Beverage Success Lifts All Categories

ST. LOUIS — Nearly three-quarters of convenience store customers come through the door looking for something to drink and that translates into almost 30 percent of inside sales.

The beverage categories — including packaged, alcoholic and dispensed beverages — however are not immune to shifting consumer trends and preferences, as attendees of the 2015 Convenience Store News Beverage Retailing Summit learned on day two of the event held in St Louis.

Key beverage themes, according to Bonnie Herzog, managing director of beverage, tobacco and convenience store research at Wells Fargo Securities LLC, include the continued move toward better-for-you and healthier products, a broad shift away from carbonated soft drinks (CSDs) — especially the downturn in diet — and the growth of bottled water and functional beverages.

Notably, she pointed out, bottled water has driven the majority of incremental growth in beverages, and energy drinks are the No. 2 non-CSD segment in retail sales. That aside, CSDs are still the largest beverage segment.

As Wells Fargo Securities' latest Beverage Buzz survey found, convenience store retailers have reason to be optimistic. According to the survey respondents, beverage sales were up about 5 percent over the Memorial Day holiday vs. last year's holiday weekend. In addition, so far in the second quarter, c-store beverage sales are up approximately 6 percent.

And things may only get better. Retailers predict a 9-percent increase in customer traffic this summer and broadly this should be good for the beverage categories, Herzog explained.

The key to continued success in beverages will be capitalizing on dayparts, according to Dean Zurliene, senior director, category leadership at Anheuser-Busch Inc.

As he explained, dayparting is not necessarily new. McDonald's is moving toward all-day breakfast, and Dunkin' Donuts and Starbucks are going after customers' lunch money. More and more, channel blurring is apparent in the retail industry and in the convenience channel specifically.

There are four major dayparts, which are like four different stores in four walls, according to Zurliene, with the c-store operating differently during each. As a share of daily revenue, breakfast accounts for 28.4 percent, lunch for 19.4 percent, rush hour for 39.1 percent and late night for 13.1 percent.

However, share of profitability paints a different picture. The most profitable dayparts are lunch and rush hour, with late night and breakfast turning up at the other end of the spectrum, he explained.

Capitalizing on the dayparts will require retailers tapping into the top categories in each daypart.

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 the 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.

While any kind of loyalty program can have a positive effect, 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 highly to discounted refills; and
• Women appreciate the functional benefits, such as protection against spills and keeping drinks hot or cold.

John Zikias, chief operating officer of Holmes Oil Co., challenged attendees to improve their dispensed beverage programs by asking themselves what they would want to do if they knew for a fact they 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.

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 specific shopper needs and opportunities vary by geographic location and retailer focus, Zikias acknowledged many opportunities to brand dispensed beverage programs and position them in consumers' minds exist. The combination of branding, promotion, trial and commitment can result in profitable growth over both dispensed beverages and adjacent categories such as candy.

The event closed with Terence Martin, director of sales, immediate consumption with Campbell Soup Co., cautioning retailers not to have a single strategy for demographic groups such as millennials and Hispanics.

"Demographics can be dangerous," Martin said. "What you really need to understand is behavior."

Both of these groups have varying habits and preferences within them. For example, Argentinian and Mexican consumers are both Hispanic, but have very different flavor profiles. Additionally, they are not mutually exclusive.

C-stores can capture a greater share of the healthy beverage market from traditional grocery stores, Martin said, but focusing on demographics instead of behavior can prompt the wrong strategy. He also pointed out that what healthy beverages consumers want to buy will change over time, citing that no beverage but bottled water has gone without some negative press about its level of healthiness.

The 2015 Beverage Retailing Summit was sponsored by Anheuser-Busch Inc., Red Bull North America and V8 as gold sponsors, and Nestle Waters North America, PFI, Sparkling ICE and Whirley-DrinkWorks! as silver sponsors.