Poor Weather Dampened C-store Beverage Growth in Q4 2018

Beverage cans
Retailers tell Beverage Buzz they expect 2019 sales to be up 3.7 percent year over year in 2019.

NEW YORK — Weather at the end of the 2018 affected beverage sales in the convenience channel, but consumer sentiment and low gas prices softened the impact.

According to Wells Fargo Securities LLC's Beverage Buzz, overall total beverages sales were up 2.9 percent in the fourth quarter. While sales were below the 4.3-percent growth in the third quarter, they were slightly up from the 2.7-percent growth in same period in 2017.

Beverage Buzz surveys beverage retailers representing approximately 23,000 convenience stores.

The fourth-quarter numbers reflect "a continuation of favorable gas prices and still-solid consumer sentiment that was offset by poor weather conditions — a theme cited by many of our respondents," explained Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities.

Other key takeaways from Beverage Buzz, according to Herzog, include:

  • Rational promotions, "possibly too rational." Promotions were only up 0.5 percent year over year, below the 1.8 percent in the third quarter and 3.3 percent in the second quarter.
  • Retailers' initial assessment of 2019 is somewhat upbeat. Respondents expect sales will likely to be up 3.7 percent year over year. They were somewhat less upbeat about alcoholic beverage trends, with expectations for sales to be up 3 percent in 2019. 
  • Constellation Brands remains bright. Retailers expect solid increases in sales and shelf space in 2019, on top of strong gains last year.
  • Retailers remain upbeat on cannabidiol (CBD). Nearly 90 percent indicated plans to carry these products in the future.

Herzog added while sentiment was mixed in the quarter, Wells Fargo Securities remains "upbeat in our outlook for the beverage sector and the c-store channel."

Cold Vault Brands

Looking at specific brands, retailers reported that The Coca-Cola Co.'s sales in the convenience channel were up 2.5 percent in the fourth quarter, a deceleration from a "very strong 4.6-percent growth in Q3," said Herzog, who attributed the slowdown in part to recent pricing actions.

"That said, we remain bullish on Coca-Cola, especially given upbeat commentary about [its] product portfolio, including BODYARMOR, which retailers are still very upbeat about," she said.

According to Beverage Buzz, retailers estimated Monster Beverage Corp. sales in the quarter were up 7.3 percent in the channel, although this was below the 9.8-percent growth in the previous quarter. Retailers are forecasting 6.1-percent growth in 2019, Herzog said, pointing out survey respondents were optimistic about Monster's innovation pipeline.

In addition, 25 percent of retailers are seeing Monster step-up promotions to offset its recent price increase. According to Herzog, Wells Fargo Securities is "increasingly concerned about Monster's volumes (with approximately 45 percent of retailers indicating that volumes have decelerated since its price increase went into effect)."

C-store sales for PepsiCo Inc. were down 0.7 percent in the fourth quarter, according to retailers in Beverage Buzz, below the 2.8-percent growth in the third quarter. As Herzog explained, retailers continued to express concern about Gatorade. In addition, "there was little optimism about the balance of Pepsi's portfolio."

Keurig Dr Pepper saw solid trends in the quarter with 3.3-percent sales growth, but retailers are "somewhat downbeat about execution," Herzog said. Beverage Buzz respondents also called out "hit-or-miss communication," she added.

"What's more, there’s still plenty of lingering resentment about key allied brand defections like Fiji and BODYARMOR, although we were pleased that retailers were upbeat about CORE," Herzog said.

As for Constellation Brands, Wells Fargo Securities "remains encouraged by the outlook" based on continued expectations for solid shelf/cooler space gains this year — with a 5-percent incremental gain expected, according to Herzog.

In addition, "while retailers expect growth in the overall beer category to be somewhat muted in 2019 (up 3.0 percent), they were clearly optimistic about Constellation Brands its longstanding premiumization strategy," she said, adding retailers also expressed some concern about the potential impact of cannabis on beer consumption.

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