This Time, CSDs Drive Industry Sales in C-Stores

wells fargo logoNon-alcoholic beverage sales in convenience stores increased by 6.2 percent year-over-year in the third quarter of 2014. While much of the industry’s strength in the channel can be attributed to sequential improvements by energy drinks and teas, let’s not forget about carbonated soft drinks (CSDs).

In a survey of beverage retailers from more than 15,000 convenience stores across the U.S., Bonnie Herzog, the managing director of beverage, tobacco and consumer research for Wells Fargo Securities, found that the CSD category recorded its first positive quarter in the survey in more than two years.

“The majority of our contracts suggested that [The Coca-Cola Co.’s] ‘Share a Coke’ promo was having a favorable impact on sales, which we believe contributed to solid Q3 results,” Herzog wrote.

The promotional campaign allows consumers to design a bottle or can of Coke with a personalized name as the package’s centerpiece. Buoyed by the campaign, Wells Fargo estimates that Coke’s average retail price increased by 1.1 percent year-over-year and volumes increased by 2.7 percent year-over-year during the quarter. This compares favorably to the same period last year, when Coke saw 0.9 percent growth in volume and 0.6 percent growth in pricing. Meanwhile, Wells Fargo estimates that Pepsi volumes were up by 1.8 percent with average retail prices up by 0.4 percent year-over-year, and retail prices and volume from Dr Pepper Snapple Group increased by 0.4 percent.

“[Coke] continues to outpace its peers in terms of price realization, which we believe should continue to help support top-line growth,” Herzog wrote.

The survey indicates that Monster Energy still anchors the energy drink category in the convenience store channel through a variety of factors. Wells Fargo estimates that Monster’s volume in the channel increased by 9 percent in the third quarter of 2014, and its net retail pricing grew by 1 percent. The brand increased its promotional activity by 4.4 percent, and it continues to reap the profits of recent innovation, including Monster Ultra Black and Monster Ultra Sunrise. One major retailer said that Monster has seen more than 30 percent incremental sales growth for Ultra products. Other retailers are finding success by merchandising Monster products outside of energy drink shelves.

“I love the Monster-ization of other categories!!” a retailer said.

The strongest categories have been waters, teas and energy drinks, the last of which saw a sales bump of approximately 10 percent during the quarter, according to the survey. Iced teas and bottled water were up mid- to high-single digits in the quarter. Retailers expect these categories and sports drinks to register sold mid-single-digit growth in 2014.

One retailer said: “carbonated soft drinks, sports drinks and energy drinks all up over 12 percent in sales.”

A few other retailer quotes worth chewing on:

  • “We have a nice push with energy and sparkling water. CSDs are flat to a little up and holding their own. AriZona tea 23.5 oz. cans continue to be the number one SKU in our stores.”

  • “Favorable weather the most of August and all of September played a major role in our beverage sales 3rd qtr.”

  • “The energy drink category is maturing, but there is still room for modest 1 to 5 percent growth annually over the next several years as core consumers get older, and new consumers enter into this category.”

  • “[Monster] Sunrise & Unleaded will do well and extend the brand into other day-parts and occasions. Should be positive for the category and cold vault sales particularly.”

  • “With CSDs continuing to decline year after year, I find it difficult to accept price increases, which usually hit us after the Super Bowl. All big three soda companies continue to raise costs which hurt overall sales in the category. Consumers have many other beverage options today.”