NEW YORK -- Convenience store beverage sales growth was up a strong 4% for Labor Day 2013, the strongest holiday weekend thus far in 2013, according to a research note by Bonnie Herzog, managing director of beverage, tobacco and convenience store research for Wells Fargo Securities LLC, New York.
"We attribute a good portion of this improvement to better weather across the majority of the country, which drove increased customer traffic. Our respondents, therefore, believe [third-quarter] sales will be up 3.1% from last year," she said, citing Wells Fargo's "beverage Buzz" survey of more than 10,000 c-store locations nationwide.
"As we approach the final month of Q3, we are encouraged that beverage trends are picking up and by this early sign of improvement. We are becoming increasingly optimistic about [second-half] earnings for all beverage manufacturers," she added.
Nearly 50% of survey respondents indicated that weather conditions improved during July and August and only 21% indicated that weather was "much worse." This represents a significant improvement versus Wells Fargo's Memorial Day survey, when nearly 60% indicated that weather was "much worse."
"We believe this will be key contributor to volume recovery for Q3 after a particularly weak [first-half 13]," she said.
The survey indicated that promotions increased 4.2% year over year during the Labor Day holiday, from the 2.8% increase respondents reported the year before that. More than 50% of the respondents said that promotions from beverage manufacturers and distributors increased for Labor Day 2013 compared to Labor Day 2012, while only 6% noted increased promotions last year.
"Consistent with the trends we’ve seen for all holiday weekends throughout this summer, beverage manufacturers have been far more aggressive with their promotions in 2013," she said.
Colas were the most heavily promoted category for Labor Day, according to the survey.
The Coca-Cola Co., Atlanta, initiated a "more aggressive" promotional pricing strategy, particularly around holidays, to capture market share during the key summer months in direct response to PepsiCo's new hybrid pricing strategy. "Our Labor Day Survey suggests this promotional activity has continued; however, we believe [PepsiCo] may have been 'forced' to capitulate and respond to [Coca-Cola's] more-aggressive pricing. Our retailers have indicated that in most markets, 'PEP is following KO's hotter pricing'," Herzog said.
In other findings, 60% of respondents indicated that Plano, Texas-based Dr Pepper Snapple's TEN is generating weak repeat sales and "not performing as well as expected."
Direct-store delivery (DSD) suppliers "are not necessarily behind the brand as evident by lack of execution at store level," said Herzog. "In the past year, there has been a gradual reduction in our retailer contacts carrying [TEN] and unfortunately, without a successful [TEN], we worry that the rest of the platform has little hopes of long-term success; therefore, we are increasingly fearful that TEN may follow in the footsteps of countless other brand extensions that fail to become meaningful independent brands," said Herzog.
PepsiCo Inc., Purchase, N.Y., cut prices during the Labor Day holiday following a large increase other the July 4th holiday. "We think PEP may continue to struggle with this new pricing platform as retailers have historically used [carbonated soft drinks (CSDs)] as loss leaders to drive traffic, and without full buy-in from the majority of retailers, this will prove to be difficult to execute," she said.
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