Finding the sweet spot in the beverage category may mean offering more products that aren’t so sweet.
As consumers continue to reach for alternatives to carbonated soft drinks (CSDs), they’re choosing beverages they consider healthier and functional, such as energy drinks, bottled water, sports drinks and iced tea, says Vivien Azer, an analyst with Cowen and Co., New York. Each of these segments saw double-digit growth last year, according to year-end IRI data.
“Manufacturers recognize that this trend is taking place as evidenced by the challenges in the carbonated-soft-drink category and by the mix of innovation, which has skewed to low-, no-calorie and no-added-sugar type beverages,” she says.
Azer points to innovations from Monster Energy in its zero-calorie, no-sugar Ultra line and to Dr Pepper Snapple Group’s focus on natural, lower-sugar Snapple products, “which are resonating with the consumer.” Azer also predicts continued growth in sparkling beverages.
Chris Hall, vice president of sales for Talking Rain, the Preston, Wash.-based maker of Sparkling Ice beverages, says millennial consumers are motivated by innovation, which includes everything from the addition of organic ingredients to flavors made from antioxidant-packed superfruits. And they’re not seeing that in sodas.
Beverage sales overall are getting a lift from lower gas prices, which have given consumers more discretionary dollars to spend inside c-stores, according to Wells Fargo analyst Bonnie Herzog’s “Beverage Buzz,” a survey of retailers representing about 15,000 U.S. locations. Retailers report craft and import beers, as well as the success of single-serve packages, are driving alcohol-beverage sales.
The real challenge for category managers in craft is SKU management now that there are more than 4,200 independent craft brewers nationwide.
Azer suggests c-stores focus their craft offer on their local region: “The appeal of craft beer is that you’re buying local and, in theory, buying better, more flavor-forward."
The Wells Fargo survey also found that while craft and imports such as Modelo and Corona are driving sales, weakness in major beer brands is weighing on category results. Azer echoes this concern, pointing out that despite growth in craft and Mexican imports, the top four U.S. brands—Bud Light, Budweiser, Miller Lite and Coors Light—still account for 40% of category volume.
“They have been losing market share fairly steadily, and I don’t really know what changes that trend,” she says.