C-Store Overview: Speaking of Seltzer, Talking Tobacco
CHICAGO — Shifting preferences are taking place in several convenience-store categories, a few of which are undergoing strong evolution, some via customers and some in the courts.
Product managers must pay close attention and respond accordingly, according to Mitch Morrison and Donna Hood Crecca in their discussion of issues affecting the convenience-store industry. Morrison, vice president of retailer relations at Winsight, and Crecca, principal with Technomic, spoke during Invest or Divest: Staying Put is Not a Viable Strategy, the kickoff session for the Convenience Retailing University (CRU) Community kickoff session last week.
- Click here for part 1 of this coverage, C-Stores Must Have a Plan Now for Later.
Subjects included the rise of hard seltzer, modern oral nicotine, CBD-infused beverages and electric vehicles. Click through for highlights ...
The big headline in 2019-20 was around hard seltzer, said Crecca, who expects this to continue through 2021.
“This is a category that grew from less than a half-million dollars in sales in 2018 to more than $4 billion in sales – and this is across all of retail – in 2020,” she said. “We’ve gotten to a point where seltzer now transcends seasonality. It used to be a summer drink, but now it’s definitely year-round. That trajectory, that momentum, is likely to continue.”
Head to head
With packaged beverage and cold vault, offering brands that are familiar is going to be important, as is balancing those with the fresh newcomers—that’s what drives our sales with beverage, Crecca said.
“White Claw and Truly are two brands kind of driving the marketplace, but now there’s AB InBev, Constellation, Molson Coors, Coca-Cola and other major beverage industry players joining the fray at the same time with lots of product innovation," she said.
Crecca added that new products like Barefoot Hard Seltzer, featuring wine as the alcohol component vs. malt, is “something different."
The variety of flavors, Crecca mentioned Truly lemonade hard seltzer and White Claw mango, adds complexity for category managers.
Managing this category in the year ahead will become more difficult, which is why it’s critical to understand core-consumer preferences, which might shift as new brands and flavors enter the market, Crecca said. “You have to be constantly reevaluating brand and SKU performance metrics and making some hard choices about who’s going to earn … the coveted real estate in the cold vault or on the shelf in 2021.”
“Choose wisely, my friend,” she added. “We’re approaching oversaturation and a shakeout really could be imminent. So it’s going to be more difficult for smaller brands to be able to grow in this marketplace.”
Tobacco, like the cold vault, is in the midst of a strong evolution, Morrison said. “It’s really quite fascinating to see what’s materializing over here. This is really a story of new materializing in the world of old. Tobacco is obviously an old, valuable category for us, but innovation is really at a high point right now, especially in the noncombustible world that we’re seeing.”
Playing off the old saying in political coverage “Follow the money,” Morrison said, “Here I’d say, ‘Follow the MON – Modern Oral Nicotine'.”
The most dynamic area right now is nicotine pouches, he said, with players including Swedish Match with Zyn and British American Tobacco with Lyft. “You see more and more players getting into it. It’s also going to be a little bit challenging in that while there’s a bit of a gold rush and we’re seeing dramatic growth. Marketwatch.com is expecting 55% compound annual growth between now and 2026.”
How the FDA regulates during this growth will be something to watch along with looking at the comfort level of retailers in reassorting the whole back bar of their tobacco, he said. It will require tremendous category management in determining how involved retailers become.
“Do you want to make this very aggressive, a defining point for you, maybe a point of distinction from other operators, or do you want to play it somewhat conservatively because it is still a relatively small subcategory?” he asked.
Regarding regulation, Morrison noted how the enormous popularity of vaping led to a crush of regulation on the local, state and federal levels. “We’re expecting greater clarity going forward,” he said. “We already got some toward the end of 2020 from the FDA, where they banned most flavors from cartridge-based e-cigarettes really to address health concerns.”
There is a reawakening in the vape market, but Morrison doesn’t expect it to experience the massive growth of 2017 and 2018.
Morrison said there is concern about what’s happening in California and Massachusetts, where both have adopted flavor bans across tobacco segments. There is legal action, and some think it could go to the U.S. Supreme Court, he said. “We’re optimistic that as long as we are enforcing age-restrictive product, that the courts will be favorable,” he said.
Morrison also expects to soon see greater clarity in the PMTA (premarket tobacco product application) arena regarding the world of vaping and oral products such as e-cigarettes and lozenges. He thinks in the second half of 2021 and in 2022 there will be an escalation of products approved, “and that will provide a lot of growth opportunity for the OTP.”
