, led by Celsius, C4 and Monster.
Retailers are most upbeat about recent energy-drink innovation, particularly for Celsius, Monster (including Monster Energy Zero Sugar and Reign Storm, Los Angeles) and Prime, Kent County, Delaware.
Highlights for Alcohol Beverages
Beer growth in c-stores was stable, up 4% in the second quarter, with retailers more cautious in their outlook and expecting the category to grow 3% this year (versus a 6% growth expectation in the first-quarter survey).
Hard seltzers sharply deteriorated in the second quarter, down about 4% year over year (versus being up 5% in the first quarter), with retailers expecting the category to decline 5% this year (versus growth of 5% expected previously).
San Francisco-based Truly’s momentum is still not improving, according to 80% of retailers, despite Boston-based Boston Beer Co.’s efforts to revitalize it.
Truly’s momentum is still not improving, according to 80% of retailers.
Space allocation of alcohol beverages remains broadly unchanged versus last year, though Constellation Brands appears to be the big winner, followed by Molson Coors, at the expense of Anheuser-Busch Inbev.
Los Angeles-based Modelo Especial growth continues to be very strong, but retailers are mixed on Modelo Oro, citing limited brand support. Only some are allocating incremental shelf and cooler space to the brand.
Miller Lite, Milwaukee, and Coors Light continue to outperform, with share gains strengthening and signs the brands will maintain at least some recent gains, a key debate for investors.
The Beast Unleashed is expected to gain incremental shelf and cooler space, and retailers are broadly positive about the new brand, while retailer sentiment on the new Jack Daniel’s & Coca-Cola RTD is more mixed.
“Turning to the balance of the year, we see continued but decelerating topline strength based on retailer feedback from our Beverage Bytes survey that suggests incremental pricing opportunities may be harder to come by, while the potential for strengthening elasticities resulting from the continued impact of inflation could weigh on volumes,” Goldman Sachs said.
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