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    Cool Control

    Beverage scan data puts retailers in the category management leadership position.

    Children depend on their parents, putting complete trust in their elders' wisdom and knowledge. In the past, many convenience store operators had similar relationships with beverage suppliers, who were thought of as authority figures with the information and experience to provide insight into their cooler doors. But now more c-store operators are standing on their own feet and making decisions based on their own data, relying less on suppliers and gaining more control over their stores.

    "Over the years, suppliers have come in and said, 'This is what your store sold last year,' and people can make numbers say what they want to sometimes," said Ron Gillion, category manager, packaged beverages at E-Z Mart Stores Inc., a Texarkana, Texas-based chain with 440 stores. "We were more dependent on them to tell us what our next move was, and were at their mercy as far as what our market share was in our stores. Now with scan data, we don't depend on their numbers."

    This independence, along with a recent surge in new beverage introductions, increased the already frenzied competition for cooler space, making suppliers try harder and allowing convenience stores to reap the benefits. "Our overall relationship with 95 percent of our suppliers is much better than it was three to five years ago," noted Jamie Patterson, vice president of West Memphis, Ark.-based Flash Market Inc. "We are getting more information and better pricing."

    After all, numbers don't lie. "It's pretty cut and dry," said Patterson. "You just can't argue with the information." And the benefits trickle down to suppliers as well. Now manufacturers receive information on which products move, and which sit on the shelf. "There is nothing like knowing what is going through an individual store," said Craig Hodnett, vice president of category management at Dr Pepper/ 7Up. "You have to be able to stand tall. If you get less space, you just better get on it with your sales and marketing team to do more business."

    "It is very important to the suppliers these days to make sure you are turning your inventories," said Patterson. "They will cut back on slow-moving products to reduce our overstocks."



    Working Together

    New independent suppliers and product introductions crowd already limited cooler space, and both suppliers and retailers want their needs met when it comes to the cooler door. Suppliers want to maintain as well as grow their allotted section, while c-stores need to stock what sells to satisfy customers and eliminate dead weight.

    So how do they meet these needs? By doing what other channels have done for years — collaborating.

    "There has been so much lack of information in the past when you look at how business has been done," said Hodnett. "In the last three years, the same collaboration we do with supermarkets, we are now doing with convenience stores."

    The benefits of this type of partnership include reducing out-of-stock and overstocked items and putting more money in everyone's pocket. "There is a huge cost if you have overstock or out-of-stock," said Hodnett. "We are now able to quantify information, and convenience stores are starting to realize how much they were losing." This is the edge Dr Pepper/7 Up uses to offer something extra to its retailers.

    "Space management is our core competency, and we will step in and plan the entire category," explained Hodnett. "Five to six years ago, there were so many restrictive agreements, our brands were blocked. We couldn't get into play. So we wanted to find a niche to help the convenience store grow their total business. We chose space management."

    While this helps the supplier secure space in the cooler, it can also lead to another benefit — top billing. "Some retailers will say, 'You are doing all the work on the planograms, so you get the top space,'" said Hodnett. "It's called a 'jump ball.'"



    To the Max

    Coca-Cola uses a similar approach. The company's Beverage Max program presents retailers with tailor-made space-management strategies. The program strives to allow room for the mass of new product introductions, while still allowing for a company's tried and true products.

    "Before, there were not as many new products, but now with all the innovations and new brands, particularly in the carbonated soft drink (CSD) category, you still want the right inventory and sales level on existing products," said Steve Hyland, director of retailer business solutions at Coca-Cola. The company groups beverages by category rather then packaging. "We need to have the right products in the right categories of the cold vault," noted Hyland. "It doesn't sound very novel, but it is. We had Minute Maid lemonade and iced tea in the CSD category because we typically looked at packaging vs. category. Now the juice is in the juice drink door and soda is in its own category."

    The major benefit of this reorganization is a reduction in out-of-stocks, according to Hyland. "This is a big issue, and we think by reducing out-of-stocks, you will sell more product," he explained.

    Additionally, contact between the retailer and supplier rose from quarterly or monthly to weekly in many cases, due to the increased cooler competition. "The more items a supplier gets out there, the less space it has, and it gets very competitive because each company wants to get the first shot at it," said Gillion. "[Suppliers] used to contact us once a quarter for promotions and new items, but in the last three years, with all the new products and expansions they are more on top of it."

    For example, Gatorade stepped up its communication in recent years as a result of channel changes. "We have more people calling on the c-store retailers than we did three to five years ago," said Mike Downey, director of business development at Gatorade. "It is becoming much more of a fact-based channel with the scanning information available, and it's becoming more like the grocery channel."

    And Dr. Pepper/7 Up tries to keep in touch with its retailers on a weekly basis to check on the sales of its products. "Two years ago, contact was quarterly, but due to innovation, it has changed so much," said Hodnett. "We did space management for the last three years at Sheetz, and we are in touch every week."



