Avoiding the Fizzle in Fizz
With regular carbonated soft drink sales in the c-store industry flatter than an open can of cola left in the sun for a day, we thought it was time to talk to the folks who want you to squeeze more cans and bottles into your coolers.
First, the facts: Regular and diet carbonated soft drinks (CSDs) make up more than 56 percent of packaged beverage sales in the c-store industry and 58 percent of the category's unit sales, according to the Convenience Store News 2005 Industry Report. But at $44,412 in sales per store, the industry's largest segment of the packaged beverage category, regular CSDs, grew by only 0.3 percent last year. A bright spot: diet soft drinks, which saw sales rise by nearly 12 percent, or $1,474 per store, to $13,998.
Still, other packaged beverages are making inroads — some mini-highways — into CSD sales. Bottled water is closing in on diet CSDs, averaging nearly $12,200 in sales per store last year (up from $11,674 the year before). Alternative beverages, which include energy and enhanced drinks, accounted for nearly 6 percent of the category's sales in 2004, ringing up nearly $6,000 per store, up a huge 35.4 percent.
In the wake of a flurry of CSD line extensions, we invited experts from the nation's largest soft drink companies and an industry consultant to pour out their insights on the state of CSDs in the c-store channel. Our group included Jim Gulley, director, small store channels, Coca-Cola Enterprises; Manny Rivera, senior customer marketing manager, convenience and emerging channels for Pepsi-Cola North America; Jim Trebilcock, senior vice president of marketing of Dr Pepper/7-Up Inc.; and Gary Hemphill, managing director and COO, information services for Beverage Marketing Corp. (Not all participants answered each question.)
How would you characterize the state of the carbonated soft drink business?
Hemphill: The market has been somewhat soft the last several years. Volume has been up modestly. Companies have responded with new product innovation, but most of the products have only provided short-term gains.
Consumers are demanding healthier product alternatives, which has resulted in increased consumption of diet soft drinks, [often at the expense of] regular soft drinks. Consumption of bottled water, sports drinks, energy drinks and some others has continued to grow.
We foresee modest growth in the carbonated soft drink category in the years ahead. We believe categories that have stronger health-and-wellness attributes will show better growth.
Rivera: Over the past few years, consumers have been paying greater attention to managing the calories they burn with the calories they take in, which has created challenges for us in marketing our regular soft drinks. [But] these trends have given us more opportunities to talk about Diet Pepsi, as well as more recent introductions such as Diet Pepsi Lime and the newly reformulated Pepsi ONE, which now contains Splenda.
Trebilcock: [Declining demand for] regular soft drinks is challenging the whole category. Consumers are drinking less of them and switching to other, often cheaper, drinks.
Plus, the diet category in c-stores tends be underdeveloped, largely due to space constraints and availability. If you are looking at what consumers are gravitating to, more and more are switching some beverage choices to a diet soft drink. The ability to convert space over to diet is an opportunity.
Availability of diet products, particularly non-colas, is a huge opportunity for the c-store channel. In channels with more take-home packages, we get better availability to diet non-colas, and they are one of the few categories that are growing now in soft drinks.
Gulley: CSDs are losing share to certain non-carbonated segments, notably energy drinks, water and sports drinks. Consumers are increasing their demand for beverages that provide a functional benefit. [But] Sugar CSDs can grow where innovation is part of the play.
What are some other challenges?
Trebilcock: Clearly, one of the challenges is the increasing cost of oil and the impending rise in prices, particularly of the single drink. For c-stores, the pricing is getting higher and higher on the 20-ounce. The pricing continues to rise, yet soft drinks are competing against water and other beverages that are either close to or significantly lower priced. That is putting pressure on the category.
The biggest concern we are hearing from c-store operators is a combination of space/assortment and the price/value equation, as it applies to volume. How do they maximize what they are offering and the price they are offering it at to drive total net sales? We think they should get a second opinion on how they set their coolers, to validate whatever their primary bottler is recommending, so that they know they are not being snowed by somebody.
