Beer bounces, pouches pounce and soda sales still snap
Retailers at the inaugural Convenience Store News Beverage Retailing Summit heard encouraging news of opportunity and growth in alcoholic and non-alcoholic beverages. As a group, they reported significant increases in beer sales and growth in energy drinks and other cooler staples.
After a flat few years, beer sales have grown thanks to new product innovation, according to Danny Brager, vice president, group client director, Beverage Alcohol Team at Nielsen. Brager tapped into the latest intelligence about alcoholic beverages during his presentation at the September event, held in Chicago.
C-stores now represent 53 percent of total packaged beer sales (excluding liquor stores), with dollar sales growing nearly 4 percent and volume sales growing 4.4 percent in the 52 weeks as of mid-August for sales and early July for volume.
The only market tracked by Nielsen that did not see beer volume growth was Phoenix, noted Andrea Riberi, senior vice president for Nielsen, who co-presented with Brager. The markets with the greatest volume bumps were: Portland, Ore., with more than 10 percent growth; New Orleans/Mobile, at nearly 9 percent growth; Orlando, up nearly 8 percent; Dallas/Fort Worth with more than 7 percent growth; and Houston, up nearly 7 percent.
Driving most of this growth is new items. A significant 60 percent of current beer products did not exist five years ago, Brager pointed out. Indeed, new items account for 10 percent of beer category dollar sales today. New super premium and premium light items, in particular, have performed well in convenience stores compared to all other retail outlets.
Other beer growth drivers include significant sales jumps in the premium beer and malternatives subcategories. Consequently, the Phoenix market's lackluster performance is tied to a big decline in its premium beer sales (although the market saw growth in craft beers).
The strength of c-store beer sales also correlates to an increased number of trips to c-stores, with trips up 3.2 percent in the channel in 2012, compared to 2011. This follows a 4.1-percent decline in trips in 2010 to 2011, Riberi said.
According to Nielsen research, store location is the primary reason c-store shoppers buy beer at a particular c-store. The ability to buy cold beer is the second most important reason, followed by low beer price and quick checkout, which ranked third and fourth respectively.
In the trendy craft beer segment â which is seeing continuous product innovation â the convenience channel is less developed than other retail channels, Riberi noted. This makes sense, she said, because the craft beer customer is not a close match to the core c-store customer, who skews toward lower income, smaller households and families with no children. The c-store channel is much more developed, on the other hand, in the premium light beer segment.
Limited shelf space also keeps a lid on c-stores' share of craft beers, imports, super premium beer and malternatives, Riberi added. Not surprisingly, c-stores with beer caves sell more beer than stores without walk-in coolers. Stores with beer caves generate an average of nearly $4,500 in beer sales, while those without sell an average of $3,036. In terms of efficiency, however, stores with beer caves sell $1,952 of beer per linear foot vs. $2,038 in stores without them.
Casey's General Stores Inc., one of the Summit's retailer attendees, has experienced the power of the beer cave. The chain remodeled 100 locations to include beer caves and volume increases have justified the investment, shared Dana Sump, beverage category manager for the Ankeny, Iowa-based retailer. The chain is remodeling another 100 stores to include beer caves and new ground-up stores will include them as well.
The walk-in coolers have freed up room to merchandise craft beer, singles and six-packs in reach-in coolers, and allowed the retailer to remove warm beer from the sales floor. "They've helped change our image as a seller of cold beer," Sump explained.
Another retailer at the Summit also noted that walk-in coolers have freed up reach-in cooler space, which is now dedicated to 12-packs of craft beer at the company's stores.
How beer caves are executed is crucial, retailers agreed. A beverage expert at one large chain said the retailer had challenges initially with proper lighting and keeping the beer caves maintained to meet image standards and not look like "stock rooms."
Still, as another retailer shared, beer caves have been a huge sales driver; locations equipped with beer caves in this chain are 13 percent more profitable than stores without beer caves.
In general, 12-packs (27 percent) and singles (20 percent) continue to dominate c-store beer sales and continue to grow, said Riberi of Nielsen. Six-packs made up 21 percent of sales. Also popular is the aluminum pint, which is selling better in c-stores than other channels.
Nearly every retailer attending the CSNews Beverage Retailing Summit reported an increase in sales of beer singles. In terms of promotional strategies, c-store operators should keep in mind that sales of singles and multipacks are not particularly price sensitive in c-stores, Riberi told the group.
Two of the retailers in attendance said they were experimenting with beer growlers â the 64-ounce, fill-your-own glass or ceramic containers that have been popular in gourmet beer shops for some time. Reviews have been positive, but the strategy is very site-specific and likely would work successfully in only certain locations, most retailers agreed.
NOTHING TO WINE ABOUT
In other alcoholic beverage news, c-stores represent 53 percent of all "coolers" sales, not including liquor stores, according to Nielsen data. Coolers grew in sales just 1 percent in c-stores, compared to a much healthier 15.6 percent in all other channels combined.
More encouraging, c-stores comprise 11 percent of total spirit sales, with this figure up 8.3 percent, compared to just 6.7 percent in all other channels combined. Meanwhile in the wine category, convenience stores represent 6 percent of sales, growing at a healthy 8.4 percent, compared to 6.6 percent sales growth in all other channels combined.
