Canary in the Cold Vault

Packaging, not product, dominates at CSP beverage meeting.

Steve Holtz, Editor in Chief, CSP Daily News

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The Great Recession has altered today’s retailing in many ways, and a prime example was evident at the CSP 2011 Cold Vault Summit: Beverage companies are shifting focus away from flavor and brand extensions and turning to innovation in packaging.

In carbonated soft drinks (CSDs), for example, Coke and Pepsi are both now firmly entrenched in 14-ounce, 16-ounce and half-liter bottles, and Dr Pepper Snapple will soon follow suit, according to John Williams, director of category management, convenience-store channel, for Dr Pepper Snapple Group. “Consumers are migrating to that 99-cent package. We’re going that way, too. We’re going to have to play in that space,” he told attendees during the summit in March. The sixpack may soon make a comeback as 12-pack sales in c-stores continue to lag. “The price has gotten to the point where consumers are not picking up 12-packs anymore.”

 Put another way, with extreme price sensitivity governing today’s purchases, suppliers are loath to raise prices, preferring instead to downsize packages or create new, more economical options. And it was this new consumer attitude that cropped up most in presentations and conversations at the summit, as retailers, suppliers and consultants agreed on a need to figure out just what today’s consumer wants.

“Consumers are getting a lot more value-oriented and paying attention to their spending compared to how they did last time gas prices approached $4 a gallon,” said Adam Clay, manager of convenience consumer insights for The NPD Group, Port Washington, N.Y.

Survey Says

Consumers are more likely today to cap spending on groceries and gasoline and defer spending in other areas, such as home entertainment, home improvements and major appliances. Ultimately, the goal is to keep creditcard balances down.

According to Clay, data from the U.S. Department of Transportation shows consumers traveled 20.5 billion more miles in 2010 than 2009, but mileage volume is still 30 billion miles below 2007’s high point.

Meanwhile, NPD data reveals clear winners and losers in the c-store industry as the nation recovers from a three-year economic tumble. Independent and small c-stores took the brunt of the hit in 2010, according to year-end data comparing the change in convenience-occasion traffic vs. the previous year. Independents and small stores saw a 17% drop in traffic over the past year, even as consumers returned to stores more often.

Major-oil c-stores saw traffic growth of 5%, while “traditional” c-store chains saw traffic grow by 9%. But the clear traffic winner for the year was the grocery/hypermarket channel, which saw convenience-occasion traffic surge a whopping 37%.

“In the last year, about 16% of gasoline purchases were made at a grocery store or hypermarket,” Clay said. “I think of c-stores as the canary in the coal mine: C-store shoppers pull back earlier and are slower to return” when the economy stumbles. Clay’s thinking runs counter to that of many c-store execs who believe the channel, an outlet for necessities and guilty pleasures, is recession-resilient, often the last to feel the brunt of an economic downturn and the first to recover.

For the c-store channel overall, 2010 proved healthy, showing traffic growth of nearly 9% in the second and fourth quarters and as high as 12% in the third quarter, according to NPD data. This came after a steady decline in traffic beginning in early 2007 and bottoming out at a loss of 20% in the fourth quarter of 2008.

Trend Shakeout

Several of the beverage suppliers represented in the meeting underscored ways to capitalize on the changed consumer:

Tom Burkemper, senior director of trade marketing/category man- agement for Anheuser-Busch Inc., St. Louis, said single-serve beer has increasingly become a go-to package for many consumers because of the lower price point, and the product still offers a healthy margin to retailers. Consumers are twice as likely to purchase single-serve beer at a c-store than from another retail channel.

 Many consumers turned to bottled water as they left the carbonated soft drink (CSD) category for healthier beverages, according to Christopher Silk, channel development manager, convenience-store channel, for Nestlé Waters North America, Greenwich, Conn. However, an interest in greater variety has them looking somewhere new. “A lot of people who are migrating out of CSDs are moving to sparkling water,” he said. Fittingly, Nestlé Waters has introduced sparkling versions—plain and flavored—of its popular regional brands.

