As convenience stores alter the contents of their shelves, a growing number of emerging beverage brands envision opportunity in this channel, which boasts more than 150,000 stores in the U.S. alone.
Doug Christoph, CMO of Drink Blocks and a longtime marketing executive with MillerCoors and The Coca-Cola Company, understands the promise of the channel from about 20 years of industry experience. So he was ready at the National Association of Convenience Stores (NACS) show in Las Vegas last week when buyers swarmed the Drink Blocks booth to study the stevia-sweetened kids drink, which comes in a building-block packaging.
It wasn’t just the U.S., he said: they were from all over, from Brazil and Canada, Australia, Spain and Mexico. The widespread interest left Christoph in amazement, saying bluntly: what a show!
“I’ve never seen anybody hungrier for innovation,” he said of the channel’s buyers.
Convenience stores are actively engaged in the development of store shelves and they’re searching for innovation at places like the NACS show. The convention gives a platform for newer outfits such as Drink Blocks and other emerging brands to strut their stuff and begin lining up distribution deals. While five years ago it might have seemed silly to consider heaps of innovative entrants in the channel, these days, creative entrepreneurs want to solidify their place. This helps explain why more natural consumer-focused brands like Thirsty Buddha Coconut Water, Mamma Chia, or Sambazon were sharing the floor with Monster, Red Bull, Coca-Cola and PepsiCo.
Drink Blocks has been on the market for about two months, but the company is planning for national distribution in 2015. The company hopes for a quick spread, heavily focused on the trial-heavy nature of the convenience store channel. To help, it has production lined up through co-packers in Indiana, Texas, South Carolina, New York, Arizona and Oregon, the company hopes.
Still, to fill the channel, Christoph said that the company will need to regroup and prioritize market demands that have surfaced from the show and through its early test runs. Another priority is gathering the necessary capital to fund a business with a heavy dependence on the convenience store channel. To this point, Drinks Blocks has been funded solely through friends and family. That capital is running low, he said. While the convenience channel has expressed a willingness to test beverage innovation, Christoph said that investors have taken a different stance. While Drink Blocks is in final discussions with an investor, he said, he’s still not sure that investors will play along considering the high cost of entering the channel.
“The traditional investment community hasn’t really embraced it,” Christoph said. “Everybody wants to see the same thing — six months in the market, $6 million worth [of sales]. So you’ve either got to go to crowdfunding or find other private equity sources.”
The NACS Show featured another kids beverage with interactive packaging, Good2Grow, which remains privately-owned. Carl Sweat, the former CEO of FRS and the CMO of In Zone Brands, the company that markets Good2Grow, said that he’s in no hurry to raise more capital. Instead, the brand is building out its marketing and innovation as it continues to strengthen its presence in the convenience store channel, which accounts for about half of its business.
Good2Grow has recorded growth rates of about 40 to 50 percent in the past year at retailers such as QuikTrip, Casey’s, Sheetz and Wawa, he said. Yet Sweat believes that the brand’s upcoming product releases could boost an already hefty presence in the channel. At the beginning of 2015, Good2Grow will launch its Juicy Waters collection — a stevia-sweetened alternative to juice. In the spring of 2015, the brand will launch a water infused with electrolytes.
“Kids don’t like plain water,” said Katie Bennett, brand marketing manager.
The beverages, which are sold on the razor-and-cartridge model of replaceable bottles with savable licensed bottle top heads (Hello Kitty, Ninja Turtles, Spongebob, etc.) have a suggested retail price of $2.99 and a production cost of $1.66. Sweat said that this margin of 44 percent has been quite attractive to convenience-store buyers, especially considering the multiple uses of the product (beverage, dishwasher-safe sippy cup, toy). This multiplicity can fit naturally with the grab-and-go environment of convenience store purchases. He said that after the parent pumps gas and buys a bottle of Good2Grow, kids stay plenty busy in the back of the car with their new toy.
“We call it 20 minutes of peace and quiet for mom,” Sweat said.
Sambazon also offers versatility in its product usage, and that can be found not just through its diverse ingredient list, but also through its varied offerings. One would expect a brand like Sambazon to display its range of acai products at a show like Expo West, which has a reputation of housing experimental products. However, NACS is new turf for Sambazon, which hasn’t yet entered the convenience store channel.
Still testing the waters, Sambazon displayed a collection of products at its booth — from Blended Breakfast, its meal replacement product made with strawberry, banana, chia and ancient grains, to its kale and ginger Supergreens beverage, to its frozen Acai bowls. The brand sampled only a handful of products, though, and its energy drinks sat at the front of the booth. The 12 oz. cans, which have a suggested retail price of $1.99 to $2.49, contain caffeine from organic yerba maté, green tea and guaraná, along with antioxidants from the acai berry and acerola cherry.
“We primarily wanted to show this as an alternative to Red Bull,” said Peter Wilson, executive VP of sales.
Thirsty Buddha, a Montreal-based coconut water brand, is also outwardly positioning itself against the competition, namely, Zico, O.N.E. and Vita Coco, the last of which highlighted its lemonade product at the show. On the contrary, Thirsty Buddha almost exclusively markets the natural flavors of coconut water and not additional flavors, which are often used as “on-ramps” to the core brands by companies reaching out to new consumers. Thirsty Buddha, in contrast, offers one mango SKU and the rest are either with- or without-pulp.
Mark Cigos, co-founder, said that Thirsty Buddha has cemented itself as the top-selling coconut water in Canada’s gas and convenience chains including Petro-Canada, Mac’s and 7-Eleven. But even with the firm footing in the Canadian market, it can’t compare to the volume of the U.S. The brand began distributing on this side of the border about eight months ago at Ralphs Supermarkets in Southern California and H-E-B in Texas.
“H-E-B alone can do what five retailers in Canada can do,” Cigos said.
Channel-driven and hoping to replicate his Canadian convenience store success, Cigos wants to identify underdeveloped markets like Texas to prove that there’s room for another coconut water brand in the mainstream. He mentioned Florida, Illinois and Massachusetts and discussed category consolidation, which he said is already happening in Canada.
Cigos said that the brand can distance itself from the current category leaders with its packaging, sold in cans and Tetra Paks that don a praying Buddha you just want to hold. Thirsty Buddha also participates in the One Percent for the Planet initiative, the global movement that draws 1 percent of revenues for environmental organizations. He added that the price point, $2.59 for a 520 mL can, complies with the channel. Consumers are willing to spend a bit more for quality, he said, and that sentiment now extends to convenience stores. Buyers are taking notice. Brands are moving in.
“I think people are open to seeing what else is out there,” Cigos said.
That’s also the belief at natural channel stalwart Mamma Chia, which used the show to test its viability in the channel.
Hidden away in the Advantage Sales and Marketing brokerage hive, Matt Buckley, the head of sales for Mamma Chia, was looking to a changing consumer set to drive the market for products with similar outlooks.
“Look, the millennial is changing the whole world,” Buckley said of the massive generation. “In the convenience channel, if they don’t address their priorities [like health and wellness], it’s going to be hard for the stores.”
Even so, it’s a slow build, and despite the fact that some buyers were seeking out the brand, he said that smaller companies like Mamma Chia need to be careful when trying to get into convenience stores.
“They’ve got to be in the right areas,” he said, “and not even necessarily chain-wide.”
BevNET editor-in-chief Jeffrey Klineman contributed to this report.