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    Going With the Flow

    C-stores pare back on regular bottled water, making room for the faster-growing "enhances" subcategory.

    By Renee M. Covino

    Bottled water sales aren't gushing the way they once were, but that doesn't mean the category has dried up for c-stores.

    In 2008, the total bottled water market across all channels was estimated at $12.1 billion, exhibiting 43-percent growth in current prices and 23-percent growth after measuring for inflation during 2003-08, according to Mintel, a leading market research company. But a deceleration in growth has hit the category, with Mintel forecasting bottled water sales to increase 30 percent in current prices and only at 12 percent in inflation-adjusted prices from 2008-13.

    Viewed another way -- consumers swallowed 8.9 billion gallons of bottled water in 2008, a 2.3-percent increase from the previous year, but a sharp decline from the 8-percent to 12-percent annual growth the market enjoyed earlier in the decade, according to the research firm Beverage Marketing, as reported in BusinessWeek.

    For the majority of retail channels, including convenience stores, the category has flattened out. Bottled water was up only 1.3 percent in c-store dollar sales (to approximately $2.5 billion) and down 3.2 percent in c-store unit sales (to roughly 1.8 billion) for the 52 weeks ended Dec. 27, 2008, according to The Nielsen Co. Scantrack data.

    Nevertheless, the category still maintains a good flow in c-stores, and many chains have found renewed sparkle in the form of flavored and enhanced waters. As sales stagnate on the regular water side, some operators are adjusting those SKUs down, while turning up the force on the "enhanced" side.

    "After assessing our 2008 beverage sales, we saw a decline of 1.7 percent just in bottled water, but the beverage category as a whole grew by 3 percent," explained Dickie Mayes, director of retail operations at Cockerham Oil Co. Inc., with seven ExxonMobil On the Run stores in Galax, Va. "So in our resets, we are now going more towards the enhanced waters -- we see more of a decrease and less customer demand with the plain waters."

    Specifically, Mayes is eliminating 12 SKUs of plain bottled water and adding eight of enhanced waters, including four SKUs of Glaceau's new Vitaminwater10, with only 10 calories (owned by Coke), which he believes "will have a major impact" on future category sales.

    "With the [other enhanced waters] averaging 160-180 calories, they're almost as bad as soft drinks," he said. "We think Vitaminwater10 will open up the category even more."

    And so, he is expecting a modest lift this year, probably around a 3-percent increase in sales of the water section by the end of 2009, Mayes said, which "given the economy, is pretty good."

    Similar to Cockerham Oil, Hackney Petroleum in Knoxville, Tenn., switched out some regular bottled water SKUs for enhanced waters at its 24 stores, which it puts in the energy category, according to President Al Parrott.

    "We went in with full-door sets of strictly water in the first few years, but now we've lost roughly 5-8 percent of cooler sales in that category," Parrott said. "About 4 percent has gone to enhanced waters -- so we're basically looking just to maintain a flat year with it."

    However, sales are still good, he said. "They're greater than we ever imagined. We're selling bottled water for $1.39, and any sale there is really a shock, if you think about it. Customers are paying $1.39 for what they can get out of the tap for free. So we'll take it."

    In Rocky Mount, N.C., Daughtridge Oil Co., with 13 stores, cut back its regular water offer by almost half, according to Keith Ballantine, general buyer.

    "We used to have a full door of just plain bottled water, and now it's a combination of regular water, energy waters and flavored waters," he explained. "The category is still very viable, but we've narrowed down the SKUs, and we're a lot more selective based on demand."

    That selection is somewhat geared to individual store demographics. For example, Ballantine noticed more of a demand for flavored water in areas with a "higher ethnic population," and he stocks accordingly.

    Pricing also plays a part. "The lowest-priced waters still move the best," he said. "We have regular water at 89 cents. We try to stay competitive on flavors at around $1.59."

    Coming into the warmer weather, bottled water season, Ballantine is "cautiously optimistic" regarding the category. "It's not what it used to be, but it's still pretty good," he noted.

    A Different Water Wave
    Despite the decline across the board in bottled water growth, there are still those on an upward curve. In New Braunfels, Texas, Midtex Oil, with 21 convenience stores, is experiencing an increase in the regular bottled water category.

    "It's definitely growing for us," said Karen Stance, general buyer/merchandiser. "People around here just want to be healthier. So we have about one and one-half doors of water in a normal six-door set -- in some of our larger sets, it's more like two or two and one-half doors."

    Stance noted she gets contract money from Ozarka, which is a real plus on the plain water side. Another cost benefit for customers buying into the regular water is "bottled water is a non-taxable item here, but enhanced water has additives, so it's taxable," she explained.

    That's not to say Midtex Oil doesn't do well with the enhanced water subcategory. "I have [enhanced water] on my desk right now," Stance relayed. "You get tired of drinking plain water. We know we have to mix it up."

    Like Hackney Petroleum, Midtex Oil puts enhanced waters in the "energy" category. On target with other price-competitive c-stores, the least expensive bottle of water at Midtex Oil is approximately 89 cents (Ozarka), with enhanced waters running about $1.59, and premium waters (such as Evian) retailing for about $2.29, according to Stance.

    Making a Case
    Beyond price competition on single bottles, some c-stores have dabbled in bottled water case competition, including Cockerham Oil.

    "While most of our sales are in single-bottle, we are going to get more aggressive on 20-pack counts," said Mayes. "We're looking to do a price point on Nestle 20-count at $3.99 everyday. Walmart has it for $3.98, so we're trying to capture some of that take-home business. We also know if they come in and buy a case, odds are they will still buy a single water or some other single beverage, too."

    How can Cockerham Oil be so price-competitive with its neighboring Walmart on case packs? "With us being On the Run stores, ExxonMobil negotiates that for us on a national contract," Mayes explained. "It's a little bit of an advantage over [other convenience stores] in the industry."

    The chain plans to kick off its case display for what it believes is the start of the warmer-weather season -- Easter weekend. "We'll have the cases right up near the point-of-sale (POS) register system, readily available on the floor," Mayes said. "We'll make a display, but also basically use it as a feeder for our cooler, so we'll have additional space for our back stock."

    The company also plans to get more aggressive this year with bottled water promotional tie-ins.

    "Last year, we did some tie-ins with coffee -- if customers bought a large coffee, we'd give them a 20-ounce Deer Park water. We were fairly successful with it, but we'll probably try and enhance that more this year," said Mayes.

    He wants to stay with the hot beverage program, but he envisions adding enhanced waters into the promotion this year. "I imagine we'll do even better with those -- customers are looking to get the coffee taste out of their mouth," he explained.

    Mayes also plans on tweaking the promotional period to shorter time spans. "I think what hurt us when we initially tried it, was we ran it for three months and that was too long, because it became an everyday promotion. It lost its value. This time, we're looking at doing three 30-day shots on it, rather than one long 90-day promotion."

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