Rivera: In the c-store channel, one the biggest challenges is that more consumers are looking for variety. Soft drinks make up the vast majority of non-alcoholic beverage sales, but there are opportunities to capitalize on the better-for-you side of the equation.
Gulley: The biggest challenge is proliferation of SKUs in an environment with limited space. The biggest opportunity is to develop products that match up with emerging consumer needs or occasions.
You need enough space for an adequate supply of your bread-and-butter products, but you also need room to feature the new SKUs flooding the market, as well as space for secondary brands. It is difficult to properly manage the ideal assortment in a limited space.
We have two principle category management tools, which analytically rationalize assortment and space allocation decisions. Also, we have an aggressive program of placing secondary cold equipment and semi-permanent cold merchandising, primarily through ice barrels.
Another challenge is broadening [c-stores'] appeal to increase the shopping frequency of teens and affluent families. We believe the best way is to tailor an effective immediate consumption offering of both food and beverages. If you have lots of space dedicated to general merchandise, you probably have an ineffective merchandising scheme. Many industry leaders, such as Sheetz or QuikTrip or BP Connect are diversifying the immediate consumption business across all segments, including beverages. The net effect: it broadens the base of strong consumers.
[Note: The NACS/Coca-Cola Leadership Council is studying this topic. The final report will be presented at the NACS convention in New Orleans on Oct. 31.]
Hemphill: It's important for c-store operators to offer variety in both products and packaging, while eliminating slower-moving products. It's an ongoing process. But the market is likely to only get more crowded as new product offerings become more targeted and niche.
Speaking of which, what do you make of all the recent CSD line extensions?
Hemphill: Flavor line extensions have provided only short-term volume gains. Many of these new products have not been able to have sustainable growth.
Companies have learned from these experiences and have moved to innovation that is more in line with consumer demands. Increasingly, we believe, innovation will be focused on health and wellness attributes. Companies are still grappling with how to best bring those attributes to carbonated soft drinks, but if they can be successful in doing so the pay-off potential is great.
Trebilcock: I think where you have significant space constraints the challenge is: how many versions of a cola do you need? When innovating with CSDs, you have to provide a unique proposition, one that is based on consumer insights, but unique. A lemon cola is not unique.
We've been very successful with Cherry Vanilla and Diet Cherry Vanilla Dr Pepper in c-stores, but it is a unique drink. You've got a tremendous shift from cola usage to non-cola usage — it's been happening for 15 years. The split between cola and non-cola usage in regular sodas is 50-50. In diets, it's still 65-35, largely because we do not have the distribution Coke and Pepsi have. Where we have distribution of our diet products, they are selling like hotcakes — double-digit growth.
Rivera: Keeping up with changing consumer tastes is key. Thankfully, our portfolio is geared to meet variety-seeking consumers head-on. Our business is about much more than just carbonated soft drinks — we have the No. 1 share in ready-to-drink juices, teas, coffee, sports drinks and the No. 2 portfolio in energy drinks. Every day, we're looking for new ways to meet consumer desire for new products, new packages, and attention-getting promotions with real consumer value. We're doing everything we can to give c-store operators the weapons they need to keep people coming to the cold vault.
Gulley: The biggest story we have is Coke Zero, which is a huge and growing hit. It's experiencing great acceptance in the retail community and the sell-through rate is exceeding expectations. This year, we introduced Coke with Lime as a primary line extension. Diet Coke with Lime has continued to perform above expectations in its second year.
Diet Coke sweetened with Splenda is a specific example of a brand designed for a specific consumer need, a favorite diet brand sweetened with sucralose.
[Convenience stores] are the primary channel where consumers expect to find new and innovative products. Immediate-consumption occasions are ideal for fostering trial and repeat purchases. C-stores dominate in this arena where there is proclivity for the consumer to experiment. So while innovation is a key strategy, naturally c-stores become integral to execute that strategy.