Cannabis in cold vault
CBD-infused beverages and drink mixes have found a footing in c-stores, Morrison said, noting that Pabst Labs is rolling out a THC-based Pabst Blue Ribbon drink.
Cannabis in the cold vault “is a sleeper that we think will await federal clarity as well as on the state side to really provide full opportunity for you” he said, adding that a Technomic report shows 40% of c-store consumers would consider purchasing such beverages from c-stores. “We’re already seeing some players get very, very engaged and consumer excitement for this.”
Particularly in more progressive markets, Morrison thinks this is an area to consider, he said, and one that the c-store channel is perhaps best equipped to leverage.
Fuel and EVs
Moving to the future of fuel, Morrison said the growing popularity of electric vehicles is “arguably the great transformation of our business, so great that we believe this will accelerate [merges and acquisitions] over the next two to three years.”
Morrison noted that General Motors recently said it will phase out the combustible engine by 2035, Toyota hopes to roll out its first electric vehicle in 2023 and possible tax incentives loom for operators to install charging stations on their fuel islands.
“This is not only important on how it’s going to transform the forecourt, which we expect to start really taking place in the next five to seven years, but also on the categories,” he said. “If you’re going to spend 10 to 20 minutes to charge your car battery, how are you going to spend that time in that store? What are the opportunities for catering to the customer in new and creative ways while that person is waiting?”
Always an issue in these times, the next subject was the pandemic and the economy. “The c-store patron was more impacted by the wage and job losses caused by COVID-19 because our core consumer skews young, male and lower income, so they’re more impacted than the general population, Crecca said, “but the good news is their outlook on their personal situation actually improved toward the end of 2020.”
Though there is still a large number of long-term unemployed Americans, consumer confidence is increasing, she added.
“We are at 89 on the Conference Board index in January," Crecca said. "We like to see it at 100 or higher, but it is moving in the right direction.” With the latest government relief package, even though numbers aren’t yet finalized, “Just to hear that there is a plan in play and that there might be another wave of relief, that can be really heartening for a lot of consumers … and that goes toward their willingness to spend on food away from home and impulse items.”
The conversion of the fuel customer to an in-store patron is recovering, and there’s a high propensity to return to self-serve foodservice, Crecca said, cautioning that there are unwavering expectations around elevated and visible sanitation practices.
Self-serve formats are “the backbone of foodservice,” which continues to be a strategic growth category and is headed in a positive direction, she said. “The main purchasers of key self-serve formats prior to the pandemic will return and engage again once the pandemic completely subsides and all the restrictions are lifted,” she noted. “Obviously, many consumers are already reengaging with self-service beverages and food offerings.”
One reason why this is particularly good news, Crecca said, is because the customers who buy from the roller grill, bakery case and coffee bar tend to be frequent c-store visitors and tend to buy other items while in the store.
Some still very wary
“But I would caution this data also indicates there’s a notable share of prior purchasers of self-serve foodservice who say they are unsure or unlikely to return to these formats,” Crecca said. Getting back those customers entails showing sanitation practices in action and providing options. “We may need to think about staff service or moving things to grab-and-go to ensure they’re still coming to purchase these very important categories.”
When customers were asked if when they buy gas or recharge their electric car, how often do you enter the c-store, 50% said “nearly every time/every time” most recently. “Fifty percent is average,” Crecca said. “Beyond paying for the fuel, buying food or a beverage is the primary reason customers enter the store, and that has been consistent throughout the pandemic. So that tells us they’re still very much engaged with c-stores as a source for food and beverage.”
“What was very fascinating, especially in second half of 2020, was the facilitation of many operators of taking ideas and kind of throwing caution to the wind,” Morrison said, adding that a comment from Sheetz CEO Joe Sheetz says it all: “We decided offense was the best strategy. ... We took the attitude of let’s just roll it out and we’ll figure out the efficiency part later.”
Morrison explained, “That’s the key: Customers are willing to give you some license for mistakes or for things not being perfect, because they understand you’re trying to enhance a service for them.”
“It’s not just about in-store traffic that you’re catering to, but you’re now trying to adjust your model to a population where mobile ordering, curbside, delivery, drive-thru—all these different machinations—are now really playing a bigger part," he continued. "So it’s no longer just about in-store traffic, it’s really about the total transactional experience in all these different means in terms of making difficult decisions.”