Energy Drinks, Enhanced Waters Leading C-store Beverage Sales

NEW YORK – Energy drinks and bottled waters are largely responsible for the 2.8-percent increase in non-alcoholic beverage sales in convenience stores during the first quarter of 2014, according to the latest Wells Fargo Securities LLC's Beverage Buzz survey. Their strong sales offset declines in juices and carbonated soft drinks (CSDs).

Retailer respondents who saw the strongest growth in the non-alcoholic segment -- as high as 10 percent -- generally had favorable weather conditions, solid foot traffic and strong energy drink sales. Iced tea and enhanced waters also performed well, with flavored sparkling water brands exhibiting a "breakout year."

For the remainder of 2014, c-store retailers continue to be the most optimistic about energy drinks, expecting them to see 10-percent sales growth, followed by enhanced waters/sports drinks at 7.7 percent growth. They expect general CSD sales to fall 1.3 percent, but be offset by 1.1-percent growth in flavored CSDs.

Monster Energy Corp. is expected to lead the energy segment in growth, possibly resulting in the segment's expansion in shelf space.

For CSDs, the survey estimates that a decline in The Coca-Cola Co.'s sales volume in the first quarter was offset by pricing increases, while PepsiCo Inc. saw slight volume growth with stronger performance by the Mountain Dew brand. Retailers report that the Dr Pepper Snapple Group's mid-calorie TEN line is generating "weak" repeat sales, prompting its removal from many store shelves.

"As we have stated previously, we are increasingly fearful that TEN may follow in the footsteps of countless other brand extensions that fail to become meaningful brands," said Bonnie Herzog, managing director of tobacco, beverage and consumer research at Wells Fargo Securities.

Weather continues to be the biggest stumbling block for beverage sales. C-stores that saw decreased sales blamed poor weather conditions for the drop. "Weather is impacting guest counts in key geographies throughout the country, which placed downward pressure on sales," said one retailer.

Still, while three-quarters of respondents indicated that disruptive winter weather had a worse impact on sales relative to last year, this is an improvement from the first quarter of 2013, when 100 percent of respondents suggested that weather was worse, according to the latest survey report.

Retailers and consumers should see some pricing relief in the beverages category during the second quarter. Retailer respondents expect no price increases during the quarter, and many believe price levels have reached or already exceeded their limits for the year, based on what customers are willing to pay.