Of all product categories tracked by Nielsen, spirits and liquor ranked first and second in unit growth, with wine ranking ninth â indicating a potential opportunity for c-stores that are allowed by state and local law to sell these products. Again, innovation is powering growth. Thirty percent of wine items and 40 percent of spirits items did not exist five years ago. Nearly 15 percent of annual wine and spirits sales are driven by new items.
One major factor in the growth of alcoholic beverages in all channels is the mighty pouch. Pouches now account for nearly $200 million in sales of wine, malt and spirits-based products, an increase of 105 percent in the last year, said Nielsen's Brager.
The potential of pouches is clear, as 12 percent of alcohol purchasers say they buy pouches â double the number of purchasers from a year ago. What's more, these sales are often an incremental purchase for new drinking occasions, as 10 percent of pouch sales volume comes from "new alcohol buyers" and 50 percent of volume is incremental. Just 40 percent represent cannibalization from other alcoholic drinks, primarily from spirits.
So far, most of the pouch sales are made in food stores (33 percent) and Walmart stores (44 percent), "so there is a big opportunity for c-stores, which account for 6.2 percent of volume sold now," Brager noted.
Spirits, too, represent potential gains for select c-stores. The channel's sales of spirits are near $600 million annually, up 8.7 percent in the 52 weeks ending in mid-August, vs. 6.7 percent in all other channels combined. The potential, though, is influenced by geography, with almost half of sales coming from stores in the east Central and west Central states, with Mountain states accounting for another 11 percent of sales and west south Central states accounting for nearly 14 percent.
THE ABCS OF CSDS
Beer isn't the only c-store beverage staple making a comeback. All of the participating retailers said they have experienced gains â from slight to significant â in carbonated soft drink (CSD) sales.
Still, many took issue with the soft drink giants' contracts and influence on profit margin. Most expressed frustration with large price differentials in competing retail channels, saying they struggle to maintain margin. The plethora of pack sizes, too, is cause for concern.
C-store operators are still finding success, however, partnering with CSD companies for in-store promotions. For instance, Casey's General Stores has given away boats in a partnership with Bass Pro Shops and Coca-Cola, and is looking to expand that success this coming year.
Fortunately, gains in the cooler have not hurt sales at the fountain, at least for the retailers who participated in the CSNews Beverage Retailing Summit. Still, many said they would like to see more new products for the fountain, especially energy drinks.
At one large retail chain, which typically offers 32 heads per store, fountain equipment is replaced every seven years to maintain quality standards.
Switching over to hot dispensed beverages, equipment innovation has been key, with a number of the retailers reporting they followed Wawa in a move away from glass carafes to thermal carafes and have seen a boost in freshness and wide acceptance by customers.
A number of retailers also spoke about the challenge of competing against McDonald's $1-per-cup price point on its McCafÃ© drinks.
One large chain category expert said his company's stores devote 16 feet to coffee â including extensive add-ons for customer customization. It's a recipe for success, added Jeff Vorst of WhiteWave Foods. "Customers want coffee to be fast, fresh and mine."
One challenge, though, is getting store employees to dump coffee every two hours to maintain freshness, an act some employees are not eager to do since they feel they are throwing away "good coffee," one retailer commented.
For other hot dispensed beverages, the retailers agreed it is important to question suppliers about the throw weight of powder in each beverage needed to maintain a customer-pleasing taste and quality. It's not unusual for retailers to overestimate profits per drink, based on the assumption of low ounces of powder per drink when the equipment is first purchased.
"What a buyer tastes in a tasting," one retailer said, "is not necessarily the amount of powder used in the RFP [a supplier's request for proposal]."
Energy Drink Sales Continue to Grow
Now the second largest non-alcoholic beverage segment in convenience stores, energy drinks continue to represent a huge opportunity for c-store operators, as sales in the segment are expected by several forecasters to grow 80 percent to 90 percent over the next five years.
Indeed, energy drinks currently contribute nearly 60 percent of the overall packaged beverage category's growth in c-stores, according to Guy Wootton, director of category insights for Red Bull North America, one of the sponsors of the CSNews Beverage Retailing Summit.
Beyond consistent growth, the energy drink segment is attractive for c-store operators for a number of other reasons: its gross margins are higher in c-stores than in supermarkets (44 percent vs. 34 percent); the subcategory is highly incremental; energy drink customers (56 percent) purchase additional products; and energy drinks have low household penetration.
"Just 17 percent of the U.S. population drinks energy drinks, so there is definitely room for growth," Wootton said during his Summit presentation. Comparatively, 75 percent of the U.S. population drinks carbonated soft drinks (CSDs) and 64 percent drink bottled water.
"At the same time, the consumer base of adult beverage drinkers is expanding and the Hispanic population, a core energy drink demographic, is forecast to grow 16 percent in the next five years," Wootton told attendees of the CSNews Beverage Retailing Summit.
What's more, energy drink consumers shop multiple beverage categories, he noted, and are the most likely to buy other beverages â 99 percent of energy drink buyers also buy CSDs; 89 percent buy single-serve juices; and 88 percent buy bottled water.