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Will c-stores sink or swim with packaged beverages? While this year's forecast is not a positive one, it doesn't mean retailers have to swallow an automatic drop in the segment.
The category overall is predicted to see its third straight year of declines in both sales and unit volume for the convenience channel in 2010, primarily due to the continued deterioration of carbonated soft drinks (CSDs) and even larger declines in bottled water, according to the 2010 Convenience Store News Industry Forecast Study. Specifically, a 2-percent decrease is forecast for both per-store sales of packaged beverages and per-store unit volume, which follows 2009 declines of 1.5 percent in sales per store and 2.9 percent in per-store unit volume.
Of all the subsegments in packaged beverages, only two showed positive change in volume growth from 2008-2009 across all channels — ready-to-drink tea and energy drinks at 1.2 percent and 0.2 percent, respectively, according to Beverage Marketing Corp. Conversely, value-added (fortified) water and sports drinks were the weakest performing subsegments, with volume decreases of 12.5 percent and 12.3 percent, respectively. Meanwhile, carbonated soft drinks and bottled water were down 2.3 percent and 2.7 percent, respectively.
Finding just the right balance of new-item innovation in limited cooler space will be a challenge for c-store retailers, but will not be an impossible task, according to Tricia Williams, marketing manager with Pine State Trading Co., a distributor based in Augusta, Maine.
"You want to dabble in innovation to bring a fresh focus to it, but not do so much that you recreate the category," she stated.
Many convenience stores are highlighting select beverage innovations in their stores this spring, such as Cumberland Farms with three flavors of Celsius "fitness" drinks and Kum & Go with rocket-shaped bottles of ZUN energy drinks.
"Kum & Go prides [itself] on finding innovative, exciting brands for our customers," said Richard Ginther, category manager at the company.
Beyond balancing innovation, some c-stores are using packaged beverage case packs as business builders in the category.
"Selling carbonated soft drinks and bottled water by the case are customer drivers for us. We price them aggressively and do well with them — it's one of the things we're known for," said Jim Callahan, director of marketing for Fairburn, Ga-based Geo. H. Green Oil Inc., with 114 stores and two truck stops. His stores do especially well with various sidewalk dock displays — which can include pallets of Dasani water, Springtime water (a regional brand), Powerade, Monster, Coke and Pepsi.
"It gives us the ability to take advantage of the manufacturer sales — we buy extra and stock it up for longer than they put it on sale," said Callahan. "And we not only sell them by the single case, sometimes we sell six, eight, 10 cases at a time to construction companies, sports teams, etc., especially during the season from April to October."
Arguindegui Oil Co. in Laredo, Texas, beefs up its category sales by selling cases of packaged beverages in its 12 stores. "Most of my stores have a display area against the front wall where we stack them up," said Jaime Fuentes, buyer at the company. "It's a whole wall, about a 10-foot display area, and it has a dual effect on customers because you can see it through the glass outside. Right now, we're selling a lot of 20-packs of bottled water."
Price-Point the Way
In this economy, the packaged beverage category can be successfully leveraged with case promotions, but single-bottle price-point promotions are also a viable option.
At Green Oil, twofers have been very popular and stores have done well selling any two 20-ounce carbonated soft drinks for $2.50 (vs. $1.49 for one) all year long, Callahan said. "We'd rather give a discount and sell two."
Of course, many soft drink manufacturers have now gone to the 16-ounce sizes, and Green Oil is having good success selling those for 99 cents.
Beverage specials including one Green Oil successfully completed through Coke with Monster energy drinks are also regularly rotated on reader boards outside Green Oil stores "as close to the street as we can get it," according to Callahan. "We have a chance to influence the passengers in 40,000 cars every day. Leading with a great deal tilts that equation in our favor."
While custom consumer research from Mintel finds 63 percent of respondents are interested in new flavors of water, the flavor angle doesn't stop there. Dr Pepper/Snapple Chief Executive Larry Young, speaking recently at the Reuters Food and Agriculture Summit, said he expects his company will outperform the overall U.S. carbonated soft drink industry this year, helped by Dr Pepper's dominance in the growing market for flavored beverages. According to a Reuters report, Young predicted the U.S. carbonated drinks industry would be flat to down 1 percent, while flavored drinks, including Dr Pepper and Sunkist, should be flat to slightly up.
"We've actually expanded our variety in flavors a bit, they seem to be doing well in CSD's, so we're trying to grow them," said one beverage buyer from a southern c-store chain, naming Crush, Dr Pepper and Sunkist as brands showing good growth.
Mintel reported many of these flavor-focused, non-cola brands exhibited single-to-double-digit growth in 2008-2009 by attracting African Americans and Hispanics, known to skew higher in flavored sodas.
Coconut water might also be a way to revive the ailing juice drinks market, which displayed virtually no sales growth during 2008-2009, according to Mintel.
In 2009, Mintel observed phenomenal growth in Vita Coco coconut water brand, which is projected to grow 100 percent to $40 million in 2010. "Though these sales are a drop in a bucket for many established juice/drinks manufacturers, coconut water has the pro-health platform on the strength of the presence of high amounts of electrolytes and potassium," the Chicago research firm reported. "These qualities make this product an ideal replacement for highly sweetened sports drinks, which generate multibillion-dollar sales annually." Other notable players are Zico and O.N.E.