With carbonated drink sales fizzing, ready-to-drink teas are satisfying customers’ thirst and c-store sales.
By Howard Riell, Associate Editor
As soft drink sales decline, customers continue to turn to iced teas and non-carbonated fruit beverages for healthful refreshment and exciting new tastes.
Ready-to-drink (RTD) teas continue to lead growth among packaged beverages, something demographic findings indicate should continue. For convenience stores, the mission is clear: provide the variety that consumers insist on—paying close attention to demographics, lifestyle differences and consumer preferences on a store-by-store basis—and market them aggressively.
One of this year’s top “emerging trends” identified by Chicago-based foodservice research and consulting firm Technomic Inc. is a preference for specialty teas and lemonade-and-iced-tea blends.
For the 52 weeks ended June 15, 2014, sales of ready-to-drink canned and bottled teas in the convenience store channel rose 4.3% to nearly $1.3 billion, according to IRI, a Chicago-based market research firm. During the same period, sales of shelf-stable bottled juices rose by 0.3%, topping $1.4 billion.
Refrigerated teas rose 3.9% to more than $193 million.
Niche beverages—energy, RTD teas, RTD coffees—are outperforming mass market categories like carbonated soft drinks, fruit beverages and dairy. Gary Hemphill, managing director of research for the Beverage Marketing Corp. (BMC), based in New York, said herbal ingredients are helping shift consumer preferences.
“The general trend is toward healthier refreshment,” Hemphill said.
Indeed, his company’s research shows overall year-to-year ready-to-drink tea sales grew by 0.4% in 2013, while fruit beverages fell by 1.9%. Though carbonated soft drinks led the liquid refreshment beverage category in 2013, they continued to lose both volume (3.2%) and market share (from 44% to less than 43%), according to the BMC.
New products, brands and line extensions are key drivers in nearly every product segment, and teas are no exception. Leading category players like the Arizona Beverage Co., Unilever, Dr. Pepper Snapple Group and Nestle SA now contend with market upstarts, which, as noted by research publisher IBISWorld, has caused market share among the top four to decline over the past five years.
Demand for healthier beverages is helping drive retail tea sales, and should continue to spur growth, at least through 2018, according to Mintel.
The relatively recent addition of kombucha teas on store shelves has helped strengthen health claims. By presenting tea as a good-for-you beverage, ready-to-drink tea sales stand to benefit from all-day consumption cycles without consumers sacrificing their seemingly insatiable thirst for variety.
Such growth hinges on new product innovation, as well as adding new tea drinkers. To maintain that expected growth, there will be a need for continued aggressive marketing that highlights not just health benefits, but new dayparts/usage occasions and locations.
FINGER ON THE PULSE
The ready-to-drink tea segment stands to gain as well from the continued growth of multi-cultural populations, specifically Hispanic and Asian, which demographers expect should outpace other segments over the next few years. As Mintel researchers point out, the Asian and Hispanic populations are slated to grow the fastest among ethnic groups.
“The category continues to evolve, and stores need to adapt their sets,” said Ed Hong, vice president of retail operations for Clipper Petroleum of Flowery Branch, Ga. “At the end of the day, the key to growth is having good relationships with our supplier partners and executing at the store level. Soft drink sales have certainly softened in our stores, but are still significant.”
Clipper operates 28 convenience stores in Georgia and South Carolina featuring the On the Run, Circle M and Subway brands, and distributes fuel to independent dealers in both states. His stores have also seen continued growth in waters and isotonics from health-conscious consumers, and energy drinks from the Millennials.
“We definitely are seeing more and more allocation toward the noncarbs for sure,” said Hong. Keeping a finger at all times on the pulse of consumer demand is also critical, he added.
“I think the biggest piece is making sure there is communication at the store level and to the suppliers,” Hong said. “It’s not perfect all the time, obviously, but you’ve got so many moving parts to it, so many people involved in it, that you have to make sure everybody is on the same page.”
Management, Hong explained, continually assesses its sets in an effort to meet consumers’ changing needs.
“It’s a matter of tweaking here and there,” Hong said. “There is a lot of variety out there obviously, so while carbonated soft drinks are definitely getting soft, they are still a major component of our overall category sales.”
Offering as many options as possible will continue to be a staple of Clipper’s approach.
“You definitely need to have the variety in there,” Hong said. “In some cases we have added more space or coolers. We haven’t taken anything away from the beer category, but we have the capacity to add front-loading coolers and not clutter stores. We have actually done that to accommodate more variety.”
Clipper has experienced success with two-for-one promotions, especially with waters and isotonics.
“We have not seen the growth in tea that some others have seen,” said Hong, “so we’re probably a little bit below the industry as far as that goes.”
TEA IT UP
Presently, teas—in various forms—are an important segment in most regions.
“We have rural and urban stores, so we get a little bit different perspectives,” said Chris Smyly, director of marketing for Pester Marketing and Alta Convenience Stores in Denver. The 57-store chain operates in New Mexico, Colorado, Kansas and Nebraska, both in urban and small town locations. But the differences in customer preferences in packaged beverages are major. “We have 57 stores and 50 different planograms.”
In rural locations, for example, customers seem to prefer lower-priced teas in larger packages, while urban consumers like more exclusive brands.
“For instance, in Denver we sell more of the trendy, selective kind of teas. I can get away with very high-end tea there,” Smyly said. “If you take that high-end tea out to rural Kansas they just look at you.”
According to Mintel, men aged 18-34 are more likely to purchase RTD tea, including full- and reduced-calorie single-serving and multiple-serving tea products.
Vendor input in designing those planograms helps find the right balance, Smyly added, varying from store to store.
“We don’t just say, across the board, ‘Everybody gets this.’ Kansas is different than Colorado, like night and day, so what sells in one doesn’t always sell in the other,” Smyly said. “We work with our vendor partners and also within our contracts to get the right product into the right places.”
The amount of square feet allotted to teas also varies, with some stores giving it almost a full door. Pester resets twice a year, in the summer and winter.
“We take our scan data, as others do, and cull the herd, basically,” Smyly said. “If it doesn’t move over the six months we’re looking at, that’s when we go out and start looking at what else is available and what we can get. The fruit beverages are probably not as big for us as they are for some others, but of course tea is.”
The strength of the tea category should continue to please convenience store operators, who are always thirsty to take advantage and profit from the marketplace’s evolving lifestyle choices.