The challenge was defined early on: There is no “next big thing” on the horizon in the packaged-beverage category. The solution was not as easy to pin down.
On the consultant/analyst side, the rallying cry was, “Back to the trenches!” With the core of the cold vault healthy, retailers should retrench and reinvest in selling more of the top brands and top SKUs.
But retailers weren’t buying it. Instead, they wanted to see suppliers go back to the drawing board; develop something new that will grow sales and not just cannibalize them from other products; and—for goodness’ sake—introduce innovation that benefits retailers, not just the supplier.
“We need to build an innovative partnership with suppliers,” said Phil Smallwood, The Pantry’s senior category manager (nonalcohol), during CSP’s 2012 Cold Vault Summit.
A Tricky Balance
Over the past few years, retailers have embraced new products that have pumped up sales: energy shots, protein shakes, energy drinks and, not so long ago, bottled water. In 2012, there is no such elixir, no must-have beverage to buoy sales and drive foot traffic. And recent hints of greatness—relaxation drinks, coconut water, etc.—haven’t panned out.
“You really don’t see an emerging segment … as we have in previous years,” said presenter Tom Fox, partner in CM Profit Group, in opening the three-day summit, held at the Omni Mandalay Hotel in Dallas. “But there are a lot of established segments that are performing very well. We’ve got to hold onto that.”
Specifically, Fox cited healthy sales in beer, carbonated soft drinks (CSDs) and energy drinks: “Together, those three segments account for 76% of cold-vault sales.”
Still, he cautioned retailers to strike a balance. “We can’t forget that growth comes from innovation,” he said. “You can’t go overboard either way.”
Paul Auberry of Anheuser-Busch Inc. called it “satisfying shopper demand while maximizing shelf performance.” It’s a tricky balance, but one that could improve a recent slide in conveniencestore traffic.
“The c-store channel has some challenges,” Fox said. “We’ve got fewer people coming into the stores. At the same time, we’ve got less household penetration.”
Specifically, Fox shared Nielsen Homescan data that showed the average consumer visited a c-store 13 times in 2011, down from 15 visits a decade earlier. Meanwhile, only 37% of consumers reported shopping in a c-store in 2011, compared to 45% in 2001.
Considering that beverages are the biggest draw for getting customers into a c-store [CSP—Feb. ’12, p. 51], it was clear how important having an appropriate cold-vault set is to retailers and the industry as a whole.
“With gas prices up and [Altria’s] Marlboro Leadership Price program, the cooler has really become the place we can grow profit,” said Bob Gulley, director of beer, wine and spirits for Cary, N.C.- based The Pantry, operator of more than 1,600 stores across the Southeast.
Fox added, “If you want to win in the cold vault, you’ve got to win in the big three: beer, CSDs and energy drinks. The challenge is to get sales from existing segments while capturing the necessary growth from emerging segments. And there is no one-size-fits-all approach.”
Auberry, senior manager of category management for A-B, offered the beer category as a microcosm of what’s happening throughout the cold vault. There’s healthy growth in craft beers, but craft accounts for only 2% of beer sales in c-stores.
Fox agreed: “All the share gains in beer are coming from the more expensive segments.”
But overspacing craft beer in a store leaves too much money on the table, said Auberry. “A craft-beer drinker only spends about 30% of his [beer] money on craft beer,” he said. “We’re going to lose 70% of his dollars if we only focus on his craft needs.”
Like craft, the nonalcohol segment is seeing big increases from niche players. Specifically, iced tea and juice drinks saw tremendous growth, both surging 13% for the 52-week period ending Dec. 24, 2011, according to Nielsen Scantrack. Yet they make up a sliver of overall cold-vault sales.
Following growth trends alone, attendees agreed, can lead to overspacing and a loss of sales in the larger-volume categories.
Demand for Innovation
So how does a retailer achieve the right balance? Krisanne Flamini, Wawa’s category manager of packaged beverages, summarized her goals in four bullet points.
The overall category strategy for packaged beverages is to:
Provide consumers with the right variety of products;
Offer the best promotional offers of national and Wawa-branded products;
Meet consumers’ needs and drive recurring visits; and
Drive category and gross-profit dollar growth, she said.
Wawa, with 30% of its cold vault consisting of self-branded products, is hardly typical of the average c-store. However, the basic goals remain the same when resetting the cold vault: “If somebody is underspaced and somebody is overspaced, we make a change,” Flamini said. (See related sidebar at left.)
For a chain such as Wawa, which has grown primarily through new-build construction, consistent store design provides benefits when developing plano- grams. “We generally have 15 cooler doors that we divide five for beer and 10 for [nonalcohol] packaged beverages,” Flamini said.
Not so for the beverage team at The Pantry, a chain notorious for its numerous acquisitions over the past 15 years. “I don’t think we have one store that’s the same as another,” Gulley said. “We have eight doors, 14 doors, 16 doors, just about any configuration you can think of.”
This challenge makes due diligence all the more important as Gulley and Smallwood plan their cold vaults, a process Gulley equates to a professional wrestling match.