Many c-store operators believe other channels are given a price advantage in carbonated soft drinks and it is getting harder to compete. What do you think?
Gulley: We aren't allowed to discuss pricing for propriety reasons, but this is not necessarily true as a general statement.
Trebilcock: If you go into a grocery store, when they are selling singles through a little cooler at a checkout stand the price is usually at a buck or higher. I don't think it is affecting c-stores at all. The pricing for take-home packages, 12-pack or 2-liter may be slightly higher in c-stores, but pretty close to take-home pricing of other segments, because c-store operators are becoming more aggressive with that take-home package.
I think the bigger issue is the portfolio they offer. They have a smaller range of products than can offer vs. the grocery store. They don't have the breadth of offering in the diet, and non-cola sugared, like root beer, grapes, oranges.
I think different packaging — maybe smaller packaging or challenging us to come up with unique packaging for the c-store channel — will help them carve out an area to differentiate themselves. The 20-ounce used to be that for the c-store channel.
How can c-store operators avoid the margin squeeze happening in the category?
Trebilcock: That's the $64,000 question. I think the best thing they can do is offer variety — that is the best way to increase volume and top-line growth. The margins are still pretty good on the 20-ounce. It's hard to sell something if you don't carry it.
Gulley: I am not aware of a margin squeeze. According to the NACS State of the Industry Report, packaged beverage gross margin percentage expanded from 32.5 percent in 2002 to 34.8 percent last year. This is the only major category, other than foodservice, that was able to expanded margins over this period.
(Editor's Note: According to the CSNews Industry Report the packaged beverage category as a whole increased from 33.06 in 2003 to 37.27 in 2004. However, margin data for carbonated soft drinks alone is not available.)
Is c-store merchandising driven mostly by allowances and contracts?
Trebilcock: We're trying to address this with a program based on days of supply, which factors out all the promotional activity, so that how many 12-packs you have on the floor doesn't determine what you have in the cold vault. It's allocating space based on having three days of supply and not overspacing products. We think it is a better way to allocate space rather than base it on a percentage of volume.
Gulley: Most is driven by days of supply and volume considerations. The Coca-Cola category management approach supplements these standard measures with a profitability measure, GMROI (gross margin return on investment), which we believe is the most appropriate proxy. Including a profitability measure is as important as considering days of supply.
Is direct-store delivery the most efficient way for CSDs to get to the c-store channel?
Gulley: Predominately it is, because the brand and packages have high velocity rate and perform best when ordered and merchandised by trained people. However, there are always cases where it is not. The Coca-Cola System is constantly reevaluating our route-to-market strategy in an effort to be as efficient and responsive to customers as possible.
Trebilcock: There are pros and cons of DSD, but the efficiencies of being able to get to all the stores still makes it a pretty good proposition.
Can the average c-store operator afford to say to soft drink companies, "I'm not going to consider contracts, merchandising allowances or other programs, just merchandise the cooler with the products I think my customers really want"?
Trebilcock: If they have the data, the retailers have the right and opportunity to have that kind of conversation. I don't think they necessarily have to give up on programs or resources, but have to elevate the conversation. We should bring that information to the operator so that they can make the right decisions, along with choosing the right level of programs and payments.
I have seen it happen several times, where one soft-drink company will "buy out" an account. Two of the three major players are out. But invariably it doesn't work. The retailer gets a big upfront payment, but because they are not offering the products consumers want, they end up alienating the consumers.
I've seen a few chains in Texas, in our company's heartland, exclude Dr Pepper. It makes no sense. They are passionate about Dr Pepper here, just like they are passionate about Mountain Dew in North Carolina. When you give exclusive deals, it's not good for anybody.
What do you consider to be recent successes in the CSD business?
Hemphill: Although growth of the diet segment was modest the first half of the year, we believe diet soft drinks will continue to outperform regular soft drinks in the coming years.
