NEW YORK — While there’s solid consumer demand for beverages, supply chain pressures are only getting worse, Goldman Sachs Managing Director Bonnie Herzog said in her analysis of retailer feedback from the New York-based investment management company’s third-quarter 2021 Beverage Bytes survey.
Overall, beverage sales were up 10% year over year in third-quarter 2020 in the convenience-store channel, led by a strong 13% growth in energy drinks, Herzog said. Retailers noted the strength across the energy drink category was driven by continued outperformance from the large incumbents like Monster and Red Bull.
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Retailers Remain Positive
Retailers expect beverage sales growth to remain strong overall in 2022, with growth up 8%—a sign that consumer mobility is likely to continue to improve, Herzog said.
Overall, retailer sentiment toward the category was generally positive and most of the retailers surveyed were bullish on the consumer demand environment.
“One retailer went so far as to suggest that beverages have been one of the standout categories in what remain very turbulent times—while another noted that sales levels for beverages in their stores are nearing their 2020 peaks,” Herzog said. That is very encouraging given this is coming in conjunction with the reopening of the on-premise channel, she said.
When it comes to pack sizes, customers seem to be buying more take-home sized products and singles, a departure from last year’s trend toward larger packs, she said.
Out-of-Stock Frustration Mounts
Much of the bullishness about topline growth in the beverage category is being offset, though, by concerns about out-of-stock issues, Herzog said. Retailers are broadly frustrated by out-of-stock challenges, in alcohol and nonalcohol, and it’s likely to remain a concern for the next few quarters.
When it came to alcohol, 75% of retailers characterized the out-of-stock situation as bad or very bad, up 50% from Goldman Sachs’ second-quarter 2021 survey.
“In particular, retailers are seeing significant shortages in glass,” Herzog said. “This, in turn, is driving many craft brands to move from glass packaging to aluminum," something that retailers are concerned could potentially lead to similar shortages in aluminum.
Nearly two-thirds of retailers indicated that they expect out-of-stocks to continue through second-quarter 2022—and none of the retailers surveyed expect the situation to improve before the end of the year.
When it came to out-of-stocks across nonalcohol beverages, some retailers characterized it as the No. 1 challenge facing the industry in 2021. Nearly every retailer noted challenges across their network of suppliers, with some even having to turn to Amazon Business and Food Service distributors for stock to supplement suppliers from their DSD and grocery distributors, Herzog said.
Specific nonalcohol brands that are the hardest hit, according to retailers surveyed, were 1.5-liter bottled waters, several Monster Brands, certain Coca-Cola Co. packages like 390 milliliter bottles and Fanta flavors in 20-ounce packs and some of PepsiCo’s Gatorade flavors, Herzog said.
Overall, retailers generally view 2021 as a big year for energy drinks and expect the segment to continue to perform well, Herzog said. Even as emerging brands, like Celsius Holdings Inc., expand, retailers were generally bullish on Monster and Red Bull, she said.
One reason why growth expectations for the category have slightly moderated from previous quarters though is due to ongoing supply chain issues. Retailers reported having out-of-stocks in Monster, Bang, Reign and Red Bull, among others, Herzog said. Retailers have responded to these challenges by pulling back on promos.
Consumers Look for More Innovation
Consumers are becoming more experimental and looking for more innovation, which is a shift from consumption patterns during the height of the COVID-19 pandemic when consumers prioritized known and trusted brands.
“We believe this is likely to be a positive tailwind for growth in the coming year—although we’re also cognizant that supply chain pressures could make it difficult for manufacturers to broadly distribute and roll out innovation in a way that meets consumer demand,” Herzog said.
Outside of energy drinks, retailers were generally less upbeat about innovation within nonalcohol. A few retailers attributed this to more consumers eating out, which means fewer opportunities for consumer packaged goods (CPG) companies to push innovation in the c-store channel. They also noted supply chain limitations as a risk to innovation.
Truly Outperforms in Hard Seltzers
Within hard seltzers, Truly from The Boston Beer Co., Boston, outperformed with growth up 51% in third quarter 2021 in the c-store channel (it grew 76% in the second quarter).
“Looking forward, retailers universally expect a shakeout to come in the hard seltzer category, likely in early 2022 in conjunction with Spring shelf/cooler resets,” Herzog said. “While incumbents such as Truly and White Claw stand to benefit the most from a category shakeout, it’s clear that expectations for the hard seltzer category continue to moderate.”
Retailers have significantly reduced their growth expectations for the hard seltzer category for this year and next. Survey respondents in second quarter 2021 said they expected a 30% hard seltzer growth in 2021 and 22% growth in 2022, while third quarter respondents said a 19% and 8% growth, respectively.