Although a major shift is clearly underway in packaged beverage sales, Mark Twain’s famous quote, “Reports of my death have been greatly exaggerated” could easily describe the current carbonated soft drink (CSD) market. “The highest volume we sell is still CSDs, and Coke and Pepsi are still at the top of the list,” said Brad Eaton, category manager for Spinx Oil Co. (Greenville, S.C.). “It’s just that they are trending down from previous years.”
That said, CSDs have been going from fizzy to flat due in part to outspoken criticism from nutritionists. Earlier this year, beverage companies signed an agreement to sell only water, unsweetened juice and low-fat milks to elementary and middle schools, plus diet sodas to high schools, as part of a wide-ranging attempt to curtail the rise of child obesity. More recently, a state in India banned all sales of soft drinks claiming that some had been found to contain insecticide, and demanded that Coke and Pepsi reveal the ingredients their colas contain.
Though carb drinks have been losing ground to energy drinks, New Age beverages, waters and teas, revenues for industry leaders Coca-Cola and Pepsi continue to grow, fueled by sales of— what else?—energy drinks, New Age Beverages, waters and teas.
Eaton notes that in his South Carolina market, energy drinks are enjoying the biggest sales spurt.
“Everybody’s making energy drinks— Coke has several, Pepsi has several—energy seems to be the hot ticket right now,” Eaton said. “Drink manufacturershave to do something to keep breaking new ground—if they’re not gainingground on their CSD’s, they have to find alternatives.”
Divvying Up the Cooler
In the midst of all this change, how are storemanagers supposed to decide how to divvy up the cooler space to sell the bestmix of drinks?
Bob Ferraro, beverage sales manager for Altoona, Pa.-based Sheetz, said heredistributes cooler space based on unit movement throughout the store, andis currently adding space for energy, isotonic drinks and water. “We space ournon-carbs by developing templates for the number of non-carb doors each storehas,” Ferraro said. “None of our stores are adding soda doors this year—we’reonly taking them away.”
When Coke or Pepsi comes out with a new product, Ferraro compares sales estimates from his bottlers with his company’s internal reckoning before allocating space. “If we think that black cherry vanilla Coke is going to be as successful as lime Coke was, we’ll use lime’s history.”
For non-carbs, Ferraro decides space by what margin dollar per SKU his companyis making. Sheetz, which has developed its own branded energy and isotonic drinks,is seeing energy drink sales growing above what market trends show. About 30%of the space the company allocates for energy drinks goes to its own brand,as does 40% of space for water and 30% of isotonic space.
Jeff Leedy, vice president of marketing for Rutter’s Farm Stores (York, Pa.), reported that he uses his company’s internal data about which categories are growing, but likes to review the manufacturer’s market data as well. “If the new product is a line extension of a diet flavor, a flavored extension of water or an energy drink, we’re probably going to be interested,” Leedy said. However, if the product is positioned to compete against dairy lines, Rutter’s isn’t buying. The company declined Coca-Cola Slammers not only because it lacked track history, but also because carrying it would have taken shelf space away from Rutter’s Dairy products.
Customer Input Essential
Eaton said he depends a lot on market trends,but emphasizes the importance of soliciting customer feedback. “Five years ago,we’d never heard of Red Bull,” Eaton said. “The manager of a convenience storewe bought told us that Red Bull was one of his bestselling drinks. Now it’sin all our stores.”
He adds that the hottest non-carb in Spinxco stores now is water, with the popularity of vitamin-enriched and nutrientenhanced varieties like Propel growing rapidly. “I buy at least two waters per day,” Eaton said. “I don’t complain about the price of water, but I do complain about the price of gas—and we sell it!”
Leedy pointed out that some market research data is not definitive. “Propelis a very big hit today, but it didn’t do well in the test market areas,” henoted, adding that while Quaker may have sold it to distributors based on thefact that it’s a fortified flavored water and they probably didn’t tout thetest data, which wasn’t all that good. “Typically, if I’m not overwhelmed withthe product we’ll wait and see if it develops a track record in our area. Ifit does, we won’t hesitate to add it later,” Leedy said. “I ask sales reps,’How many units per store per week do you consider this product has a potentialfor?’ If their number doesn’t meet my number, I’m not interested.”
Beverage companies typically provide retailers with a lot of point-of-sale advertising supplies, which is helpful because retailers don’t have to produce POS material on their own. However, manufacturers often want to offer a new drink at an introductory price as a sort of trial for the product. The problem is, will the product that sells at $1.49 introductory price sell at $1.99 regular price? “I’m more inclined to price the product at the regular price and see if it has merit,” Leedy observed. “Testing at a lower price point and moving to a higher one isn’t valid because the parameters aren’t the same.”
Manufacturers’ Incentives Not Earning More Space
Sometimes manufacturersoffer extra cases or cash as slotting incentives to gain cooler space. Ferrarosaid that the forms incentives take depend on how their retailers go to market.”A lot of retailers have programs that require them to take new items, he noted.”None of our programming reads that way, and we have our own brands to promote,so unless other manufacturers drinks offer the right profit margin, they don’tmake the cut.”
Ferraro added that regardless of how they are presented, Sheetz always tieswhatever monetary incentives manufacturers offer back into the case cost. “Theydon’t really offer incentives that get us to do things, just a better case cost,”he says.
Rutter’s declines incentive offers from manufacturers. “When we’re judginga product, the real issue is potential sales because in the long run that’sthe only thing that matters,” Leedy said. “We’re looking at, will it sell, howmuch will it sell and do those figures meet our criteria? If they do, we takethe product. If not, we don’t—regardless of what the introductory incentivesmight be.”
Will “beautifying” drinks sell here?
If you think decisions about allocating cooler space are complicatednow, hang on to your hat—they may become a lot more so in the nearfuture.
Though Coca-Cola reps wouldn’t answer CSD‘s questions, word onthe street is that the company may begin manufacturing nutraceutical drinksas a means of boosting its share of the noncarb market. Coca-Cola, withonly 25% of the non-carb drink market to Pepsi’s 49%, and non-carb salesvolume grew by 7% during the second quarter of this year, while Pepsi’snon-carb’ sales rose by 23%.
Coca-Cola’s reported interest on nutraceuticals, which purport to improveconsumers’ appearance and health, probably stems from observing, nutraceuticals’popularity in Asia and France, where hundreds of these products targetall sorts of health issues, said Rutter Farms Marketing Vice PresidentJeff Leedy.
Leedy added that nutraceuticals are definitely niche products. “We haven’tseen any of them yet, but I know it’s coming—maybe not to the Midwest,but to areas with an ac
If drink manufacturers move in that direction, c-store owners can expecttheir drink vendors to offer drinks designed to make consumers betterlooking and healthier as well as quench their thirst.