Wells Fargo: C-Store Sales Could Provide Significant Boost for Beverage Companies in 2013

C-store sales could provide a significant boost for beverage companies in 2013, according to a survey conducted by Wells Fargo, a financial services company that provides market research.

Wells Fargo surveyed beverage retailers representing more than 10,000 C-store locations across the U.S. to analyze trends in the non-alcoholic beverage industry during last year’s final quarter. The survey indicated that while year-to-year sales of non-alcoholic beverages decreased from the third quarter (7 percent) to the fourth quarter (5 percent) of 2012, the category still showed encouraging growth.

The survey found that 85 percent of retailers indicated year-to-year sales growth of non-alcoholic beverages in last year’s fourth quarter. That followed a third quarter in which 92 percent of retailers indicated growth.

“Given the sluggish trends we have seen in the take-home channel scanner data for the past few quarters, we think C-store sales could provide a needed boost to drive beverage companies’ top-line results,” Wells Fargo wrote.

The survey also found that 85 percent of C-store retailers indicated they believe that manufacturers took additional pricing in last year’s third and fourth quarters. Wells Fargo estimates that beverage manufacturers took a 2-to-2.5 percent price increase during the fourth quarter, compared to 2.5-to-3 percent in the third quarter.

The growth in C-store sales could very well be spearheaded by Coca-Cola, which accelerated sales in the fourth quarter to 4.2 percent, according to Wells Fargo estimates. The survey found that the average retail price for Coca-Cola products increased 1.4 percent year-to-year in the fourth quarter, compared to 1.1 percent growth in the third quarter, and the company’s year-to-year volume increased to 2.8 percent, compared to 1.3 percent growth in the third quarter.

“If [Coca-Cola] can continue to navigate this challenging macro backdrop and meet long-term targets, we think multiple expansion is justified,” Wells Fargo wrote.

While not as significant as Coca-Cola’s growth, the other major players of the CSD category should be encouraged by fourth quarter results, Wells Fargo noted. The Dr Pepper Snapple Group increased volume by 0.3 percent and sales by 2 percent, driven by a 1.7 percent increase in the average retail price, compared to a 0.8 percent increase in the third quarter.

“While DPS’s overall trends appear somewhat sluggish, we are encouraged by accelerating pricing trends which should more than offset volume weakness in the future.”

Meanwhile, the survey estimates that PespsiCo’s C-store sales increased 3.3 percent, driven by an estimated year-to-year volume increase of 2.2 percent and an average retail price increase of 1.3 percent.

Yet despite all the good news for CSD makers, a leading energy drink company seems to be trending downward. Perhaps in reaction to the combative nature of legislators and the press, Monster Energy’s sales decelerated in the fourth quarter with flat pricing. Monster products increased around 11 percent year-to-year in the fourth quarter, down from 15 percent in the previous quarter. Wells Fargo also estimates that the year-to-year average net retail price for Monster beverage products slightly decreased.

Even with Monster’s deceleration, retailers believe that the energy drink category remains strong. Wells Fargo found that 92 percent of C-Store retailers suggested that the recent media coverage regarding the safety of energy drinks “was a mere sensation and was unable to restrict the growth of energy drinks.”

“Most retailers continue to predict double-digit growth in the energy drink category over the next few years,” Wells Fargo wrote. “We continue to believe that growth of energy drinks will surpass CSD growth in the near future.”