NEW YORK -- Lower gasoline prices at the pump had a favorable impact on beverage sales and foot traffic in convenience stores relative to last year, according to a new survey of c-store retailers.
"It appears nonalcoholic beverage trends remain strong with +5.9% sales growth in Q4," Wells Fargo analyst Bonnie Herzog wrote in a summary of her latest Beverage Buzz survey of beverage retailers representing over 15,000 c-store locations across the United States. "It’s all about low gas prices with 100% of our contacts indicating lower gas prices had a favorable impact on sales relative to last year and more than three-quarters suggesting foot traffic had improved."
The most notable impact of lower gas prices (and steady gains in employment) is consumers “treating themselves” and trading up to higher-priced premium items in categories such as craft/import beer and tobacco that lend themselves to “up-trading,” Herzog said of the survey results. " We believe the risk/reward for both c-stores and beverage manufacturers remains broadly favorable given the benefit from lower gas prices/higher consumer disposable income and relatively benign weather.
The survey results show Coca-Cola, Pepsi and Dr Pepper Snapple volume sales all on the rise in c-stores during the fourth quarter.
Here is Herzog's breakdown of these major beverage makers:
Monster
Based on our survey, we estimate Monster’s c-store volume grew +9% in Q4 2014 with minimal net retail pricing growth. While Monster “introductions were the stars of Q4,” according to one retailer, “new Red Bull introductions will lead the way in Q1 2015.” In fact, our retailer contacts are projecting a slight deceleration in growth for Monster in 2015, with sales projected to be up 8.5%.
Bottom line: We continue to believe Monster is well positioned to drive substantial growth through its innovation pipeline and international expansion; however with potential minor disruption issues as it transitions distribution in the U.S., current valuations fully reflect near-term upside potential.
Coca-Cola
Based on our survey results, we estimate Coca-Cola Co.'s average retail price growth was up only +0.7% and volumes were up +2.0% during Q4. Our retailer contacts suggested Coca-Cola supported heavy promotions on 2-liter and 20-oz. CSDs. Coke's strategic push toward smaller packages is generally not being well received by retailers, who suggested, “they do not represent a value to the consumer” and are “in direct conflict with what retailers want” given they have “lower sales price, penny profit and margin percentage.”
Our retailers, however, were generally very encouraged by recent performance in Smartwater and at least one retailer believes Coke’s performance will “get a lot better in 2015.”
Pepsi
Based on our survey, we estimate Pepsi volumes were up +3.9% with average retail prices for Pepsi beverage products up +1.2% in Q4. Gatorade sales were particularly strong in the quarter, likely driven by increased multi-purchase promotional activity.
Dr Pepper Snapple
Based on our survey, we estimate that DPS’ retail volume was up +1.1% and its price was up +0.9%. These results place DPS at the bottom of its peers. While retailers are generally encouraged by DPS’ Allied brand performance--including Vita Coco and Bai5--results for core brands have been less favorable. “Dr Pepper brand declining,” one retailer reported, while another said he was reducing DPS cooler space having “wiped out the entire TEN line-up.”
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