Williams of Dr Pepper Snapple Group, Plano, Texas, said the recession’s push for consumers to seek out value and variety will lead them back to CSDs. “CSDs are the lowest-price RTD beverage, except for water,” he said. “So they have become the value play in the beverage category. As we see gas prices going up, we’re going to see things shift to the value play.” He then announced Dr Pepper’s plans to join Coca-Cola and PepsiCo in offering smaller single-serve packages, such as 14- and 16-ounce PET bottles. While retailers bemoaned the idea of adjusting their cold-vault sets to make room for yet another SKU, a lesson from the past helped soothe the pain.

What the Consumer Wants

During her five years managing the cold vault for 7-Eleven, Debbie Wildrick learned a lot of valuable lessons about getting the set right, vetting new products and attracting the beverage customer. An insight shared during the Cold Vault Summit hit on all three of these elements.

Wildrick—now working as a consultant as president of Growing Innovative Brands—reminded the group of about 60 retailers and suppliers that in the heyday of energy drinks, retailers heard pitches for new entries into the category almost every day. While most were presenting new brands and new flavors, the category leader—Red Bull—was taking another, less obvious route: introducing a larger size of its original flavor. While some asked, “Does anyone really need a 16-ounce energy drink?” others recognized the new package for what it was: an acknowledgment of where the category was going.

“We don’t always do the research to ensure that the customer wants what we think they want,” Wildrick said. “We base a lot [of our decisions] on our personal knowledge.”

Today, of course, energy drinks regularly come in 24-ounce and larger sizes, underscoring Red Bull’s familiarity with its consumers.

“What consumers want can be specific to a subcategory: a bigger size of a known flavor, rather than a ‘better’ taste,” Wildrick said. “They didn’t want a better taste; they wanted more.”

The recollection was an apt encapsulation of the Cold Vault Summit, which this year provided direction and suggestions not just for retailers but also suppliers to consider. The overall message: Retailers need suppliers as much as suppliers need retailers, so let’s work together.

Best Practices for Suppliers

With retailer John West of Alon Brands setting the stage with suggestions for how a supplier can more effectively approach retailers, the ideas began to flow freely from the retailers assembled for the CSP 2011 Cold Vault Summit. Some highlights:

“Always go [into a meeting with a retailer] and understand what the stores are,” West advised suppliers. “Know what we’re about,” said West, director of sales and marketing for Alon Brands, Odessa, Texas. Referring to Alon Brands’ ongoing fundraising partnership with the USO, he said, “If a supplier comes to me and says we can donate 50 cents of every sale to the USO, I know you know about me.”

 Retailer Mark Hall, director of marketing for PMG/E&C Marketing, operators of the 123-store Corner Market chain based in Woodbridge, Va., offered some tips for getting a new product in the door:

  • Guarantee the product.
  • Share the risk.
  • Bring the product through a distributor. “To me, it’s all about the reorder,” he said. “You’re looking to market your product in front of a larger audience, and I’m looking for sales.”

Realize that every new product a retailer puts in is a risk. “We have product-category overload. There are just too many products to choose from,” said Debbie Wildrick, president of Growing Innovative Brands. The retailer has to “understand what the differentiation is because if we don’t stand out, it all gets blocked out by the consumer.” 

