Wells Fargo: Beverages Thrive in C-Stores on Labor Day; Pepsi Pricing Strategy Needs Work

For beverage sales in convenience stores, Labor Day was the strongest holiday weekend thus far in 2013, according to a survey conducted by Wells Fargo Securities. The survey, which represents beverage retailers from more than 10,000 C-store locations across the country, indicates that C-store beverage sales increased by 4 percent over the long weekend.

“We attribute a good portion of this improvement to better weather across the majority of the country which drove increased customer traffic,” Bonnie Herzog, Wells Fargo senior analyst, wrote in a recent report.

According to the report, the survey respondents believe that sales in the third quarter will increase by 3.1 percent compared to last year.

“As we approach the final month of [the third quarter], we are encouraged that beverage trends are picking up and by this early sign of improvement,” Herzog wrote in the report. “We are becoming increasingly optimistic about [second half] earnings for all beverage manufacturers.”

The survey found that nearly 50 percent of the respondents indicated that weather conditions improved during July and August. Only 21 percent of respondents indicated that weather was “much worse.” These figures compare favorably to Wells Fargo’s Memorial Day survey, when nearly 60 percent of respondents indicated that weather was “much worse.”

Herzog notes that promotions on Labor Day increased by 4.2 percent, according to survey respondents. During the same holiday weekend last year, respondents said that promotions increased by 2.8 percent.

On Labor Day, CSDs were the most heavily promoted category, according to the report. The survey asked retailers to rank eight beverage categories in terms of the level of promotions on Labor Day, with 8 being the most heavily promoted and 1 being the least heavily promoted. CSDs had the highest rank at 6.9, followed by energy drinks at 6.2 and enhanced waters and sports drinks at 5.1.

The CSD category’s aggressive promotion strategy was spearhead by The Coca-Cola Co., Inc., which has maintained relatively steady pricing. The same can’t be said for Pepsi. While Coke raised prices by 2 percent over July 4 and 1 percent on Labor Day, Pepsi increased prices by 10 percent over July 4 and decreased prices by 3 percent on Labor Day. Pepsi has also reduced its promotions over the holidays.

Herzog wrote that Pepsi may continue to struggle with its new pricing platform because retailers have historically sold CSDs at low prices to drive traffic.

“Without full buy-in from the majority of retailers, this will prove to be difficult to execute,” Herzog wrote. “Bottom line — [Pepsi] still has work to do to find right pricing algorithm.”