In the latest convenience store survey report by Wells Fargo Securities, analyst Bonnie Herzog writes that Memorial Day “kicks off the peak beverage selling season.” If that’s truly the case, most of the beverage industry will be pleased to know that the peak selling season started off with a bang.
Through a survey of beverage retailers represents tens of thousands of convenience store locations across the U.S., Wells Fargo found that beverage sales in convenience stores increased by 4 percent for Memorial Day this year, compared to a 2 percent increase in 2013. And the two key factors to this growth bring us to an occasionally maddening truth of the merchant: some things are in our hands, others elude our control.
“The largest contributors to this growth,” Herzog writes, “were improved weather conditions and heavy promotions (particularly multi-purchase promos).”
It worked out for retailers this year, as nearly 80 percent of the survey’s respondents indicated that they believe beverage sales during the holiday were better than the previous year. Herzog writes that at this point in the second quarter, beverage sales are up by 4 percent, “lapping” the 1 percent growth in the same quarter last year.
Let it Shine, Let it Shine
While the weather during last year’s Memorial Day weekend recalled The Epic of Gilgamesh, major American cities experienced higher temperatures and less rain across the board.
One retailer said: “Calling for upper 80’s. No rain — that alone will make a big difference.”
Considering the importance of holiday weekends and their relation to annual beverage sales, Wells Fargo tracked the average temperatures and precipitation levels from Memorial Day weekends 2014 and 2013 across 15 major cities. Aside from Denver, every city tracked had improved weather, Herzog writes. The temperatures in major cities increased by 9 percent from 2013 to 2014, and 20 percent of the cities experienced rain compared to 53 percent last year.
As a result, two-thirds of the survey respondents said that the weather is having a positive impact on sales in the second quarter.
“Must Buy” Promotions
Based on survey results, Herzog thinks promotions increased by 5.4 percent year-over-year during the holiday, representing a greater push from the 4.6 percent increase during the same holiday weekend last year. Two-thirds of survey respondents said that promotions increased year-over-year for the holiday.
The survey asked retailers to rank the most heavily promoted beverage categories on a scale of 7 (most heavily promoted) to 1 (least promoted). Colas topped the list with an average rank of 5.4, followed by energy drinks at 5.1.
When it comes to cola promotions, no company has topped Coca-Cola, which Herzog writes has been the most promotional brand in the convenience channel. That’s especially accurate when it comes to multi-purchase offers. Perhaps by no coincidence, Coca-Cola had the most successful holiday by topping its peers with a 2 percent increase in sales, compared to 1 percent growth for Pepsi and Dr Pepper Snapple (DPS).
One survey respondent said: “Nearly every packaged size of cola has had a ‘2-for’ deal running all year, led in particular by [Coke].”
As a result of what another retailer termed as “must buy” pricing, Herzog believes that the immediate gains may require some long term adjustments.
“We believe [Coke’s] increased promotional activity should help continue to drive volumes ahead of its peers,” Herzog writes. “However, we continue to question whether it’s in the company’s best interest to maintain aggressive promos over the long term.”
Retailers have noticed Coke’s aggressive promotional strategy and have responded with a prediction on pricing. 35 percent of survey respondents said they expect Coke to raise prices over the balance of 2014. 16 percent said the same for PepsiCo, 10 percent for DPS. Herzog writes that Coke’s “savvy” pricing strategy has allowed it to seize market share despite a still difficult CSD climate. She writes that pricing adjustments could drive revenues for the rest of 2014.
Apropos to Something
One retailer said that Gatorade is driving Pepsi’s growth. Another said that Gatorade continues to grow by double digits and its new 28 oz. bottle “has not missed a beat.”
A variety of retailers mentioned the strong consumer response of Mountain Dew’s latest line extension, Baja Blast. The limited-release beverage, formerly a Taco Bell-only product, has performed “very, very well,” according to one retailer and has “caught consumer attention,” according to another.
Two-thirds of retailers said that Monster Energy was the most promotional beverage in the energy drink category.
A retailer said that, compared to the convenience channel, the grocery channel can offer lower price points with multi-purchase promotions (10 for $10, for example). The retailer argues that the pricing competition has led to weaker sales of 2-liter colas in convenience. “This is causing a reduction on one of the few packages that the c-store used to be able to count on for sales and profits. Not anymore.”
On the “must buy” pricing from Coke and Pepsi, one retailer said the cola giants are “protecting some gross profit, but [not necessarily] leading to increased sales dollars or case volume.”
In case you thought the calorie-cutting trend of the beverage industry is nothing but a fat joke, consider the words of this retailer, who said: “Low-calorie and no-calorie line extensions continue to dominate all category growth. Nothing full flavor is growing currently.”