The cold vault is overrun with new products and traditional favorites. Chains can’t afford to waste cooler space on brands that don’t sell.
By Howard Riell, Associate Editor.
Water continues to briskly flow into and out of convenience stores. It’s bottled, it’s branded, it’s often flavored and, increasingly, it’s infused with ingredients that are good for you. The key for retailers is to cut through the clutter and put together the most profitable set possible.
Kent Couch, operator of two Stop and Go Mini Marts in Bend, Ore., acknowledges that the proliferation of new bottled waters had become confusing. “I think they’re kind of on the decline right now. I think it probably peaked, in my opinion.”
Couch said this category presents one of the dilemmas that he and other c-store retailers face. “You can sell low-price water that doesn’t have a popular brand name for as little as 35 cents for 20-ounce bottles, but when you stack it up alongside a national brand it won’t sell. So for us, in our markets of operation, we pretty much go with the brands that dominate market share.”
To effectively identify the leading brands in your market, successful operators recommend trusting your scan data and asking your wholesaler for velocity reports to find out what they are moving.
“I think you have to first rely on your scan data,” said Russ Kidd, category manager for Circle K. “You look at all your movement on each of those different packages, whether it’s private label or a national brand. Then see how those items are moving; they will normally be good.”
Once that is done, Kidd suggested, management should move on to the newer items. “That would be all the enhanced waters—the vitaminwater and SoBe Lifewater segment—and then any of your flavored waters, and see how those are doing,” he said. “Also, look at any news that’s out there as far as the marketplace. If you have room in your cooler based on supply or turns you can say, ‘OK, I’m either going to try something new and add to the category or, as in most cases, just stick with what I’ve got.’ That’s the process you would go through, but you always keep your eyes open for new and exciting items.”
When it comes to the bottled water segment, Kidd’s eye is currently on a new item: TriPharma LLC’s SoLeau, which is marketed as the world’s first weight-loss water (it contains a proprietary, patented and clinically tested ingredient that can regulate the hormones leptin and adiponectin).
“It’s a functional water that has ingredients to help regulate the leptin levels in your body, which cause you to lose or gain weight,” Kidd said. “This one’s pretty exciting for me. As far as adding anything, that’s the only new item I have for 2011.”
Circle K’s two-door bottled water set typically carries around 30 SKUs, including Nestlé’s regional brands, Coca-Cola’s Dasani, and Pepsi’s Aquafina and Smart Water, “which has done extremely well the last 12 months, as has Perrier’s line of flavored sparkling waters,” Kidd said.
Couch, of Stop and Go, said he believes the category has reached a benchmark of sorts. “What’s interesting about water is that it is almost priced the same as soda nowadays, without all the sugars and special treatment. We still only make 35% on a bottle of water,” Couch said. “It’s interesting how somebody can go in and just fill up a bottle with water, whether it’s purified or however they want to process it, then turn around and sell it at almost as high a price as a carbonated beverage.”
Couch begins stocking bottled water in the first door of his cold vault. “What we have found by doing this is that the penny profit is not as great as, say, a bottle of Gatorade.”
Stop and Go Mini Mart offers shoppers high-, medium- and low-priced waters. “So what we will do is take a high-end product like Evian because people want to pay for high end. It doesn’t deserve that many facings, but we offer it. Then we offer a mid-grade, which is where probably 95% of our market is. Then we have a lower tier just to try and pick up some profit. We don’t mark our low tier that low because it doesn’t seem to matter; it doesn’t sell well, but we can make 55% on it.”
In all, Couch devotes a pair of doors to waters in his units, which he conceded is overkill. He uses no displays outside the cooler because, he said, people won’t buy warm water. He theorized that the category has dipped for a couple of reasons.
“For one there is a big push on eliminating plastic,” he said. “In our state particularly they’re trying to outlaw bottled water in plastic containers. Portland, which is 150 miles away from us, is trying to outlaw it completely. No. 2 is the state of the economy. People are more likely to use the tap instead of buying a bottle of water.”
Going forward, Couch is waiting to see what happens with the category. “We’re probably going to sit on it for now. We’re just waiting to see what trends come out in the future. It’s a good market, it’s just not growing.”
Cutting down to one door is a possibility at Stop and Go Couch added, as is putting additional emphasis on gallon water, with which he has had “some pretty good success,” Couch said. “We make pretty near double the profit on it.”
Private label waters have had what Kidd called a “big, big” impact. Interestingly, Circle K does not yet carry a private label entrant. “I was in charge of looking into that this year for the company. I was very intrigued. We could have brought it in and we could have made a lot of money off of it. We chose to wait another year. I think that there is a big upside in private label water, and as the U.S. starts to come out of the recession, or so they say, bottled water is actually starting to gain some momentum again.”
Kidd pointed out that, from a private label perspective, the U.S. has taken a big step toward consuming more of such items, not only in water, but in other segments as well.
“The recession shouldn’t slow private label either,” Kidd said. “The folks who traded down to a private label to save some money—even though the recession is starting to ease—are still buying in that particular segment because they are thinking, ‘Hey, I’ve tried it, it’s cheaper and it’s good, so why should I buy a more expensive brand of some other water when I can buy a private label water for less?’”
Stop and Go Mini Mart has not ventured into private label, although Couch has considered doing so many times. “People want the brand names and that’s my biggest obstacle,” Couch said. “You can force them into private label through pricing, but putting your private label at the best price and increasing the price of branded waters is risky.”