Better Weather, Energy Drink Growth Boost Q2 Beverage Sales

NEW YORK -- Improving weather and the strength of energy drinks translated into good news for convenience store sales of non-alcoholic beverages in the second quarter.

According to the latest Wells Fargo Securities Beverage Buzz survey, which polls beverage retailers representing more than 10,000 U.S. convenience store locations, it appears non-alcoholic beverage sales improved during the quarter, increasing 3.3 percent year over year.

Bonnie Herzog, managing director of tobacco, beverage and consumer research at Wells Fargo Securities LLC, pointed to better weather and the accelerated growth of energy drinks as key drivers behind the Q2 uptick.

"While we are encouraged by the improving sequential sales in the second quarter, we think this was largely due to strength in energy and not necessarily [carbonated soft drinks]," she said.

Herzog did point out, though, that The Coca-Cola Co.'s promotional activity appeared to pick up during the second quarter, particularly around the Fourth of July holiday.

"If Coca-Cola's heightened promotional activity continues long-term, we fear this could upset the health of the industry profit pool," she said. "However, if it's short-lived, Coca-Cola's pricing strategy could be quite shrewd since it could allow [the company] to further capitalize on the weakness of PepsiCo Inc.'s beverage business, thus capturing further incremental market share."

Either scenario is unfavorable to PepsiCo, Herzog added. The company "could be running out of options to turn its beverage business around," she stated.

That being said, Wells Fargo Securities' c-store retailer contacts believe Pepsi's new pricing strategy could benefit the industry long-term. Still, it remains unclear whether Pepsi will, or can, stick with its strategy in light of Coca-Cola's aggressive promotional pricing, especially over the July 4th holiday, she explained.

Turning to energy drinks, the survey results pointed to an estimated 9-percent increase in Monster Beverage Corp. convenience store volume in the second quarter — on the heels of a 7-percent increase in the first quarter.

"Our retailers believe that the impact of any negative media coverage on the category is declining, and see further upside to sales growth," Herzog said.