New sweetener options have improved the taste of the products and provided more variety for consumers — and diet soft drinks are more in keeping with consumer movement toward better-for-you products.
Trebilcock: Customized promotion to the account. We've teamed up and matched promotional ideas with a c-store chain's consumer profile. With Valero, for example, we had a successful summer Mini Cooper promotion in Texas and Colorado. We were able to significantly grow the volume of Dr Pepper and award their consumer with a Mini Cooper. We worked within how Valero operates and how they want to communicate to their consumers, tying it to their point-of-sale materials.
For smaller chain operators, we have a menu of programs and provide tie-ins with purchase of candy bars or ice cream. We can customize something for them, providing added value to the consumer and the ability to create a point of difference in the market.
Rivera: Diet Pepsi has outgrown its largest competitor for five straight years and we're very proud of that accomplishment. And last year, at a time when the industry growth was coming primarily from diets, Mountain Dew was the only non-diet soft drink among the top 10 brands to achieve volume growth. The c-store channel was certainly an important factor in that growth.
Gulley: Our success with innovation has been retailers' success in the channel. They are gaining incremental sales and profits.
What have been some recent not-so-successful products or programs?
Trebilcock: Some of the new products, you have to ask yourself, is it a long-term play? Secondly, the industry did "under-the-crown" promotions, giving away free products found under the cap. But it became a nightmare for retailers to handle all these caps and execute the promotion. They did okay for a while but became overly burdensome for the retailer.
Rivera: We're discontinuing Pepsi Edge by the end of the year. From the beginning, we had modest expectations for this brand, but we've learned that consumers are more interested in zero-calorie options than mid-calorie options. So we've decided to turn our focus as a system on faster-turning, zero-calorie diet brands such as Diet Pepsi and Pepsi ONE.
Gulley: Any time you take risks with innovation you are going to have products that don't work out, for example Diet Coke with Lemon. It did not get a very positive consumer response. Yet we took that learning and combined it with other insights and created Diet Coke with Lime. That product is a huge hit. It's important to take risk and learn from your mistakes, because something better tends to come out of the process.
First, the facts: Regular and diet carbonated soft drinks (CSDs) make up more than 56 percent of packaged beverage sales in the c-store industry and 58 percent of the category's unit sales, according to the Convenience Store News 2005 Industry Report. But at $44,412 in sales per store, the industry's largest segment of the packaged beverage category, regular CSDs, grew by only 0.3 percent last year. A bright spot: diet soft drinks, which saw sales rise by nearly 12 percent, or $1,474 per store, to $13,998.
Still, other packaged beverages are making inroads — some mini-highways — into CSD sales. Bottled water is closing in on diet CSDs, averaging nearly $12,200 in sales per store last year (up from $11,674 the year before). Alternative beverages, which include energy and enhanced drinks, accounted for nearly 6 percent of the category's sales in 2004, ringing up nearly $6,000 per store, up a huge 35.4 percent.
In the wake of a flurry of CSD line extensions, we invited experts from the nation's largest soft drink companies and an industry consultant to pour out their insights on the state of CSDs in the c-store channel. Our group included Jim Gulley, director, small store channels, Coca-Cola Enterprises; Manny Rivera, senior customer marketing manager, convenience and emerging channels for Pepsi-Cola North America; Jim Trebilcock, senior vice president of marketing of Dr Pepper/7-Up Inc.; and Gary Hemphill, managing director and COO, information services for Beverage Marketing Corp. (Not all participants answered each question.)
How would you characterize the state of the carbonated soft drink business?
Hemphill: The market has been somewhat soft the last several years. Volume has been up modestly. Companies have responded with new product innovation, but most of the products have only provided short-term gains.
Consumers are demanding healthier product alternatives, which has resulted in increased consumption of diet soft drinks, [often at the expense of] regular soft drinks. Consumption of bottled water, sports drinks, energy drinks and some others has continued to grow.
