The convenience channel began to see early signs of inflationary strain on consumer spending during Q1, according to the latest Beverage Bytes survey from Goldman Sachs Equity Research.
According to the report, based on feedback from retailers representing nearly 42,000 c-stores around the country, beverage sales rose sequentially during the first quarter of the year, outperforming Q4 2021, but nearly 40% of retailers said they were now more negative in their outlook for the rest of the year (up from 14% in Q4). Additionally, a majority of retailers said they expect more price increases to come this year, with some predicting three to four more rounds of price hikes by the end of 2022.
“Overall, retailers are seeing some impact on consumer spending from higher gas prices and broader inflationary pressures, which are driving softer unit growth in some stores,” the report stated. “Notably, one retailer noted that they saw a slow down in March across all beverage categories. Further some retailers noted that even though the supply chain has improved from a manufacturing standpoint, they are continuing to see challenges in trucking and staffing (both with distributors and retailers) making it difficult to get product on the shelves.”
Total beverage sales in the convenience channel rose 10% in Q1, with foot traffic rising 8% as consumers continue to normalize their routines and shopping habits. Retailers projected around 8% total beverage sales growth for 2022 and store traffic growth of about 6%.
Supply Chain Improves as Inflation Spikes
According to the report, many retailers said “the supply chain situation is getting stronger by the day” and stock levels have nearly recovered to where they were pre-pandemic. About 33% of retailers remained positive in their outlook for beverage sales in 2022 (down from about 40% in the Q3 and Q4 surveys) with optimism stemming from strength in consumption trends.
However, out of stocks continue to be an issue as nearly every respondent said they had experienced supply issues during Q1. In particular, shortages from Red Bull and PepsiCo products were common across retailers. Despite the ongoing stock issues, the number of retailers reporting “significant” problems fell to about 30%, compared to 47% in Q4. About 53% of respondents said the situation has improved since last year, while 20% said it has gotten worse.
With supply chain disruptions expected to continue for the foreseeable future, every retailer surveyed by Goldman said they anticipate more price increases in 2022 from beverage manufacturers. Inflationary pressures for beverage companies are expected to increase by about 14% this year, and some retailers said they’ve heard a second round of price increases is slated for June.
Innovation, Energy Provide Optimism
Some retailers said they are also seeing a rebound in alcoholic beverage sales, while energy drinks lead non-alcoholic growth fueled by brands like Celsius and C4.
Innovation across categories has been another source for positive outlook from many retailers. Products such as Monster Energy Co.’s True North energy seltzer, Starbucks’ BAYA Energy, and Ghost Energy were among the most cited energy innovations by retailers, while Super Coffee’s Tasty Pastry flavors, better-for-you products from Gatorade, Minute Maid Agua Frescas and Coke’s new limited edition flavors were also praised by survey respondents.
Energy drink sales rose 9% in Q1, below 15% for Q4 but still strong as the category laps strong 15% growth in Q1 2021.
“Overall, retailers believe that the energy drink category continues to perform well, and is one of the key drivers of total beverages (along with bottled water and RTD coffee),” the report stated. “Some retailers believe that sales growth is likely being driven in part by retail price increases as manufacturers resort to pricing to offset higher manufacturing and transportation costs and supply shortages. Further, some retailers indicated that they continue to face inconsistent supply – indicating that sales growth would likely have been much stronger absent the supply challenges. Finally, one retailer highlighted that the category growth has slowed a bit due to the return of more pre-COVID traffic patterns as well as less disposable income for their lower income based demographics.”