“We’ve got some very strict criteria we look at when deciding what goes into our coolers,” Gulley said. Tops among them are dollar sales and profitability by segment, units sold and days of supply.
That doesn’t mean The Pantry’s cold vault is set purely by the numbers. In fact, Smallwood craves innovation, and he strongly encouraged manufacturers to up the ante on new products.
“Innovation is a very important strategic advantage for us,” he said. With the “changing face of the consumer”—from Bubba to the soccer mom and her kids, Asians, Hispanics, millennials and more— Smallwood finds “there is an increasing demand for product innovation in our stores to serve this variety of customers.”
Presenting a hypothetical store with 220 SKUs in the cold vault, Smallwood suggested the slowest-selling 35 items represent only 3% of sales. Those SKUs that can be weeded out and replaced with new products and new packaging. “We need to turn those products over,” he said.
“We have the access and the real estate to do beer, CSDs and other beverages better than other channels.”
Ensure Assortment
Frank White takes a similar point of view in maintaining the cold vault for EZ Energy’s EasyTrip stores.
Yes, give the major brands their appropriate space in the cold vault, but “ensure assortment and innovation get their fair share,” said White, EasyTrip’s director of marketing.
“Look for new items outside the bottler network. Identify innovation areas in your cold vault. Use POP and promotion to introduce a new product to the consumer. And measure the results after 90 days,” White said, describing his newproduct process. “I look at almost every beverage item someone wants to show me because I never know what’s going to be the next big thing.”
EasyTrip is a newer chain of about 90 stores based in Seven Hills, Ohio. It goes to market with an overriding promise to consumers: “If it’s not easy, it’s not convenient.” White keeps that in mind as he sets his cold vault.
“We want our customers to have an easy place to shop that gives them our value proposition,” White said. In practice, that comes down to “a great assortment of products at a better value,” which might mean fewer national brands but more variety and a unique offer. For example, in April, White added little-known Cintron energy drinks to his cold vault, marketing it as a house brand at a value price of two for $2.22.
“That’s important,” White said. “You need to ask yourself, ‘What does your brand say about you?’ ”
Innovation’s Sour Note
Where retailer attendees said innovation has struck a sour note recently is in the downsizing of Coca-Cola products. The addition of 16- and 12.5-ounce PET bottles (and the expected discontinuation of 20-ounce) have meant less margin for retailers.
“This is a case of Coca-Cola trying to keep consumers in the [CSD] category,” said presenter Bonnie Herzog, a beverage stock analyst for San Francisco- based Wells Fargo Securities. With 89- and 99-cent pricing, “that could continue to drive people into your stores if the gas prices remain high.”
Retailers, however, said the new sizes were good for Coke and not for them. “The smaller drinks are good,” said Lundy Edwards, general manager of Forward Food Marts, Standish, Mich., “but I make a whole lot more [margin] on that 20-ounce [package].” Edwards’ comments were echoed by about half of the 35 retailers at the summit. Responding after the summit, Ray Faust, vice president of small store strategy and marketing for Coca-Cola Refreshments, told CSP via email, “This long-term initiative brings more value to our customers through a distinctive combination of sizes, price points, occasions and consumer needs, providing convenience retailers with a multi-year, differentiated-package plan that stimulates traffic, drives transactions, protects price accessibility and grows profits. ... The 12.5-ounce bottle is designed to continue recruitment of new users and drive more shoppers into outlets.” When considering new products, Smallwood of The Pantry has a short list of “wants” from suppliers. “You need items that are true innovation,” he said. “You need to include a comprehensive marketing plan, and it has to be clear that the innovation is for the long run, that the product will be nurtured and not discontinued in six months.”
In exchange, Smallwood offered equal commitment on the retailer side: “As a retailer, we’ll provide prime positioning. … We’ll provide good selling execution and strong brand activation. We’ll build awareness of the brand in the store, because we want it to sell, too.”
Making an Investment
For the near future, Herzog expects most of the innovation among the three major beverage makers—Coca-Cola, PepsiCo and Dr Pepper Snapple—will come in new sweeteners used in the companies’ products.
“Consumers are looking for lowercalorie and more natural beverage products, and that has driven significant innovation,” she said.
On top of that, the majors have each committed to big marketing campaigns, promoting both their new products and their core SKUs, and investing in innovation.
“This is a race. All three companies are investing heavily,” Herzog said. “You’re going to see a lot more innovation here,” she continued. “The consumer is going to continue to demand more options for their energy or even a meal in a bottle.” Now that sounds like a step in the right, innovative direction, and retailers who get on board early while maintaining focus on core SKUs should be the benefactors.
Category Close-ups Beer
Who: Paul Auberry, senior manager, category management, Anheuser-Busch Inc.
Vital Statistic: Value- and premium-beer buyers spend twice as much annually on beer vs. other beer segment buyers.
Notable Quote: “These are the people who really love beer.”
Opportunity: “We need to understand why that person decided to buy beer ... and how they’re going to consume it. Then we can develop promotions on the floor that are going to get that person to buy more beer.”
