Beverage Bonanza

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Beverage Bonanza

By Angela Hanson, Convenience Store News - 10/17/2015

Thirsty consumers are a boon for all convenience store operators, no matter where in the United States they are based. But all drinks are not created equal. While some beverage segments are on the rise in c-stores, others are struggling. And consumers have a wide variety of evolving motivations that drive them to make the purchases they do.

Keeping up-to-date on the current state of beverages — packaged, alcoholic and dispensed — and exploring innovative ways to draw in customers were key objectives of the 2015 Convenience Store News Beverage Retailing Summit, a two-day event held in June in St. Louis.

CSNews Editorial Director Don Longo presented industry and consumer research on the packaged beverages category before leading an open discussion that touched on such topics as how suppliers can help retailers drive stronger sales, how long energy drinks will continue to grow, and the outlook for bottled water and juice/juice drinks.

“Packaged beverages ranks as the third-largest category for in-store sales, behind only cigarettes and foodservice,” said Longo, noting that the category’s share of total in-store sales increased from 12.18 percent to 12.41 percent in 2014. When it comes to margin, packaged beverages has the fifth-highest average gross margin percent among the top 10 volume categories in a c-store.

Compared with competitive channels, c-stores do very well in packaged beverages, Longo cited. Convenience stores lead supermarkets and drugstores in both dollar share and unit share of packaged beverages and in both cases, achieved share increases last year.

Looking at the first four months of 2015, certain interesting trends revealed themselves:

  • While carbonated soft drink volume continues to flounder, dollar sales were up 2.5 percent, reversing a previous trend.
  • Dollar sales for alternative beverages were up a bit more than they were last year, and the same is true for bottled water and sports drinks.
  • Juice/juice drinks, ready-to-drink iced tea and enhanced water were all up double figures in percentage sales gains for the first four months of the year.

Longo also shared data from CSNews’ 2015 Realities of the Aisle consumer study. “Three-quarters of consumers who shopped a c-store in the one month prior to the survey said they went to the store to buy some kind of beverage,” he pointed out. “That’s higher than for gasoline.”

One important factor behind the success of packaged beverages at c-stores is that a drink goes hand-in-hand with prepared food. Of consumers who purchased prepared food, 50 percent of them bought a bottled/canned soda with their order. Another 42 percent said they bought bottled water, and 38 percent purchased coffee/tea/other hot beverage. Additionally, approximately 37 percent said they bought either a salty snack or candy/gum, and nearly 35 percent bought a fountain drink to go with their prepared food.

Finally, consumers were asked where else they purchase packaged beverages. The largest percentage said supermarkets, followed by supercenter/mass merchandisers like Target or Walmart. Then, after a gap, came dollar stores and drugstores. By age, supermarkets scored higher among older consumers, aged 35 and up. Meanwhile, dollar stores appealed more to younger shoppers, aged 18–24.

As might be suspected, dollar stores also did relatively better among lower-income consumers, while higher-income consumers were more likely to get their packaged beverages from a supermarket or drugstore.

DISPENSING PROFITS

C-store operators who want to make the most of beverage sales at any time of day should consider instituting a loyalty program. Such programs can be particularly effective for dispensed beverages, which are a main item customers intend to purchase when they enter a c-store, according to Ira Gleser, president of Amplify Marketing Communications.

“They’re buying more and they’re spending more,” Gleser said of loyalty program participants.

Dispensed beverages are already a main item customers intend to purchase when entering a c-store, with 51 percent of consumers listing it as such, according to a research study conducted by the NACS Shopper Panel and Whirley DrinkWorks.

C-stores also beat out fast-food, fast-casual, specialty and local retailers when it comes to attracting habitual purchasers of coffee and fountain drinks. Loyalty programs leverage these customers and increase their average spend by more than 70 cents.

While any kind of loyalty program can have a positive effect, Gleser said retailers should consider one that includes refill mugs for the following reasons:

  • They appeal to a variety of age groups, not just millennials or baby boomers;
  • Refill mug users are more likely to purchase additional items, therefore increasing basket sizes;
  • Men respond well to discounted refills; and
  • Women appreciate the functional benefits, such as protection against spills and keeping drinks hot or cold.