We foresee modest growth in the carbonated soft drink category in the years ahead. We believe categories that have stronger health-and-wellness attributes will show better growth.
Rivera: Over the past few years, consumers have been paying greater attention to managing the calories they burn with the calories they take in, which has created challenges for us in marketing our regular soft drinks. [But] these trends have given us more opportunities to talk about Diet Pepsi, as well as more recent introductions such as Diet Pepsi Lime and the newly reformulated Pepsi ONE, which now contains Splenda.
Trebilcock: [Declining demand for] regular soft drinks is challenging the whole category. Consumers are drinking less of them and switching to other, often cheaper, drinks.
Plus, the diet category in c-stores tends be underdeveloped, largely due to space constraints and availability. If you are looking at what consumers are gravitating to, more and more are switching some beverage choices to a diet soft drink. The ability to convert space over to diet is an opportunity.
Availability of diet products, particularly non-colas, is a huge opportunity for the c-store channel. In channels with more take-home packages, we get better availability to diet non-colas, and they are one of the few categories that are growing now in soft drinks.
Gulley: CSDs are losing share to certain non-carbonated segments, notably energy drinks, water and sports drinks. Consumers are increasing their demand for beverages that provide a functional benefit. [But] Sugar CSDs can grow where innovation is part of the play.
What are some other challenges?
Trebilcock: Clearly, one of the challenges is the increasing cost of oil and the impending rise in prices, particularly of the single drink. For c-stores, the pricing is getting higher and higher on the 20-ounce. The pricing continues to rise, yet soft drinks are competing against water and other beverages that are either close to or significantly lower priced. That is putting pressure on the category.
The biggest concern we are hearing from c-store operators is a combination of space/assortment and the price/value equation, as it applies to volume. How do they maximize what they are offering and the price they are offering it at to drive total net sales? We think they should get a second opinion on how they set their coolers, to validate whatever their primary bottler is recommending, so that they know they are not being snowed by somebody.
Rivera: In the c-store channel, one the biggest challenges is that more consumers are looking for variety. Soft drinks make up the vast majority of non-alcoholic beverage sales, but there are opportunities to capitalize on the better-for-you side of the equation.
Gulley: The biggest challenge is proliferation of SKUs in an environment with limited space. The biggest opportunity is to develop products that match up with emerging consumer needs or occasions.
You need enough space for an adequate supply of your bread-and-butter products, but you also need room to feature the new SKUs flooding the market, as well as space for secondary brands. It is difficult to properly manage the ideal assortment in a limited space.
We have two principle category management tools, which analytically rationalize assortment and space allocation decisions. Also, we have an aggressive program of placing secondary cold equipment and semi-permanent cold merchandising, primarily through ice barrels.
Another challenge is broadening [c-stores'] appeal to increase the shopping frequency of teens and affluent families. We believe the best way is to tailor an effective immediate consumption offering of both food and beverages. If you have lots of space dedicated to general merchandise, you probably have an ineffective merchandising scheme. Many industry leaders, such as Sheetz or QuikTrip or BP Connect are diversifying the immediate consumption business across all segments, including beverages. The net effect: it broadens the base of strong consumers.
[Note: The NACS/Coca-Cola Leadership Council is studying this topic. The final report will be presented at the NACS convention in New Orleans on Oct. 31.]
Hemphill: It's important for c-store operators to offer variety in both products and packaging, while eliminating slower-moving products. It's an ongoing process. But the market is likely to only get more crowded as new product offerings become more targeted and niche.
Speaking of which, what do you make of all the recent CSD line extensions?
Hemphill: Flavor line extensions have provided only short-term volume gains. Many of these new products have not been able to have sustainable growth.
Companies have learned from these experiences and have moved to innovation that is more in line with consumer demands. Increasingly, we believe, innovation will be focused on health and wellness attributes. Companies are still grappling with how to best bring those attributes to carbonated soft drinks, but if they can be successful in doing so the pay-off potential is great.
