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    Classy Colas

    In the right market, premium sodas can lend an upscale feel, offer differentiation and increase profits in c-stores

    By W. B. King

    With consumers turning toward healthier beverages such as teas, power drinks and bottled water, it comes as no surprise that the carbonated soft drink (CSD) category remains flat. Can premium sodas be the answer?

    According to The Nielsen Co., while CSDs represented 43 percent of total packaged beverage sales at c-stores in 2007, the segment grew by only 2.4 percent in sales in the past year. While the alternative drinks segment -- including energy drinks -- is smaller, at 17.1 percent of sales in 2007, the growth was a more impressive 28.3 percent for the year. Likewise, bottled water brought in 12.8 percent of sales and increased in sales by 13.9 percent.

    For many c-stores, premium sodas simply do not mirror their demographics. "We currently are not carrying any of the high-end sodas at this time aside from Jones Soda," said JohnPhillips, director of merchandizing for Cuba, Mo.-based Wallis Cos., which operates 35 stores. "We're not looking at them in the near future [either]."

    Phillips explained there is also not much room available for the products because his current "contracted" CSD cooler space ratio is Coca-Cola at 35 percent, Dr Pepper/Seven Up (DPSU) at 35 percent and Pepsi-Cola at 30 percent. "In a typical 10-door set, there are two doors of CSD, one door of dairy and the rest is noncarbonated soft drinks," he said, adding that "the CSD category is around 29 percent of the total beverage category and has been on a decline for a number of years."

    And while it may be true that consumers in certain environments, such as urban areas, are more willing to purchase high-end products, marketing analysts encourage all store operators to investigate emerging regional products and brands.

    "Most premium soda makers don't invest a lot in marketing. They invest in high-end packaging and superior ingredients," said Gary Hemphill of the New York-based Beverage Market Corp. "In most cases, marketing and promotional efforts tend to be localized, such as sampling and local event sponsorships. Premium sodas are often bought one bottle at a time for immediate consumption -- so for that reason, convenience stores are a prime distribution channel for them."

    Stuart Lowry, director of marketing for Charlottesville, Va.-based Tiger Fuel -- which operates 12 Market c-stores in that area -- explained that consumer demographics supported the decision to sell premium sodas. "We feature a selection of premium sodas for a couple of reasons, all of which serve to differentiate ourselves from other c-store chains," Lowry said. "Our stores have an upscale presentation, and so offering premium sodas fit hand and glove with our approach." Not all of the dozen Market locations carry premium sodas due to respective store demographics, Lowry explained.

    Before assuming his current position, Lowry was a beverage category manager. And while he conceded that the major carbonated soda players control choice cooler space -- approximately 80 to 90 percent -- the opportunity to mix in premium soda brands was met with praise from the majority of Tiger Fuel customers.

    "Shelf space is gold," Lowry said. "Coke and Pepsi offer attractive programs that many convenience stores want to take advantage of, and we have a delicate balancing act of carrying premium sodas." One of the first premium sodas Tiger Fuel carried was Route 66, Lowry explained. "We went with their root beer product because they were a strong regional company and provided a lot of in-store marketing. We had good results."

    Tom Vierhile, Datamonitor's Products Online director, said that most premium sodas are marketed toward adult consumers."These products tend to be less sweet than regular soft drinks and often are made with natural sweeteners such as cane sugar and agave syrup and other 'better-for-you' ingredients," Vierhile continued."One brand that fits this profile is Jones Soda, which is sold at Target as well as at some supermarkets."

    With the general consumer consensus being that Target is considered a premium shopping experience compared to Wal-Mart, c-stores offering premium sodas are making a declarative statement to respective competition, including coffeehouses, supermarkets and grocery stores.

    "Typically, you see high-end sodas or other drinks that can reinforce the rest of what a c-store is offering," said Jeff Lenard, vice president of communications for the Alexandria, Va.-based Association for Convenience & Petroleum Retailing. "Same [goes] with the beer cooler. While many stores want to offer microbrews, there is only so much room in the doors and you ultimately, like the rest of the store, want to offer what customers want."

    While Phillips and Lowry explained that no formal marketing surveys were completed before the decision was made to carry a premium soda brand, Hemphill said c-stores should never underestimate the consumer's ability to experiment.

    "Consumers are always open to new and different products. Convenience store operators must be as well," he continued. "New products bring excitement to the store shelves.Furthermore, while volume of premium carbonated soft drinks is less than that of mainstream brands, the profitability is better because these products sell at a premium."

    The price for a single bottle of premium soda is higher on average than traditional soda. And while Lowry said that single sales are the most common purchase, customers also opt for four- and six-pack purchases. "I do think you need to be in some quasi-urban market to even consider selling premium sodas," Lowry said. "And while these products can be sold anywhere, the idea is to sell a lot."

    To this end, premium soda companies are often faced with more uphill battles after securing choice cooler shelf space. When a new product hits the shelf, the clock is ticking. "There is a premium placed on timing and sales, which has changed in the past few years," Lowry continued. "These companies must prove themselves faster than ever before."

    The major carbonated soft drink leaders are taking note of the downturn in traditional soda sales. Vierhile said consumers can expect new premium offerings from these market leaders -- and adults are not the only targeted market. "To show that premium soft drinks don't necessarily need to be aimed at adults, Dr Pepper/Seven Up Inc. has launched a couple of new float soft drinks, including Sunkist Float Beverage," Vierhile said. The retail price of this product is $1.49 for an 11.5-fluid ounce, shrink-wrapped glass bottle. "You can see that the company is trying to move the brand up-market."

    Lowry said that Tiger Fuel will always look to enhance the store brand by offering premium sodas, which supports its reputation as an upscale convenience shopping experience. "Our customers like that we have a mixed selection of premium soda and food items, which we will continue to build upon."

    For c-stores that are on the fence about whether to offer premium carbonated soft drinks, Hemphill suggested a measured approach because if properly executed, profits can be realized. "Premium sodas have been around for many, many years. They're a niche segment that is likely to be around as long as soda is around," he continued. "There is always a segment of the population that is willing to spend a little more on a product they perceive to be of higher quality."

    For comments, please contact W.B. King, Contributing Editor, at [email protected].

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