Managing the Crowded Cold Vault

When it comes to packaged beverages, what gets put on the shelves may not be what customers are looking for and, in this economy, that’s a situation retailers must avoid. Making wise, informed buying decisions is the crucial difference between boosting cooler sales and blowing a lot of hot air.

From colas to energy drinks, bottled and infused waters, juices, teas and more, the list of products vying for shelf space is expanding, but the coolers themselves are not. That means it’s time for some hard decisions. Making them can be both an art and science.

“The first lens we use in selecting our product assortment is customer demand,” said Phil Smallwood, category manager for packaged beverages for 1,200-store ARCO ampm in Chicago. “We give the customers what they want by making product assortment decisions using our own market-level scan data.”

The next criterion is the use of market-level syndicated data to validate product assortment decisions and identify products that may not be in ampm’s own scan data bank. “Lastly, we evaluate new items and select products that will resonate with our customers and add incremental sales and gross profit dollars for our stores,” Smallwood said.

Gather Relevant Sales Data
Vendors, suppliers and manufactures remain an additional resource that the operator uses to make product assortment decisions. “We rely heavily on our vendors to provide us with keen insights on what is happening with the consumer, as well as the dynamics taking place in any given market area,” Smallwood said.

When it comes to planogramming, Smallwood explained, the customer is once again the primary lens that management uses in setting cooler allocations. Making it as easy as possible for customers to find their product is the primary goal. “We believe this is essential in keeping consumers loyal to our stores and growing sales,” he said. “A lot of analysis on space allocation based on subcategory sales as well as emerging and declining trends goes into the decision-making process.”

The cold vault is probably the hardest category to manage just because you need the refrigeration and have a limited amount of space in which to manage it, said Michael Zielinski, president of Royal Buying Group Inc. (RBG), a marketing association for convenience store and petroleum operators and jobbers that represents almost 6,000 members in all 50 states.

“What we try and do is planogram about 80% of the cooler. That final 20% is a retailer’s choice, but it can be for new product introductions. Really, the way it works is you have your staples out there, plus you’re looking at your sales reports and working with your supplier,” Zielinski said. “If he is introducing a lot of new products, the next question out of mouths usually is, ‘what products are these replacing?’ or ‘what products do you have on the horizon to eliminate?’”

Paring the selection is a collaborative effort “between us and that supplier to determine which products are coming in and which are going out,” Zielinski said. “When a new product gains traction and reorders begin coming in, that’s when we’ll go back to the supplier. If it is one that is already planogrammed, we work with them to decide what’s going to go. The big issue there is do we reduce some products with multiple facings to bring this one in? Or do they already know there are some items they’re thinking of getting rid of, which will open some longterm space?”

There is typically an overlap in time, so it could end up staying in that 20% space longer than necessary. In such cases, RBG has also used coolers, barrels and other merchandising aids for additional space.

“I don’t go for fads,” said Kim Robello, marketing manager for Minit Stop Convenience Stores in Kihei, Hawaii. “I don’t like the flash-in-the-pan items, so I stay away from those things. I just stock tried-and-true items. We give the top three vendors x-amount of real estate, and then the store governs it from there according to product movement.”

Minit operates 11 stores, three on the Big Island and eight on Maui. Cooler doors for roughly 100 SKUs of packaged beverages range from three to seven.

Robello said he sees energy drinks continuing to be a strong growing segment. “On the carbonated side, when you look at the diet offers and the low-calorie offers, those tend to be doing well, as well,” he said. “Infused waters have made their way into the cooler in a lot bigger way than before. The number of pure juice SKUs is also down.”

Make Room for New Products
Products like Muscle Milk and Myoplex are garnering more attention at Minit despite their higher retail price points—$4 to $4.49 for  10- to 12-ounce packages, Robello reported. “When it first came out I thought, ‘this is ridiculous, I don’t think people are going to buy this.’ All of a sudden they’re all in the fray right now. They’re getting half to maybe a full shelf of space, but it’s something that all of a sudden is something to look at. I don’t’ think it’s setting anything on fire, but it does move off the shelf,” he said.

Corporate acquisitions also impact shelf facings. “When Coca-Cola purchased Glacéau vitamin Water, you knew that volume was going to come up because just filling the pipeline drives volume for them,” Robello said. “And then of course they associate all their programs with it.”

There remains no shortage of innovation within the category. “As health and functional benefits become more important to consumers, we will see new products targeting consumer demand,” Smallwood said.

Ampm carries about 250 SKUs behind four to 12 cooler doors. “Depending on store size, we generally have displays for 12-packs, two-liter bottles, take-home cases of bottled water and a floor cooler for single-serve products,” Smallwood said.

Ready-to-drink teas and enhanced waters were the two emerging trends over the last several years, according to Smallwood. For the tea business, ampm allocated about 75% more space for the subcategory. Soft drinks took the primary hit in space. Space more than doubled for enhanced waters at the expense of sport drinks.

“Now more than ever with the economy, health consciousness and the demand for value, consumers are changing their purchase behaviors,” Smallwood noted. “I anticipate we will continue to see the growth on products that provide perceived health and functional benefits. I also think value will be top on the mind of consumers in making purchase decisions.”

New product introductions have been increasing of late, but have dipped this year due to the economy.

“The consumer has retracted to brands he is familiar with, and he is not as willing to spend money on an item he doesn’t know. There are new products coming out, don’t get me wrong. It’s just I don’t think we’re seeing hundreds of them,” Zielinski said.

A Shot of Energy
Energy shots remain hot, but some retailers no longer count them as part of the packaged beverage category, Zielinski noted. “We’re starting to hear NACS is actually going to classify it as HBC or something,” he said. “Those have been very popular up at the register. Obviously, 5-Hour Energy owns it, but Red Bull and Monster have made a play for some of that space, too.”

For a while tea sales were sagging and retailers were not sure the category would survive in the competitive cold vault
, but now they’re doing better, Royal Buying Group numbers show.

“Juices are not doing as well, but you never know,” Zielinski said. “They may have a package change or some new promotional that could stimulate the category again because it does have a loyal following.”

Waters appear, ironically, to be saturated. “I don’t know if people necessarily want to carry six different waters, so they have to be careful there. It’s just a big amount of sales so you can’t say it’s not enormously profitable,” Zielinski said. “I’ll just say it’s slowly declining.” CSD

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