Trebilcock: I think where you have significant space constraints the challenge is: how many versions of a cola do you need? When innovating with CSDs, you have to provide a unique proposition, one that is based on consumer insights, but unique. A lemon cola is not unique.
We've been very successful with Cherry Vanilla and Diet Cherry Vanilla Dr Pepper in c-stores, but it is a unique drink. You've got a tremendous shift from cola usage to non-cola usage — it's been happening for 15 years. The split between cola and non-cola usage in regular sodas is 50-50. In diets, it's still 65-35, largely because we do not have the distribution Coke and Pepsi have. Where we have distribution of our diet products, they are selling like hotcakes — double-digit growth.
Rivera: Keeping up with changing consumer tastes is key. Thankfully, our portfolio is geared to meet variety-seeking consumers head-on. Our business is about much more than just carbonated soft drinks — we have the No. 1 share in ready-to-drink juices, teas, coffee, sports drinks and the No. 2 portfolio in energy drinks. Every day, we're looking for new ways to meet consumer desire for new products, new packages, and attention-getting promotions with real consumer value. We're doing everything we can to give c-store operators the weapons they need to keep people coming to the cold vault.
Gulley: The biggest story we have is Coke Zero, which is a huge and growing hit. It's experiencing great acceptance in the retail community and the sell-through rate is exceeding expectations. This year, we introduced Coke with Lime as a primary line extension. Diet Coke with Lime has continued to perform above expectations in its second year.
Diet Coke sweetened with Splenda is a specific example of a brand designed for a specific consumer need, a favorite diet brand sweetened with sucralose.
[Convenience stores] are the primary channel where consumers expect to find new and innovative products. Immediate-consumption occasions are ideal for fostering trial and repeat purchases. C-stores dominate in this arena where there is proclivity for the consumer to experiment. So while innovation is a key strategy, naturally c-stores become integral to execute that strategy.
Many c-store operators believe other channels are given a price advantage in carbonated soft drinks and it is getting harder to compete. What do you think?
Gulley: We aren't allowed to discuss pricing for propriety reasons, but this is not necessarily true as a general statement.
Trebilcock: If you go into a grocery store, when they are selling singles through a little cooler at a checkout stand the price is usually at a buck or higher. I don't think it is affecting c-stores at all. The pricing for take-home packages, 12-pack or 2-liter may be slightly higher in c-stores, but pretty close to take-home pricing of other segments, because c-store operators are becoming more aggressive with that take-home package.
I think the bigger issue is the portfolio they offer. They have a smaller range of products than can offer vs. the grocery store. They don't have the breadth of offering in the diet, and non-cola sugared, like root beer, grapes, oranges.
I think different packaging — maybe smaller packaging or challenging us to come up with unique packaging for the c-store channel — will help them carve out an area to differentiate themselves. The 20-ounce used to be that for the c-store channel.
How can c-store operators avoid the margin squeeze happening in the category?
Trebilcock: That's the $64,000 question. I think the best thing they can do is offer variety — that is the best way to increase volume and top-line growth. The margins are still pretty good on the 20-ounce. It's hard to sell something if you don't carry it.
Gulley: I am not aware of a margin squeeze. According to the NACS State of the Industry Report, packaged beverage gross margin percentage expanded from 32.5 percent in 2002 to 34.8 percent last year. This is the only major category, other than foodservice, that was able to expanded margins over this period.
(Editor's Note: According to the CSNews Industry Report the packaged beverage category as a whole increased from 33.06 in 2003 to 37.27 in 2004. However, margin data for carbonated soft drinks alone is not available.)
Is c-store merchandising driven mostly by allowances and contracts?
Trebilcock: We're trying to address this with a program based on days of supply, which factors out all the promotional activity, so that how many 12-packs you have on the floor doesn't determine what you have in the cold vault. It's allocating space based on having three days of supply and not overspacing products. We think it is a better way to allocate space rather than base it on a percentage of volume.