Participants in the CSP 2011 Cold Vault Summit

held March 14-16 in Dallas Retailers

Alon Brands/ Southwest Convenience Stores LLC: John West

BP Products North America: Mike Adams, Tonjia Bier, Christina Mitchell

Casey’s General Stores: Dana Sump

Circle K: Russ Kidd, Norm Beck, Tony McDaniel, Joe Murphy

Cumberland Farms: Kevin Platt

Douglass Distributing Retail Co.: Diane McCarty

EZ Energy USA: Debbie Davis

Forward Corp.: Lundy Edwards

Gate Petroleum Co.: Tony Gardy

Handee Marts Inc., dba 7-Eleven: Jim Monroe

Hess Corp.: Ethan Fitzsimmons  

Kwik Chek: Kelly Nelms

Love’s Travel Stops and Country Stores: Wade Hollis

Murphy USA: Kip Fruge

PMG/E&C Enterprises: Mark Hall  

Prima Marketing LLC: Jim Barberio

 Quick Chek Corp.: Bill Tencza

Robinson Oil Corp.: Kris Kingsbury

Royal Buying Group Inc:. Mike Small

Speedway LLC: Brandon Jasper

Speedy Stop Food Stores: Scott Campbell

Thorntons Inc.: Bob Cook

TravelCenters of America: Jessica Kleinman, Kirk Matthews

Wawa Inc.: Krisanne Flamini Suppliers

Anheuser-Busch Inc.: Tom Burkemper, Rick Nechio, Chris Robles

BeBevCo: Brian Weber

The Boston Beer Co.: Brandon Kelmar

Cytosport/ Muscle Milk: Brad Bickley

Dewmar International: Tim Thomas

Dr Pepper Snapple Group: Greg Phillips, Jennifer Shandley, John Williams

E&J Gallo Winery: Kevin Hartsig

Florida’s Natural Growers: Scott Miller

Funktional Beverages Inc.: Tim Lucas

iChill Beverages LLC: Abby Dunning

MET-Rx/US Nutrition: Lucia Crater

Mike’s Hard Lemonade Co.: James Foley, Steve Mulkey

Nestlé Waters North America Inc.: Jim Donker, Eric Keeler, Steve Seager, Chris Silk, Jason Worby

Presence From Innovation LLC: Ed Lemarbe, Gene Mayer

Red Bull North America: Brian Bousley, Brian Kuz, Rick Oberhofer, David Reynolds, John Showalter

VPX Sports/Redline: T.J. Humphreys, Greg Wilson  

Category Close-ups


Who: Tom Burkemper, senior director of trade marketing/ category management, Anheuser- Busch Inc. Vital Statistic: Conveniencestore sales of beer were down 2.1% in 2010, according to data from the Beer Institute. The only retail channels that saw growth were mass merchandisers (1.7%) and drug stores (4.5%).

Notable Quote: “The single-serve business is important because consumers are also buying other things when they come into the convenience store.”

Opportunity: “Look beyond the channel and look at the entire retail environment. Ask yourself: What would make someone drive out of the way to visit my store?”

Bottled Water

Who: Christopher Silk, channel development manager, convenience-store channel, Nestlé Waters North America

Vital Statistic: After two years of volume decline, bottled water grew 6.6% in 2010. Notable Quote: On Nestle’s introduction of sparkling waters under its regional brands: “A lot of people who are migrating out of

CSDs are moving to sparkling water.”

Opportunity: While acknowledging the benefits of offering private-label bottled water, Silk cautioned retailers not to rely on it completely. “Brands do matter to the bottled-water consumer,” he said. “Fifty percent of all bottled-water households buy only branded products.


Who: John Williams, director of category management, convenience-store channel, Dr Pepper Snapple Group Vital Statistic: 76% of CSD shoppers make their brand and category decisions before entering a store.

Notable Quote: “CSDs are the lowest-price RTD beverage, except for water. So they have become the value play in the beverage category. As we see gas prices going up, we’re going to see things shift to the value play.” Opportunity: In 2010, Williams said, flavors accounted for 56% of the CSD category in convenience stores. “The convenience channel has been the flavor channel. People are picking up different flavors and looking for variety.”

Energy Drinks

Who: John Showalter, senior category development manager, Red Bull North America

Vital Statistic: The energy category will deliver 75% of the retail dollars of the CSD category by 2015 in the c-store channel, according to Mintel data.

Notable Quote: “June 2009 was the low point for the energy category. We have since seen nine consecutive four-week periods of double-digit growth.”

Opportunity: “Energy is only in 11% of households.” Rather than focus on new flavor line extensions, “growing core products with new users is our main focus.”

Next Big Things

Retailers attending the CSP 2011 Cold Vault Summit were challenged to name a “next big thing” in the beverage category. When pressed, however, a few common threads arose. Most notably:

  • Relaxation shots
  • Coconut water
  • High-alcohol single-serve beer
  • Sparkling water 

By the Numbers

29% Percentage of all c-store purchases that include a packaged-beverage product

$9.50 Average total of a c-store market basket that includes a packaged beverage (not including gasoline purchases)

30% Percentage of cold-vault shoppers who report making at least eight c-store purchases per month (14% report eight to 12 purchases; 16% report 13 or more purchases) 

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