With CSDs seeking to reclaim ground in the packaged beverage category, teas, energy and craft products are eying new opportunity in the convenience channel.
By D. Gail Fleenor, Contributing Editor
Current lower pump prices are bringing more shoppers inside the store and the pack- aged beverage category is benefiting. However, that ice-cold beverage may be something besides soda, from juice to tea, energy drinks to craft carbonated drinks.
Regular carbonated soft drinks (CSDs) are taking a hit in sales due to health concerns. Many retailers are cutting CSD space, adding some of the myriad of new drinks with “healthier” profiles to achieve stronger beverage sales.
At the NACS Show last month, manufacturers introduced products, which included very few CSDs. PepsiCo introduced its new 1893-brand craft sodas. Coca-Cola added Minute Maid Sparkling Juices, new flavors of PowerAde and Sprite Tropical. New waters, teas and energy drinks were on full display at the annual show, but CSDs didn’t sparkle as much as years past—reflective perhaps of the crowded category landscape that’s dotted by new beverage brands and product lines.
POP ART
For many consumers, a visit to a c-store usually includes filling the car and grabbing a soda from the cooler.
The days when huge areas in stores were dedicated to CSDs are slowly changing as sales have declined. Most retailers are cutting some of this space in favor of products that are bringing in more dollars. “We have remerchandised each of our packaged beverage coolers over the last three months, beginning in July,” said Richie Rodgers, director of marketing for Kent Cos.
Based in Midland, Texas, Kent operates 40 Kent Kwik stores in the western part of the Lone Star State.
“We decided to change things up a little,” Rodgers said, noting that CSD sales remained soft. The company has expanded space for tea, protein and energy drinks while shrinking CSD space as sales drop. “We changed the category mix so we can push other beverages like tea and juices more,” he said. In the October 2015 release of third quarter earnings, PepsiCo reported a 1.9% decline in CSD sales offset by an almost 10% increase in non-carbonated beverages.
Diet CSDs have dropped for the company by an average of 6.5%. These numbers represent the change in consumer behavior and are not unusual in the industry.
Diet Coke has declined by 7% while Coke’s low-calorie Coca-Cola Zero is up 6% in sales. To keep revenue flowing, both PepsiCo and Coca-Cola have increased pricing.
To combat the drop in diet soda sales, CSD manufacturers are changing sweeteners in diet drinks. While consumers are questioning the safety of the current additives, many say they are unhappy with the change in taste.
Shifts in CSD sales reflect consumer distaste of ingredients like high fructose corn syrup and artificial sweeteners.
John McQuaid, author of Tasty: The Art and Science of What We Eat, believes the decline in soda sales is driven by fear, much like cigarettes, and points out that in the U.S., it’s the younger consumers who are switching to energy drinks and bottled water, and in large numbers.
SHOWING MORE ENERGY
So, what do consumers continue to seek out in packaged beverages?
Graham C-Stores serves the Lake County area of Illinois, outside of Chicago, with 25 locations.
At Graham C-Stores, functional and infused sports drinks are adding sales for the retailer. Thomas Williamson, buyer for the 25-store chain, said the company is experimenting with several options in this line.
“We see it as a new, emerging category in packaged beverages,” he said. Two new additions at Graham stores: Minneapolis-based Body Armor Premium Sports Drink, infused with coconut water and vitamins, and Whitestone, N.Y.-based Nature’s Fury NutriDrink with fruit juice, electrolytes and vitamins. Williamson noted that these drinks are targeting the PowerAde/Gatorade market.
Energy drinks are maintaining sales strength. “We are still seeing growth in energy drinks,” Williamson said. Graham has added a new line of energy drinks, Aspire Calorie Burning Drink which, he said, is popular with female customers and also appeals to Red Bull fans.
TEA IF YOU PLEASE
Ready-to-drink teas (RTD) are also gaining ground. The core brands of ready-to-drink teas are the most popular at Graham Convenience Stores.
“Arizona is the leader for us,” Williamson said. “Lipton Brisk is also popular at 99 cents for one-liter— a good value for the size.” He noted that the relaunched Nestea line-up from Nestlé Waters is also a good customer draw.
Consumers were asked what the ideal ready to drink tea would be, in Mintel’s July 2015 RTD survey. Consumers chose “single-serve, lightly sweetened, traditionally flavored (or unflavored), with added vitamins and natural claims.” The research firm said RTDs that offer these features can “appeal to a wide audience.”
“Juices and fruit drinks are falling into the ‘watch out category’ because the No. 1 thing customers are trying to cut down on now is sugar,” according to Darren Seifer, food and beverage industry analyst for Port Washington, N.Y.-based NPD Group. Graham’s Thomas Williamson noted that juices tend to be flat in sales at his stores. The exception is Naked Juice, which seems to appeal to a specific section of his customers.
CONTINUING CHANGES
The CSD segment is expected to continue its decline, according to a June 2015 CSD report by research company Mintel with diet CSDs showing the largest drop. The category is forecast to fall 1.3 % from 2015-2020 to
$35.6 billion as negative diet sales over- shadow any gains regular CSDs sales might make. Mintel’s report states that many consumers are looking for a “healthier beverage experience.”
For late fall 2015 and on into 2016, NPD forecasts that the trend toward more natural beverages and decline of CSDs, in particular diet sodas, will continue. NPD does not forecast an increase in sales of fruit juices and drinks due to consumer concern over sugar content. Consumers weren’t aware of sugar content in some beverages, Seifer said, until campaigns alerted them.
“Overall, many consumers are concerned about chemicals and preservatives in food and drinks,” Seifer said. “As a result, manufacturers are putting real sugar into drinks to replace high fructose corn syrup. Consumers are gravitating toward natural and organic beverages with less artificial ingredients.”
Kent’s Rodgers said he expects to continue to see soft or declining sales of CSDs and continued growth of teas and specialty beverages such as craft sodas. Craft and natural CSDs are beginning to pique the interest of consumers, Mintel’s report said, but sales are too small at present to predict future growth.
The main reasons some consumers are not trying craft CSDs are unfa- miliarity and higher prices. However, consumption of natural, craft and naturally-sweetened CSDs have grown this year versus 2014.
For late fall, Graham’s Williamson said he expects some growth in CSDs in 16-ounce cans and bottles. “If they introduce different sizes of CSDs, there will be a little action.” However, he plans to continue to dedicate “a little more space” to the water, tea and energy set where sales have been growing.