Consumer demand may be solid, but supply chain disruptions continue to challenge the convenience channel, according to the Q4 ‘Beverage Bytes’ survey of retailers by Goldman Sachs Equity Research.
The survey, constructed from feedback from retailers representing nearly 40,000 U.S. retail locations (or about 27% of the convenience channel), revealed that overall beverage sales rose 8% year-over-year in Q4 2021, with strong 15% growth in the energy drink category. In particular, established leading brands like Monster and Red Bull continued to fuel energy drink growth despite an influx of new brands in the space.
Looking ahead, retailers are predicting beverage sales will remain strong this year as foot traffic continues to recover from the pandemic, projecting about 7% dollar sales growth.
What’s the State of Supply and Demand?
Out-of-stocks across all areas of the beverage set are providing strong headwinds for retailers, and the supply issue is being compounded by labor shortages, trucking and manufacturing disruptions, as well as uncertainty around the omicron COVID variant. While retailer sentiment was similar to Goldman’s Q3 Beverage Bytes survey – about 40% of retailers said they are positive on the beverage category – those on the fence have turned more negative. About 14% of retailers said they had a negative outlook on beverage sales in 2022 (compared to 0% negative in Q3). In particular, manufacturer price hikes are starting to impact unit volumes.
Forty-seven percent of retailers in the latest survey said they had faced “significant” out-of-stocks in Q4, down from 83% in the Q3 survey. However, 53% said they had still experienced “some stock-outs,” up from just 17% in Q3. Thirty-nine percent said the situation had improved, 38% said it was unchanged, and 23% said it has deteriorated.
It’s not all negative, however. The report noted that many retailers are “encouraged by the resilience of the beverage consumer” and said demand is rising despite anxiety around omicron. Many retailers said they’re seeing an increase in consumer trip frequency (traffic rose 7% compared to being flat in Q3) and noted that growth in non-alc beverages has been driven by CSDs, bottled water and sports drinks. COVID is even fueling some sales spikes, as the disease’s symptoms “positively impacted the water and isotonics categories.”
Overall, beverage sales rose 9% for 2021, beating expectations of 8% growth in Goldman’s Q3 survey, and consumer traffic was up 5% . Some retailers said sales were impacted by the return of the on-premise channel, but that beverage sales were “invariably tied to improvement in consumer traffic.”
What Do Retailers Think About Innovation?
One other place for optimism was in beverage innovation. Retailers said they felt innovation had been “muted” over the past two years due to the pandemic, but are now again seeing exciting new products that are generating pull-through and believe consumers will become more “experimental” this year and more willing to try new products.
In particular, retailers cited launches such as Red Bull Summer Editions, PepsiCo’s forthcoming Starbucks Baya Energy and Monster’s Aussie Lemonade and Ultra Peechy Keen SKUs as some of the more successful new products in energy drinks, alongside newer entrants in the set like Ghost Energy, G Fuel, C4 and Alani Nu. Many retailers were also hopeful about ZOA, which recently announced two new SKUs, and said the brand was performing well. But some respondents were still skeptical about the Dwayne Johnson/Molson Coors-backed brand and said they were concerned about its go-to-market strategy.
Ready-to-drink coffee is another place where retailers felt positive (the category grew 20.1% last year), noting that brands like Black Rifle helped to fuel growth. Meanwhile, flavor extensions are helping push sales for CSDs while better-for-you brands like Poppi are beginning to emerge in the space.
How is Alcohol Performing?Retailers expect the hard seltzer category to increase 10% year-over-year in 2022, but are also expecting shakeout to hit the category as growth decelerates amid over-saturation. For more on the alcohol segment in convenience, read Brewbound’s coverage of this survey here.