Non-Alcoholic Beverages Are Q2 Sales Standouts

NEW YORK — Energy and non-carbonated soft drinks pushed the non-alcoholic beverage segment at convenience stores up 6 percent in the second quarter.

According to Wells Fargo Securities LLC's latest Beverage Buzz survey, non-alcoholic beverage trends remain very strong, with 5.9-percent sales growth projected year over year. Meanwhile, alcoholic beverage sales decelerated slightly from the previous quarter to see 4.1-percent growth in Q2. 

Beverage Buzz surveys beverage retailers representing more 15,000 convenience store locations across the United States.

Energy drinks, bottled water/enhanced waters/sports drinks and iced teas all played roles in the uptick. In addition, improved weather and lower gas prices drove solid growth in foot traffic and contributed to strong in-store sales for both c-stores and beverage manufacturers, according to Bonnie Herzog, managing director of beverage, tobacco and convenience store research at Wells Fargo Securities.

"C-stores continue to benefit from macro tailwinds, and we remain broadly encouraged by second-quarter results for beverage manufacturers," Herzog said, adding that The Coca-Cola Co. appears to be well positioned to perform well in the second quarter, while Wells Fargo Securities' concerns about Monster Beverage Corp.'s second-quarter results remain. 

Specifically, the survey found that Monster's distribution issues are weighing on some convenience store retailers. Results indicated the energy drink company's c-store sales were up 8 percent in the second quarter, a deceleration from the previous quarter, Herzog noted.

One retailer reported that sales "should have been up double digits [but were weighed down by] out-of-stock issues with Coke changeover." Another retailer reported, "Monster sales were trending up double digit in [the first quarter]; however, due to service issues, we were negative in April and up only 5 percent in [the second quarter]. Red Bull is taking sales due to the Monster service issues." 

The latest Beverage Buzz survey also found that retailers are generally cautious on the impact of M100, Monster's new mid-calorie product. In addition, more than 50 percent of retailers expect to pass along the full 6-percent price increase the company will implement on its products Aug. 31. Some fear a short-term negative volume impact as a result.

As the price increase looms, approximately 35 percent of retailers suggested they would buy additional volume ahead of the planned price increase, which Herzog believes "could have a favorable impact on third-quarter volumes."

Other survey takeaways include: 2.8-percent average out-of-stocks for Monster SKUs in line with results from the Wells Fargo Securities Memorial Day survey, suggesting distribution issues may have stabilized more recently; and retailers project the energy category will grow 10 percent for this year, with Red Bull's 9-percent growth outperforming Monster's projected 8-percent growth. 

"Overall, we continue to expect Monster's second-half results should improve," Herzog added.

As for other brands in the cooler, Wells Fargo Securities estimates retail sales for Coca-Cola beverage products increased 4.3 percent year over year, while PepsiCo Inc.'s beverage sales decelerated during the second quarter vs. the same quarter last year to see a 2.3-percent uptick.

Sales for Dr Pepper Snapple Group were up 1.4 percent in the same time period, Herzog said, as retailers continue to see strong results in the company's Allied brands. However, one retailer suggested Dr Pepper Snapple has a "lack of focus and value" and another believes its issues relate to distribution, stating "good product, customers love it but we can't get it or keep it in stock."