    Calling the Shots

    The more information retailers have about store sales, the more power they gain to make the final decision regarding product placement and spacing. And while marketing agreements still hold merit, the company that sells — not the one with the deepest pockets — gets the deal.

    "Convenience store retailers are not as tempted to take the big bag of cash," said Tom Fox, partner with CM Profit Group, a consulting firm specializing in the beverage industry. "It is more of a 'What have you done for me lately?' game. Technology has given retailers more information, and information is power. The smart retailers are the ones that realize consumer demand drives shelf space rather than what comes out of a supplier's pocket for slotting fees."

    This is the approach Gillion is taking with E-Z Mart Stores. "In our markets we look at scan data to see who is pulling the growth, and who has the number-one seller," said Gillion. "Last year we went with an exclusive Pepsi contract and we hurt ourselves because Coke holds our number-one-selling SKU, and they had a limited space and not many promotions. This year we signed with both Coca-Cola and Pepsi, with Coke in the number-one position. In most of our markets Pepsi had more space than what they were selling, and now they are more in line with 35 percent of dedicated cooler space."

    And Flash Market is following the same rule. "We take a look at every category in the cooler and analyze each product in there," said Patterson. "The data helps us manage the space we are able to give a vendor. It's all based on who has the best sales. We eliminate slow-moving products, and offer a bigger variety. If you have a cooler of just Cokes, you didn't satisfy everybody that walked through the door."

    However, the company does have an agreement with Coke when its percentage of sales is tied with another company. "If Coke and Pepsi have the same product with the same amount of sales, then Coke gets the top shelf," said Patterson.

    In this way, c-store operators now hold the life of a product in their hands as well as the life of the company supplying it. If a supplier relationship is not meeting an owner's needs, the retailer has the power to eliminate its business with that particular company. "Relationships play a big part," said Patterson. "If a company sells 70 percent of all our products, but doesn't work well with us, we can reduce their sales to 50 percent if we try hard enough. And if someone is at 30 percent, and works well with us, we can increase their sales."



    The Role of Innovation

    Keeping up with the trends in the beverage cooler is much more challenging today then it used to be. There are more brands and new products on the market, and both suppliers and retailers have altered the way they deal with these new rollouts.

    "In the past, a new product was rolled out, and convenience stores were forced to carry it," said Hodnett. "Now, there are limits to how long it's going to stay. If it doesn't turn so many units in so much time, it's gone."

    Both sides usually agree upon this decision, but disagreements can crop up. "You always have certain exit issues when you have brands that don't perform," said Andy Steele, national category manager at Shell Oil Products US. "Hopefully you have good relationships with those brands and can work it out. But that's not always the case."

    On the other hand, many times a supplier will contact the retailer about pulling an item off the shelf. "Vendors don't want to put something in a c-store that isn't selling," said Steele. "Many times they make the decision for you." This proactive approach is easier for a large supplier because they can replace one non-seller with a variety of other products so cooler space isn't lost. "Surge from Coke had a short life," said Steele. "We carried it for about six months, and Coke pulled the plug. But they had many other products to replace it with, like Vanilla Coke."

    Another example occurred recently with Dr Pepper/7Up. "We just introduced Raging Cow, and it is doing tremendous business, but we introduced it in a number of flavors and some were not selling, while others were going like gangbusters," said Hodnett. "So we removed the flavors that were not selling and replaced them."

    The same is true at Gatorade, whose products are available in a number of lines as well as flavors. "We are more proactive with getting rid of slow-moving items than the retailer," said Downey. "We have so many sizes and flavors, so if something isn't selling, we want to replace it with something that does."

    However, when it comes to true innovation — what's hot in the beverage aisle — it's usually the smaller, independent manufacturers leading the way. "You don't often get innovation from the big companies," said Fox, partner with CM Profit Group. "They tend to move slower than independent brands. For example, Red Bull changed the face of New Age beverages."

    And despite the risks independent newcomers may provide, they often exhibit flexibility — and if the product takes off like Red Bull did, great rewards. "I think larger companies are more closely regulated and somewhat more rigid than some of the independent non-carb suppliers," said Steele. "Independents tend to be a little more cavalier and daring with their programs."

    Unfortunately, these advantages don't always solidify an entrepreneur's space. With larger companies expanding their footprints to include alternative beverages, it is getting harder and harder for independents to stake their claim.

    "Before, there were more independent beverages out there, but now there are less, and the competition changed," said Peter Van Stolk, president and CEO of Jones Soda Co. "Now we compete with the big guys trying to take over our space."

    In order to create brand awareness, Jones Soda starts with small retail chains to establish recognition before approaching larger establishments. "Independent c-stores are more likely to work with you because they support independents," said Van Stolk. "So you start there to create brand recognition, and then move to the bigger chains."

    But in the end, it's still the convenience store that makes the decision, and it looks like this trend may stick. "Retailers are going to continue to hold more cards, and suppliers are going to have to be really good at meeting their needs," said Fox. "But at the end of the day, the relationships are getting better."

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