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04/26/2022

C-store Retailers Begin to See Signs of Consumer Strain in Beverage Category

Beverage Bytes survey finds gas prices and inflationary pressures are starting to impact growth.
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A man is buying beverages at retail

NEW YORK — The convenience channel continues to see strong beverage trends, but there are some signs things could be changing.

According to Goldman Sachs' first-quarter Beverage Bytes survey, the channel's beverage sales were up sequentially in the quarter vs. the fourth quarter of 2021, driven by strong consumer traffic.

Specifically, the survey found that total beverage sales were up 10 percent quarter over quarter as traffic accelerated — up roughly 8 percent quarter over quarter. Beverage sales are expected to grow 8 percent this year.

However, the outlook for the beverage category "is now incrementally cautious," with almost 40 percent of retailers indicating that they are now more negative in their outlook, said Bonnie Herzog, managing director at Goldman Sachs. That's up roughly 14 percent from the previous quarter.

Beverage Bytes surveys retailer contacts representing nearly 42,000 retail locations or approximately 30 percent of the c-store channel.

"Overall, retailers are seeing some impact on consumer spending from higher gas prices and broader inflationary pressures, which are driving softer unit growth in some stores," Herzog said, adding that one retailer reported a slowdown in March across all beverage categories.

"Further some retailers noted that even though the supply chain has improved from a manufacturing standpoint, they are continuing to see challenges in trucking and staffing — both with distributors and retailers — making it difficult to get product on the shelves," she explained. "Elsewhere, some retailers continue to see supply pressures particularly for newer products."

On the other hand, according to Herzog, many retailers said the supply chain situation is getting stronger every day, and stock levels have nearly recovered to pre-pandemic levels. Several retailers believe that further improvement in supply chain/out-of-stocks will result in a good year in fiscal year 2022.

Some retailers are seeing a rebound in alcoholic beverages, and are seeing non-alcoholic beverage sales above pre-pandemic levels, led by the energy drink category, the survey found. In addition, the outlook for energy drink sales growth remains robust, with expectations for low double-digit growth in 2022.

According to Beverage Bytes, hard seltzer growth has decelerated sequentially, and retailers expect the category to only grow 4 percent in 2022. This significantly below previous expectations, Herzog noted.

Only approximately 25 percent of retailers plan to allocate more shelf/cooler space to the hard seltzer/flavored malt beverage category this year, a steep drop from roughly 70 percent in 2021, she added.

Other notable takeaways from the survey include:

  • Out-of-stock pressures continue but have broadly improved since the fourth quarter.
  • Innovation has significantly increased with many retailers expressing optimism about innovation across several categories including energy drinks, carbonated soft drinks, ready-to-drink (RTD) coffee, RTD cocktails and wellness/functional beverages; and,
  • Most retailers expect additional price increases this year, with some expecting three to four rounds of price increases by year-end given sharp inflationary cost pressures.

"Overall, we are cautiously optimistic heading into first quarter earnings as we expect strong topline growth, reflecting robust underlying demand — at least in the earlier part of the quarter — and supported by pricing actions," Herzog said, adding that beverage companies will face headwinds in fiscal year 2022 as they deal with "the exceptionally challenging cost environment."