Existing users of refill mugs cite discounts as their primary reason for purchasing the mug, followed by keeping drinks hot or cold, liking the style or design, and protecting against spills.

The Whirley DrinkWorks study also found that a strong relationship exists between beverage loyalty program participation and mug usage. Thirty-one percent of loyalty program participants reported having purchased a refill/travel mug at a c-store within the last six months, compared to only 13 percent of non-participants who said the same.

John Zikias, chief operating officer of Holmes Oil Co., challenged attendees of the Beverage Retailing Summit to improve their dispensed beverage programs by asking themselves: What would you want to do if you knew for a fact you could not fail?

He emphasized that change is necessary to succeed in today’s market. “If you think change is difficult, how do you think irrelevance feels?” Zikias posed.

Dispensed beverages contribute more to profit than to sales, but still make up one-third of total foodservice sales, Zikias said. The fact that most products purchased at c-stores are consumed within an hour means “we have the on-the-go customer,” and this provides a great opportunity to meet shopper demand for refreshment and become a refreshment destination.

As an example, Zikias presented Holmes Oil’s revamp of its Cruizers c-store brand. The company decided to focus on dispensed beverages because the high cost of entry would make it difficult for competitors to jump on the bandwagon. Cruizers’ chewy ice is a key point of differentiation. Promotion through trial and community involvement, such as sponsorships, are important methods of communicating the company’s message to consumers.

While Zikias acknowledged specific shopper needs and opportunities will vary by geographic location and retailer focus, he said many opportunities exist to brand dispensed beverage programs and position them in consumers’ minds. The combination of branding, promotion, trial and commitment can result in profitable growth not only within dispensed beverages, but also adjacent categories such as candy.

THAT’S THE SPIRIT

The economy is still the No. 1 concern for many consumers, followed by debt, and this continues to have an effect on shopping habits. However, despite lackluster growth for many consumer product goods categories in the convenience channel, alcohol remains a top performer, according to Danelle Kosmal, vice president, Beverage Alcohol Practice at Nielsen.

Speaking during one of the concurrent sessions at the event, Kosmal noted that small-format and value are driving store expansion. Of the total stores opened from 2013–2014, those selling beer, wine and spirits increased 2 percent — and about half of those stores were convenience stores.

Looking at off-premise, Nielsen found that consumers are drinking better but not drinking more, and c-stores trend slightly behind all outlets for beer. That being said, beer still represents 92 percent of all alcoholic beverage dollars in the convenience channel.

When it comes to trends in alcoholic beverages, innovation and new packaging are still fundamental to growth. Yet, the top 10 brands represent the majority of volume. Notably, the top 10 brands in the convenience channel capture 66 percent of the volume, Kosmal said, adding that singles and six-packs are driving growth in convenience stores.

A bright spot in beer remains craft, which continues to post double-digit growth. Imports are also shining, with Mexican imports driving this segment. Still, premium light beer retains its hold on the top spot in the beer category, according to Nielsen research.

The key to success lies in finding the balance: paying attention to the core (premium and below premium), but adding in craft beer and imports, Kosmal explained.

GETTING CRAFTY

Honing in on craft beer, she noted that more households are buying into the segment and making slightly more trips, which is helping to lift the overall ring as well. The average ring when craft beer is in the basket is $69 vs. $58 with overall beer.

“Some of the volume is shifting, but two-thirds of the craft beer volume comes from market expansion — people who are buying more beer — and new beer buyers,” Kosmal said. When the shift occurs, it comes from below premium and premium beer, primarily driven by millennials. In addition, more wine and spirits drinkers are purchasing craft beer.

According to Kosmal, there are four main trends driving craft beer’s growth: hoppy styles, mainly driven by IPAs; more selection on the shelves; variety and seasonal packs; and the introduction of cans, though still a small portion of the segment.

But what exactly does “craft” mean to consumers? Nielsen found that when it comes to beer, wine and spirits, consumers think of small independent companies and small batches. And millennial males are more influenced by “craft” in marketing.

Dispensed beverages contribute more to profit than to sales, but still make up one-third of total foodservice sales.