C-Store Survey: Coke, Monster Spur Incremental Growth

Respectable growth from The Coca-Cola Company and Monster Energy Corp. helped non-alcoholic beverage sales in C-stores rise 3.4 percent in Q1 despite poor weather, according to a survey of over 15,000 retailers conducted by Wells Fargo Securities.

Boosted by growth in single-serve products, Coca-Cola enjoyed a 2.3 percent increase in sales in Q1, according to the survey. Reports of worse service in re-franchised Coke bottlers were down 15 percent from the previous quarter; meanwhile, retailers expressed relative optimism about the company’s recent relaunch of Diet Coke; 20 percent of respondents are planning to allocate incremental shelf space to the line.

“Good flavor profiles, but still likely to be at least somewhat hampered by overall “Diet Coke” negative trends,” commented one retailer. Another retailer noted that Coke had made a strategic error in taking Smartwater “out of a beautiful sealed box with blue clouds,” hurting stores’ ability to create displays. In the face of competition from “new premium waters” Essentia and Core, said the retailer, “Coke commoditized SmartWater and hurt the brand.”

Monster Energy, in which Coke holds an 18.1 percent stake, saw sales increase 5.4 percent in Q1, with several retailers hailing the positive impact of the brand’s ready-to-drink (RTD) coffee innovations, such as Espresso and Caffe. Fifty-seven percent of respondents said Monster did the best job in introducing new innovations in Q1, with 100 percent expecting to give Caffe Monster shelf space. Respondents also indicated that inventory issues that hampered the Java Monster line are steadily declining, with 86 percent of retailers reporting that those problems are now resolved.

After seeing sales jump 5 percent in Q1, retailers are also projecting further growth for Monster Hydro, an energy water released last year after several production delays. However, retailers now expect Hydro sales to increase 7 percent in 2018, approximately half of the 14.3 percent growth initially expected in the Q4 2017 survey.

Despite some negative headlines earlier this year, Monster is now projected to grow 7.4 percent in 2018, up from an estimate of 6.8 percent in Q4 2017. The energy category is expected to grow 6.8 percent in C-stores this year.

PepsiCo sales were relatively flat for Q1 2018, increasing just 1.4 percent, but a sequential improvement from -0.7 percent in Q4 2017. In their comments, retailers were divided on the company’s prospects for the year, mainly due to the discrepancies in performance amongst its portfolio brands.

Retailers cited Starbucks, LIFE WTR and the newly introduced sparkling water line Bubly as broadly positive performers for PepsiCo. “Starbucks, LifeWtr, and Bubly should all do well,” commented one retailer. “I have cut in Bubly into the sets already and it seems to have an interest out of the gate. I think it is their most favorable new innovation in quite some time,” said another. Over 40 percent are expecting Bubly to be incremental to Pepsi sales.

However, surveyed retailers were less enthusiastic about Pepsi brands Gatorade and Mountain Dew. Several noted that bad weather hurt sales of the former in Q1, on top of pressure from sports drink rival BodyArmor and premium water brands. “BodyArmor continues to have the largest impact on Gatorade sales. This combined with a shift in the female and millennial consumer drinking more water and teas,” read a comment from one respondent. Another predicted “no improvement in near future” for the sports drink. Meanwhile, multiple retailers noted PepsiCo’s “lack of marketing” behind Mountain Dew as an issue in the past quarter.

In the months following the announcement of its $18.7 billion merger with Keurig Green Mountain in January, Dr Pepper Snapple (DPS) saw C-stores sales increase 2.7 percent, according to the survey. Retailers did not expect the merger, which is expected to close at the end of Q2, to have a major impact on their businesses; only 9 percent of respondents plan to begin selling Keurig K-Cup Pods, with 26 percent indicating interest in stocking RTD coffee products from Peet’s, which is owned by Keurig Green Mountain parent company JAB Holding Company.

As evidenced by its impact on sports drink category leader Gatorade, BodyArmor was cited by respondents as a growth driver within the DPS allied brand portfolio. The report notes that 93 percent of retailers expect the brand to grow faster in 2018 — around 38.5 percent — than in the previous year. Responding to Wells Fargo’s prediction that BodyArmor will be increasingly competitive to other sports drinks, 79 percent of retailers said they agreed. “Body Armor’s continued innovation and additions to 28oz line up will position them to have continued positive growth in 2018 and 2019,” read one comment. Retailers also bumped up their sales growth expectations for 2018 for Core Water, up to 36.2 percent from 14.6 percent in Q4 2017.

Retailers were less bullish on two other DPS allied brands, Bai and High Brew Coffee. In the Q4 2017 surgery, antioxidant drink maker Bai, which was acquired by DPS in late 2016 for $1.7 billion, was projected to grow 10.3 percent; in Q1 2018, retailers are now estimating 8 percent growth. Perhaps more concerning, shelf space for Bai is expected to increase just 4 percent this year, down from an estimated 43 percent increase in Q3 2017.

High Brew Coffee, meanwhile, has seen a striking turn in retailers’ sales growth expectations. When surveyed in Q4 2017, respondents expected sales of the brand to grow around 7.9 percent in 2018; now, those same retailers are expecting a -23.8 percent drop for the year.

C-store retailers were also invited shared their thoughts on any trends or developments in the beverage industry that have either positively or negatively impacted results in Q1 2018. Several respondents cited premium water brands Essentia and Core, along with sparkling water company Spindrift, as fast growing brands with more runway ahead, while one noted that Ore.-based kombucha makers Brew Dr. and Humm are “ready to break out in 2018.”