Water is vital to sustain any life, whether it be that of a human, an animal or a beverage category. Despite a furious wave of new item introductions in every beverage sub-category, consumers always seem to return to their colorless, odorless and tasteless master.
"Our total water category from prior year is up 18%," says Paul Grammer, president of Fastop Inc. (Jasper, IN), which does business as Circle A Food Marts and operates 11 stores. "Water as a whole is our top category. It doesn't matter whose water it is."Since that's the case, Grammer and his colleagues decided to sell private label "Circle A Food Marts' water, through a Michigan-based company called (appropriately) Private Label. The private label water is about 20% cheaper for the consumer, he says, and margins are 43%compared to about 35% to 38% on branded water.
"It's more upfront money because you're getting a truckload all at one time," Grammer says. "But it's more profitable and it helps distinguish us from some of the other players in the area because it's marketing, too. We hand out our own water when we do promotions."
Hoping for a repeat
Circle A Food Mart stores sell the Dasani and Aquafina lines, plus the private-label water and one or two regional brands.
"The Diet Cherry Vanilla Dr Pepper did very well. I think Dr Pepper set the precedent on a diet soda being a drinkable product."
-Paul Grammer, President, Fastop, Inc., Jasper, IN
"Part of our growth in the water category comes from Dasani splitting into flavored waters," Grammer says. "Pepsi has also done the same thing to their Aquafina lineup. Plus, the margins are decent for flavored water. They've kept a margin for us. The flavored waters were dropped to 79′ to introduce them, and then you hope for repeat business after the price goes up. And it's worked."
Keeping the peace
Not surprisingly, Grammer says that keeping both Coke and Pepsi happy is one of the toughest parts about managing the beverage category.
"Both companies' reps are great people, but sometimes it can be a little like dealing with children," he jokes. "It's give and take' on some stuff because you can't give to one and not the other. What normally happens is that I give one of them a nod on the carbonated drinks and the other would get the nod for the non-carbonated beverages. It's pretty equal."
Pepsi gets "the nod" on carbonated beverages in Grammer's stores for two reasons: It has a stronger brand presence in Circle A's trading area, and it has the No. 1 SKU in the beverage categorythe Mountain Dew 20-oz. bottle. Coke gets the nod on non-carbonated drinks because (surprisingly) Powerade dominates Gatorade in Grammer's stores and because Pepsi doesn't offer DSD for Gatorade in Circle A's region.
"Powerade is a lot bigger in our area," Grammer says, "mostly because Powerade is good about putting something on special every single month."Powerade, Grammer says, is also leading the charge on introducing new flavors to the market.
"They've probably added five flavors in the last six to eight months," he says. "Everyone tries them. Some stick and some don't, but they get a little growth out of it because we usually keep them in the cooler."
Depending on store size, Circle A Food Marts can have anywhere from six to 11 cooler doors. No matter how many doors a store has, however, two shelves are always dedicated to new product offerings.
"We can have up to 18 new products in at any given time," Grammer says. "Or we can just have nine and double face them. It changes the cooler each time so it draws more attention to the cooler itself, which is a good thing."
In addition to space in the cooler, all new products win a two-week stay at an ice barrel near the checkstand along with signage on the front door to generate awareness.
"We judge a new product by product-movement reports that we generate ourselves from our scanning data," Grammer says. "We usually don't judge by cases. Instead, if it doesn't have to be picked up because it's out of date, we usually keep it and work it into the set. If [vendors] have to pick it up, that's a real good indication that it's not selling."
But with so many new products clogging up the pipeline, keeping most of them in the set can cause havoc with a planogram. "It's tough to manage the category," Grammer says. "When new stuff comes in, some other stuff has to go. Recently, we had to cut back on duplicate juices. For instance, we may only carry two kinds of apple juice instead of three."
Divide and conquer
Another growth area in Grammer's beverage category is no surpise, given its track record of stellar growth over the past few years: diet soft drinks."The diets are up about 6% to 8%," he says. "The regular drinks are about flat to up 1%. Things have evolved to the point where, instead of dividing our cooler doors by brand, we divide by category. Regulars' have one area and Diets' have their own door. Some of the soft drink companies have pushed for this, and it's paid off for us. We're riding their coattails because they're spending a lot of money to promote their diet products."
More often, Grammer sees diet sodas beating out their regular counterpart.
"The Cherry Vanilla Dr Pepper didn't do well on regular," Grammer says. "But the diet side of it did. I think Dr Pepper set the precedent on a diet soda being a drinkable product."
Likewise, Grammer views energy drinks as "sales caffeine" for the beverage category.
"The energy drinks continue to pick up," he says. "Red Bull has been eight ounces, but what's coming out soon are 16-oz. cans. It's only a matter of time until it's out in a bottle."
The success of diet and energy drinks in the carbonated segment doesn't always translate to isotonics or juices in Grammer's stores."The diet lemonades and juices have gotten more creative, but they haven't caught on as well as the standard items," he says. "We've dedicated space to them and they sell, but we don't see the growth that we were expecting."
Still, overall, Grammer looks at beverages and sees a healthy category with lots of new product innovation.
"Overall, beverages are up about 15%," he says. "Each [segment] contributes to that, but our main growth seems to be in water. I never would have believed that people would pay $1 for water, but it's there. Our category is healthy at the moment. The average [packaged beverage] margin at our stores is about 25%, and that includes take-home and cold."