New products and core beverages will always drive cold vault sales. Retailers have to know how to market them effectively to maximize profitability.
By Howard Riell, Associate Editor.
Bottled water sales continue to rise steadily, which is good news for overall packaged beverage sales in convenience stores.
NACS reported recently that in the wake of mostly flat sales during the previous 12 months, bottled water sales are on the upswing once again. Behind the rise was the growing popularity of both sparkling and enhanced waters. Private-label is the category’s top seller, with approximately 16% of market share, according to SymphonyIRI. And, research firm Mintel International said last year it believes bottled water sales should increase by a whopping 39% from 2010 levels by 2015.
“The market for single-serve bottled water continues to grow, but the greatest growth is coming at the low-end of the market, especially private label,” reported Gary Hemphill, senior vice president of Beverage Marketing Corp. in New York City. Water’s benefits, however, transcend SKU classification. “Bottled water remains a great choice for consumers seeking healthy refreshment.”
Bottled water often retails between $1.19 and $1.39, and has a high gross margin. It is little wonder that c-store operators are bulking up their order sizes and SKU counts.
Bottled water sales actually started to slack off last year, according to Kent Couch, operator of Stop and Go Mini Marts in Bend, Ore., but have roared back as customers look for healthier alternatives in the cold vault.
“We have seen a renewed growth in the category,” Couch noted. “It had leveled off pretty good there for a while because a lot of people seemed to be drinking tap water due to the economy. But the price for a bottle of water is pretty affordable and folks are spending again.
Couch changed his store’s bottled water set last spring in response to market changes, he recalled, reducing the size of his fountain operation. “We had a 12-foot fountain layout, and we cut it down to eight feet and put bottled water in right next to it. We offer free water on the fountain, but that’s not what a lot of people are looking for.”
The beverage SKUs have continued to expand at Stop and Go as well. Couch has added another four feet of water and branded the section to attract on-the-go customers.
“The result has been a boost in sales and an increase on margins,” he said. “We’re running at right around 36%.”
New brands don’t hold the allure for Couch that they do for other c-store retailers, and for a very practical reason.
“Our market is primarily a Pepsi market,” he explained. “If we go specific with the Pepsi contract we get better pricing, so we’re doing that. We’re on a Pepsi program that gives us good rebates off of water sales and an overall better profit.”
Merchandising water near the soda fountain has helped improve sales because the bottles are more visible. “Our fountain is a destination and a focal point for us, so anytime we start to merchandise items around the fountain we see tend to get a sharp boost in sales,” he said.
Couch looks for a continued rise in sales within the bottled water category, but nothing especially stirring.
“I think it will be a slow, but steady rise. Construction workers usually drink a lot of that water, and construction is still real low in our market,” he said. “We’re pretty much counting on tourists and on people going to work and stopping in just to pick up a bottle of water.”
On the Rebound
Bottled water sales at Miller Oil Co.’s 33 Miller Marts and Miller’s Neighborhood Markets were up last year, according to Jack Trebilcock, director of marketing and category management.
“I think it was just behind tea, which was the shining star last year. Bottled water was kind of on the rebound,” he said. “They were flat a little bit for a year or so, but came back.”
That comeback was aided mightily by the introduction last spring of a private label water brand called Miller’s, which Trebilcock said took off much better than management anticipated. Pricing was the key for the product launch. At 89 cents it is the lowest-priced water brand in the cooler.
Miller Oil has done well with flavored waters. The company expanded its partnership with Coke’s VitaminWater and Pepsi’s SoBe Life Waters.
Trebilcock also reintroduced Perrier to shore shelves. “We really had not had a sparkling water, so that was a nice hit for us,” he said. “Then we brought in Coconut Water in the summertime, which was real heavy at NACS, and it performed pretty well for us.”
The four-flavor Coconut Water line, reportedly fat-free, cholesterol-free, low in calories and filled with electrolytes, sold a couple of hundred bottles in the two months following its July launch.
For the months ahead, Miller’s is planning to expand its private label water to a new size: one liter. Management also plans to bring in Coke’s Smart Water for the first time, and for a very practical reason.
“We’re inundated with 7-Elevens here,” Trebilcock explained. “We have 400 of them in our trading area. We actually franchise two 7-Elevens, so we get a lot of data and the Smart Water brand seems to excel in 7-Elevens. It’s something
I hadn’t considered, but you have to react in this market, so we’re trying it out to see what it could do for us.”
Ongoing adjustments to the set continue. Thanks to the success Miller Marts enjoyed last year with a $3.99 20-pack of Nestlé’s Pure Life water, the brand has earned a return engagement in 2012.
“We have high expectations for the category,” Trebilcock said.
Going Green to Earn More Green
Want to sell more bottled water? More bottled anything? Then work with your suppliers to get in front of an overwhelmingly popular trend: Americans’ desire to safeguard the environment.
You won’t be alone.
Executives at several of the top beverage makers, including Nestlé Waters North America, PepsiCo, The Coca-Cola Co. and Red Bull—have said they would support legislation making producers financially responsible for collecting and recycling post-consumer beverage packaging, according to a new report from As You Sow, an advocacy group.
“The major development since our last survey has been the willingness of leading beverage companies to consider new legislative mandates requiring them to take responsibility for their post-consumer packaging,” said Conrad MacKerron, senior director of As You Sow’s Corporate Social Responsibility Program. “Many beverage and consumer packaged goods companies pay fees in other countries to finance recovery of their packaging. It’s significant that companies are finally acknowledging the need to take responsibility in the U.S. as well.”
Convenience stores can allay consumers’ fears and dismantle their resistance to buying beverages in plastic bottles. Promote suppliers’ programs—they’re sure to want to bring retailers aboard—talk about the issues, and see relieved consumers respond by buying more bottled water, or for that matter, more bottled anything.