Cold Vault Forum Reveals Shifts In C-Stores

The times they are a-changin’ for the convenience channel. Speaking at CSP Magazine’s Cold Vault Forum in Chicago last month, Wells Fargo Securities analyst Bonnie Herzog presented the latest news on shifting consumer trends and offered predictions which suggest hope is on the horizon for retailers looking towards upcoming innovations to reinvigorate declining sales.

“Most retailers commented on their frustrations with weak traffic and the resulting deceleration of the overall beverage category growth,” Herzog wrote in the Wells Fargo equity research newsletter. “While no perfect explanation for the softness was identified, several noted the poor weather during the summer as a key reason whereas several others indicated a lack of innovation in the category could be to blame. Overall, retailers are desperate for innovation to improve traffic with one retailer stressing, ‘manufacturers need to bring real innovation, not imitation!’”

Among new products, retailer polling conducted by Wells Fargo Securities suggest the recently reformulated Coke Zero Sugar is expected to perform strongly. According to Herzog, the new branding and approach to the Coca-Cola Zero line, particularly its slim can packaging, polled strongly with retailers. She predicted the line could bring growth back to Coca-Cola’s diet CSD portfolio.

Meanwhile, carbonated soft drinks (CSD), which remain the top selling overall beverage category with $80.5 billion in annual sales, has experienced a steady decline since 2005, with sales down a total of 1.6 percent since 2003. In contrast, sales of the second largest category, bottled water, have shot up by 9 percent to $23.3 billion annually in the same period, while the energy drink category has enjoyed a 20.2 percent sales leap in the same period, now worth $12.2 billion.

Energy drinks will continue to “improve sequentially,” Herzog said, while noting that Anheuser-Busch InBev’s recent acquisition of HiBall, which markets a range of caffeinated beverages, could signify the coming of the first serious contender brand in quite a long time to challenge Red Bull and Monster.

But it’s the alternative products such a cold brew coffee, cold-pressed juice, kombucha, and yerba mate drinks that have many retailers excited, Herzog reported. Many of the retailers polled stated they intend to soon allocate more shelf space to those emerging categories.

Macro changes outside of the beverage sector are altering the playing field for c-stores as well. While weather is an factor, e-commerce and in particular Amazon’s purchase of Whole Foods remains a “wild card” for the future of convenience sales, Herzog wrote. Walmart is also dipping its toes deeper into online sales with its “Click & Connect” pickup service now available in more than 100 markets. Dollar stores are growing rapidly with Dollar General, which set to have opened up 1,000 new stores by the end of the year. Challenges from e-commerce, dollar stores, and grocery, along with increased promos in non-convenience retailers, continue to pose the biggest long term challenges.