Wells Fargo: C-Store Survey Shows Strong Start to Q2

Bolstered by warm weather, a good economy and the Fourth of July holiday, convenience retailers enjoyed a strong start to the summer season as overall total beverage sales increased 4.8% in the second quarter, according to the latest “Beverage Buzz” survey of c-store retailers by Wells Fargo Securities.

Wells Fargo analysts reached out to several retailers who represent more than 15,000 convenience stores nationwide for their insights on beverage sales in Q2 of 2019. According to analyst Bonnie Herzog, overall feedback was “upbeat.” Retailers said they expect total beverage sales to grow “a robust” 4.2% in 2019, up from expectations of 3.2% growth in the first quarter.

According to the report, July Fourth beverage sales were up an estimated 6.1% as the American Automobile Association (AAA) estimated holiday travel was at its highest since 2000 with about 41.4 million Americans on the road over the long weekend. Retailers told Wells Fargo they expect summer traffic to be up “a brisk” 3.3% this year — slightly below last year’s 3.9% growth but well above 2017’s mild increase of 1.7%.

With VPX Pharmaceuticals’ fitness energy drink Bang continuing its months-long streak of triple-digit growth across all channels, convenience retailers said they expect the energy category to grow 7.8% in 2019, up from a 6% outlook in the first quarter. Energy sales over July Fourth were up 10.1%, with emerging brands (including Bang) expected to grow 11.8% this year. With energy on the rise, retailers have increased shelf space allocation for the category to 32% of total shelf and cooler space, up from 17% three years ago.

In part due to the early performance of its Bang competitor Reign, retailers are also becoming more optimistic about Monster, projecting 4.8% growth this year. According to Wells Fargo, Reign “appears to be dampening some of Bang’s momentum” with 20% of retailers reporting a deceleration in sales since Reign’s spring launch.

Red Bull is expected to grow 6% this year, while Rockstar showed low 1.3% growth expectations. Retailers said it is too early to tell how the Keurig Dr Pepper (KDP) aligned Adrenaline Shoc, another fitness energy brand launched in Q2, will perform; none of the retailers surveyed said they currently carry the line.

“[Adrenaline Shoc is] another sports energy drink that will most likely source all of its volume from existing items on our shelf today,” one retailer told Wells Fargo. “Lots of manufacturers are trying to imitate the success of Bang.”

Retailers estimated that sales of Coke brands grew 2.4% in Q2, versus 2.2% growth in Q1. The company’s decision to purchase distribution rights to sports drink BodyArmor has resulted in strong growth for the brand, retailers said, with some reporting that it “is trending well and his bit into Gatorade.”

“BodyArmor is the greatest brand that they have and I hope they do not kill it like they have destroyed Zico, Honest, Smartwater and Vitaminwater,” one retailer said.

Other retailers noted that Coke was “more proactive” in promoting summer events and store tie-ins in Q2, while others expressed hope that the company would release its Coke Energy line — currently slated for an international rollout — in the U.S. later this year.

Conversely, retailers said sales of PepsiCo beverages were up “a very modest” 0.4%, down from 1.2% growth in Q1. New innovations, such as Gatorade Zero, have performed well according to retailers, with several saying they were looking forward to the launch of Gatorade Bolt24.

However, PepsiCo has suffered in other categories. Starbucks “is doing well,” one retailer said, but independent brand Kitu Super Coffee has begun to cut into its sales. Sixty percent of retailers said they are not seeing improvements in PepsiCo sales despite increased advertising and investment spend by the company.

KDP sales were up 1.3% in Q2, up slightly from 1.2% growth in Q1. However, sales have decelerated from 3.3% growth in Q4 of 2018 and retailers said the company’s loss of Fiji and BodyArmor has hurt sales. Despite the muted growth, some retailers were excited about KDP’s ready-to-drink coffee plays, including “great innovations” from the FORTO and Peet’s brands.

“KDP seems to be in a stall,” one retailer said. “They are shifting folks trying to maximize and gain synergy to recoup the investment made.”