Bottled Water
Who: John Journik, channel development manager, c-stores, Nestle Waters North America
Vital Statistic: 76% of c-store bottled-water shoppers bought from the cold vault.
Notable Quote: “The millennial generation has the highest penetration of bottledwater use.”
Opportunity: C-store retailers “may want to try some other placements [for bottled water] beyond the cold vault, maybe next to the deli, for example, to drive some incremental sales.”
CSDs
Who: John Williams, director of category management, Dr Pepper Snapple Group Vital Statistic: 65% of beverage transactions in a c-store include a CSD.
Notable Quote: “There are nearly 300 SKUs in the CSD category, a category where the consumer spends 12 seconds making his choice and will give up after 30 seconds.”
Opportunity: 56% of CSDs today fall into the flavor category. “We propose setting the CSD section based on consumer trends: 55% flavors and 45% colas.”
Energy Drinks
Who: Rick Oberhofer, director of category development, Red Bull
Vital Statistic: In 2011, energy-drink sales hit $5.4 billion.
Notable Quote: “The growth that you enjoyed during the last five or six years you can look forward to continuing through at least 2016.”
Opportunity: Red Bull’s goal is to expand the user base of energy drinks from the current 13% of all consumers to 30%, “and this channel is uniquely positioned to profit from energy growth.”
Wawa’s Reset Planning Process
Wawa’s beverage team begins planning for resets about seven months before they actually happen, according to category manager Krisanne Flamini.
“I’ve assured my store managers the number of SKUs in the cooler will remain generally the same,” she said. The actual cooler resets typically begin in February and are completed by the middle of May after following the process below.
Category Planning
Includes reviews of:
- Industry trends
- Market basket
- Retail trends
- Regulatory trends
- Category assessment
Category Space Analysis
- Space-to-sales review
- Category-established hurdle rates
- Clustering
Vendor Reviews
- Completed three times per year
- Identify new strategies, new items, new programs Product Offer and Assortment Reviewed
- Identify product adds and deletes
- Plan-o-grams completed
- Fit test performed
- Reset implemented
- Major reset begins in February and ends in May
- Adds and deletes happen throughout the year
Participants in the CSP 2012 Cold Vault Summit, held March 7–9 in Dallas:
Retailers
BP/ampm Mike Adams Nancy Knott Christina Mitchell
Circle K Ron Ashley Norm Beck Leilani Dominguez Russ Kidd Tony McDaniel
Dion’s Quik Marts Gary Frauenhofer
EZ Energy USA Joel Unroe Frank White
EZ GO Stores Michael FitzPatrick
Forward Corp. Lundy Edwards
Gate Petroleum Co. Tony Gardy
Handee Marts Inc. Jim Monroe
Holiday Stationstores Steve Lunderborg
Kwik Check Jim Hebert Kelly Nelms
Lone Star Food Stores Bill Martin
Maverik Inc. Jarrod Morrill
Murphy Oil Don Miller
Nakash Enterprises Chuck Ryan
Prima Marketing LLC James Barberio Charles Newman
Quick Chek Corp. William Tencza
Robinson Oil Corp. Kris Kingsbury
Royal Buying Group Sharon Porter
The Pantry Inc. Robert Gulley Phillip Smallwood
Thorntons Inc. Doug Parker
Vintners Distributors Tracee Danchak
Wawa Inc. Krisanne Flamini Kevin Quigley
Xtramart Rob Corona
Suppliers Anheuser-Busch Karen Brown Ben Meyer Allen Walker
Boston Beer Co. Joseph Kaczynski
Bruvado Imports Dean Pulver
Dr Pepper Snapple Group Dan Ladehoff Mike Loewe Kevin Martello John Williams Sean Winders
Helix Drinks Thomas Blackmon Kevin T. Farnan
MET-Rx Elaine Durante
Mike’s Hard Lemonade Co. Daniel Dougherty James Foley Manda Huggins John O’Boyle
Nestle Waters North America John Journick Jim Donker Eric Keeler Jason Worby
PepsiCo Geoff Meade
Point State David Goldman
Presence From Innovation LLC Ed LeMarbe
Red Bull North America Jennifer Hancock Brian Kuz Christine Matus Rick Oberhofer John Showalter
Sunny Delight Beverages Co.
The Newest of the New
Over the years CSP has hosted its Cold Vault Summit, it has gained a reputation as the place to see and hear about new beverages coming to the market. Among those introduced this year:
- Attendees sampled Anheuser-Busch’s Bud Light Platinum and got a look at Bud Light Lime-a-Rita, Shock Top Wheat IPA and Ultra 19th Hole.
- HyDrive Energy, partly owned by Dr Pepper Snapple Group, showed off its new packaging.
- Nearly a year after it bought the Tradewinds and Sweet Leaf iced tea brands, Nestle Waters showed the 16- and 24-ounce cans of the teas in several flavors.
- Other items talked about but not available for sampling: Red Bull Total Zero and Dr Pepper’s expanded 10-calorie products.
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