Gulley: Most is driven by days of supply and volume considerations. The Coca-Cola category management approach supplements these standard measures with a profitability measure, GMROI (gross margin return on investment), which we believe is the most appropriate proxy. Including a profitability measure is as important as considering days of supply.
Is direct-store delivery the most efficient way for CSDs to get to the c-store channel?
Gulley: Predominately it is, because the brand and packages have high velocity rate and perform best when ordered and merchandised by trained people. However, there are always cases where it is not. The Coca-Cola System is constantly reevaluating our route-to-market strategy in an effort to be as efficient and responsive to customers as possible.
Trebilcock: There are pros and cons of DSD, but the efficiencies of being able to get to all the stores still makes it a pretty good proposition.
Can the average c-store operator afford to say to soft drink companies, "I'm not going to consider contracts, merchandising allowances or other programs, just merchandise the cooler with the products I think my customers really want"?
Trebilcock: If they have the data, the retailers have the right and opportunity to have that kind of conversation. I don't think they necessarily have to give up on programs or resources, but have to elevate the conversation. We should bring that information to the operator so that they can make the right decisions, along with choosing the right level of programs and payments.
I have seen it happen several times, where one soft-drink company will "buy out" an account. Two of the three major players are out. But invariably it doesn't work. The retailer gets a big upfront payment, but because they are not offering the products consumers want, they end up alienating the consumers.
I've seen a few chains in Texas, in our company's heartland, exclude Dr Pepper. It makes no sense. They are passionate about Dr Pepper here, just like they are passionate about Mountain Dew in North Carolina. When you give exclusive deals, it's not good for anybody.
What do you consider to be recent successes in the CSD business?
Hemphill: Although growth of the diet segment was modest the first half of the year, we believe diet soft drinks will continue to outperform regular soft drinks in the coming years.
New sweetener options have improved the taste of the products and provided more variety for consumers — and diet soft drinks are more in keeping with consumer movement toward better-for-you products.
Trebilcock: Customized promotion to the account. We've teamed up and matched promotional ideas with a c-store chain's consumer profile. With Valero, for example, we had a successful summer Mini Cooper promotion in Texas and Colorado. We were able to significantly grow the volume of Dr Pepper and award their consumer with a Mini Cooper. We worked within how Valero operates and how they want to communicate to their consumers, tying it to their point-of-sale materials.
For smaller chain operators, we have a menu of programs and provide tie-ins with purchase of candy bars or ice cream. We can customize something for them, providing added value to the consumer and the ability to create a point of difference in the market.
Rivera: Diet Pepsi has outgrown its largest competitor for five straight years and we're very proud of that accomplishment. And last year, at a time when the industry growth was coming primarily from diets, Mountain Dew was the only non-diet soft drink among the top 10 brands to achieve volume growth. The c-store channel was certainly an important factor in that growth.
Gulley: Our success with innovation has been retailers' success in the channel. They are gaining incremental sales and profits.
What have been some recent not-so-successful products or programs?
Trebilcock: Some of the new products, you have to ask yourself, is it a long-term play? Secondly, the industry did "under-the-crown" promotions, giving away free products found under the cap. But it became a nightmare for retailers to handle all these caps and execute the promotion. They did okay for a while but became overly burdensome for the retailer.
Rivera: We're discontinuing Pepsi Edge by the end of the year. From the beginning, we had modest expectations for this brand, but we've learned that consumers are more interested in zero-calorie options than mid-calorie options. So we've decided to turn our focus as a system on faster-turning, zero-calorie diet brands such as Diet Pepsi and Pepsi ONE.
Gulley: Any time you take risks with innovation you are going to have products that don't work out, for example Diet Coke with Lemon. It did not get a very positive consumer response. Yet we took that learning and combined it with other insights and created Diet Coke with Lime. That product is a huge hit. It's important to take risk and learn from your mistakes, because something better tends to come out of the process.