Softness Continues in Q1 Beverage Sales in C-stores

NEW YORK — The weakness seen in the convenience channel's beverage sales during the end of 2016 has carried over into this year.

According to Wells Fargo Securities LLC's Beverage Buzz survey, the sales growth in the category remains soft at approximately 4 percent. 

Beverage Buzz surveyed beverage retailers representing more than 15,000 convenience store locations across the United States.

Notably, the survey found:

• Non-alcoholic beverage and alcoholic beverage sales were both up roughly 4 percent as relative softness in the fourth quarter continued based on weather, weak traffic, and increased promos in other channels.
• Bottled waters and import beers were the top growing categories.
• Monster Beverage Corp. "dropped the ball in Q1" with sales up a roughly 2 percent in the c-store channel, as retailers broadly remain frustrated given production issues (Java), product delays (Hydro), and the poor launch of Mutant.
• Constellation Brands Inc. continues to outperform and take share, with sales up about 9 percent in the first quarter with the majority of retailers remaining very favorable on the outlook for its key brands in 2017 and allocating more shelf/cooler space. 

"Overall we believe tough macros likely pressured traffic and weighed on beverage/c-store sales in the quarter; however, our outlook for the balance of the year is for modest improvements," said Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities.

According to Herzog, soft demand and poor execution by Monster reflect persistent headwinds. Based on Beverage Buzz, the first quarter marked the second consecutive quarter of "meager" sales growth for the energy beverage company. 

In a broad sense, retailers pointed to production issues with Java; issues with inventory and out of stocks partially attributed to the fact that "Monster reps and Coke reps are not on the same page," particularly around innovation outside the energy cooler including Mutant and Hydro; consumers purchasing multipacks "in other channels to offset higher prices" in the c-store channel; and the poor performance of Mutant and delays in Hydro launch, she said. 

Overall, retailers are projecting 7 percent growth for Monster in the channel in 2017 — driven by positive outlook for Hydro and Ultra Violet.

Looking at Constellation Brands, retailers did report solid sales growth of approximately 9 percent for the first quarter. According to Wells Fargo Securities, new innovation is driving the strength of all the company's brands and key brands like Modelo, Corona and Ballast Point are showing strong results for the quarter.

"Importantly, the majority of our retailer contacts expect to allocate more shelf/cooler space to Constellation in 2017 given their brands' particularly strong performance," Herzog said.

Looking at other brands in the cold vault, Wells Fargo Securities estimated that retailer sales for The Coca-Cola Co. and PepsiCo Inc. in the c-store channel were both up roughly 2 percent, while Dr Pepper Snapple Group was up approximately 3 percent in the quarter.