C-Store Survey: Retailers Optimistic Despite Slow Q4

While poor weather conditions led to a slower fourth quarter for convenience stores last year, total beverage sales grew 2.9 percent and retailers are optimistic for strong growth throughout 2019, according to the latest “Beverage Buzz” survey of c-store retailers by Wells Fargo Securities.

Wells Fargo analysts reached out to multiple retailers who represent roughly 23,000 convenience stores nationwide requesting their thoughts and comments on beverage sales trends in Q4 of 2018.

According to the report, retailers anticipate total beverage sales to increase 3.7 percent this year, with ready-to-drink coffee, energy drinks, and import beer among the fastest growing categories. Both RTD coffee and energy are expected to grow 7.8 percent, while import beer is projected to rise 8.2 percent.

The Coca-Cola Company saw mixed results in the quarter, with sales up a “somewhat muted” 2.5 percent, a significant deceleration from 4.6 percent growth in Q3. Wells Fargo blamed the decline on recent pricing decisions, which led to a decrease in volume. However, the company’s evolving product portfolio, particularly its purchase of a majority stake in sports drink brand BODYARMOR, has retailers excited for future growth.

PepsiCo was down by 0.7 percent, compared to a “very solid” 2.8 percent growth in Q3. In particular, Gatorade is “in large trouble” as BODYARMOR continues its momentum, according to some retailers polled.

“Pepsi continues to hang their hat on CSDs, a weak Pure Leaf line up, a water no longer holding its own and a unusual marriage to Rockstar that is anemic at best,” one retailer wrote. “They should reduce their ask in CSD space, increase tea space to allow for more Brisk flavors, get out of the energy business and use this space to increase Propel and Starbucks.”

Keurig Dr Pepper (KDP) reported 3.3 percent dollar sales growth, down from 4.8 percent growth in Q3. However, retailers said they were “disappointed” in the company’s execution and its “hit-or-miss communication,” with some retailers reporting they have lost contact with the company’s sales representatives. The loss of allied brands Fiji and BodyArmor also impacted the company’s sales, but FORTO and CORE Water have so far proved to be valuable brands.

“KDP has made a major step backwards,” one retailer said. “They have always had inefficiencies and it has gotten worse.”

In energy, sales of Monster were up 7.3 percent in c-stores, but retailers forecast only 6.1 percent growth for the brand this year, with a price increase pushing consumers toward other brands, according to the report. Sixty percent of retailers said they have seen an acceleration in Red Bull volume and sales since the change. Monster is also facing increased competition from fitness energy brand Bang, which 90 percent of retailers said they either currently carry or plan to carry. Retailers were split on Bang’s potential to eat away from Monster’s market share, with some saying they believed it was complementary, while others expressed concern Monster sales could decline and that its own fitness energy line, Reign, is “too little too late.” Notably, 25 percent of retailers said Monster has increased promos to offset its price increase. Forty-five percent of retailers said they have seen a de-acceleration in Monster’s volume growth.

Retailers are optimistic about the innovation pipeline for both Monster and Red Bull, and said the rise of brands like Bang and Celsius are large drivers for the category’s strong 2019 growth projection.

In coffee, 31 percent of retailers said they had heard about plans that Coke might bring Costa Coffee to the U.S., following its $5.1 billion purchase of the European company last year. Thought he company has made no announcements of plans to begin importing the brand — which does not currently have an RTD product — only 29 percent said they would stock the brand if it did. Survey respondents also noted that cold brew coffee is gaining popularity, and that Coke’s partnerships with Dunkin’ and McCafe have driven growth in the category.

Retailers remain largely optimistic about the prospects for cannabidiol (CBD) beverages, which saw a rush of innovation last year from established and startup brands, but a lack of legal clarity for the ingredient has now led to some skepticism. The survey showed 94 percent of retailers said they expected CBD to be a “big opportunity” and 86 percent said they plan to carry CBD products, a decrease from 100 percent of retailers saying “yes” to both questions in Wells Fargo’s Q3 2018 survey. Retailers told Wells Fargo that even with the passage of the U.S. Farm Bill, “many states are not on board and are preventing wholesalers from carrying the product.”

Others were concerned with the actual products, criticizing flavor profiles as “not very good” and calling the packaging for many CBD brands “over the top.” At least one retailer, however, said they “suspect similar trends to vaping” for CBD’s growth potential in food and beverage.