Weak C-store Traffic Hits Non-Alcoholic Beverage Sales

NEW YORK — A decrease in in-store traffic is beginning to take its toll in the cold vault, according to a new survey by Wells Fargo Securities LLC.

Its second-quarter Beverage Buzz found that non-alcoholic beverage sales were up but only 2.4 percent as several large retailers reported "traffic issues," as "gas volume is up, but there are fewer visits inside the store," driving a "reduction of in-store traffic without understanding why," said Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities.

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

On the other hand, alcoholic beverages were up nearly 5 percent, led by an 8-percent growth in Constellation Brands' beers, she added.

"Overall we have concerns about recent c-store traffic as comments from our retailer contacts and PepsiCo Inc.'s management on its second-quarter call suggest c-store sales have slumped," Herzog said. "However, long-term we believe this channel represents a significant opportunity for beverage manufacturers, and are encouraged by strong sales trajectory of several categories and manufacturers."

Looking at manufacturers, Herzog estimated that Monster Beverage Corp.'s convenience channel sales were up only about 3 percent in the second quarter with survey respondents only projecting less than 5 percent for the company for the year.

Dr Pepper Snapple Group saw "a solid second quarter" in the convenience channel with sales up 2.4 percent, Herzog said, adding the beverage company is "well positioned ahead of second-quarter earnings based on its allied brands."

However, Wells Fargo Securities has concerns about Bai Brand's long-term trajectory, as surveyed retailers are only projecting 10-percent growth for the brand this year, well below management's target of 40 percent to 50 percent. Dr. Pepper Snapple took a stake in Bai Brands in April 2015.

According to Beverage Buzz, The Coca-Cola Co. took share from PepsiCo in the CSD segment but lost share in water. Overall, Herzog said, retailers reported Coca-Cola sales were up 1.7 percent for the quarter on the back.

On the alcoholic beverage side of the cold vault, Beverage Buzz retailers "continue to see consumers trading up to premium brands in all categories," which is driving strong sales growth in all of Constellation Brands' brands, she said.

Retailers project 7.8-percent sales growth for the Constellation Brands in the second quarter and also continue to expect the company's brands to gain shelf and cooler space this year and more space next year as well, Herzog added.