General Merchandise/HBC

What's New '

…is what's boosting CPG business

KISSIMMEE, Fla. -- As a channel strong in new products, convenience-store health can be a good barometer of CPG performance. Bill Pecoriello, managing director of beverage equity research for Morgan Stanley, said in a general session at IRI's Summit 2008 that product launches and line extensions are as important as ever to manufacturers.

"We're seeing new products driving about 1% to 2% of the top-line growth of most of the CPG companies we cover," he said. "If you look at the last three years, about one-third of the revenue is coming from innovation. It's hard to define innovation—[image-nocss] if you broaden it to every flavor extension, every new package SKU, some of the companies would have 50% of their revenue coming from 'new' in any given year. The trick is to balancing line extensions with big hits."

Pecoriello noted that beverage companies like Nestle and Danone have bulked up their research and development in pursuit of the ready-to-drink (RTD) market; Pecoriello said he expects volume growth in RTD beverages to continue to grow at a 3% clip.

He also presented some stark numbers as evidence of the boom in RTD business: The number of SKUs handled by bottlers doubled to around 400 from 2000 to 2007 and could reach 1,000 by 2010. The explosion in teas, energy drinks, enhanced waters, new flavors and packaging, and functional beverages is affecting the supply chain, said Pecoriello, and companies should be investing in warehouse technology and automation.

Healthy choices in two of the key c-store categories—snacks and beverages—are on the rise, he said. In 2006, 30% of consumers said they limit their beverage choices to healthy, and 49% said moderation is their guide. Meanwhile, 24% of snackers said they choose only healthy snacks (53% use moderation). Three years earlier, said Pecoriello, the healthy-snacker number was 15%.

By age group, the percentage of healthy snackers rose from 17% to 21% in 18 to 24 year olds and from 14% to 29% in 25 to 34 year olds. Consumers older than 34 went from 10% to 24%; 56% of U.S. respondents said that health was the main reason they limit their intake of full-calorie soft drinks, while 50% would pay more for beverages with health benefits. Those numbers were higher in the United Kingdom, France and China.

"The opportunity to trade the consumer up to a higher price, higher margin product is not just American, but what we're seeing globally," said Pecoriello.

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