Goldman Sachs: Convenience Retailers Optimistic as Pandemic Outlook Brightens

As the pace of the vaccine rollout increases, momentum is building for beverages in the convenience channel, according to a survey of retailers conducted by Goldman Sachs Equity Research.

According to the firm’s latest “Beverage Bytes” survey of retailers representing nearly 30,000 stores nationwide (roughly 20% of the channel), overall beverage sales increased 10% year-over-year in Q1 of 2021, compared to 7% growth in Q4 2020, driven by increased foot traffic from consumers who are steadily returning to old shopping habits.

Retailer sentiment has become “increasingly positive” in anticipation of pent up demand helping drive beverage sales later this year as post-pandemic reopening plans get further underway and immediate consumption habits rise. Nearly 85% of respondents said they were more positive about the beverage space today than they were 1-2 months ago.

Though recent all channel Nielsen data, which includes grocery, showed many brands struggling to meet the high sales marks created by pandemic onset panic-buying in March 2020, the convenience channel is seeing elevated growth as it was among the hardest hit by last year’s lockdowns. Decreases in unemployment have also contributed to growing sales, the report noted.

“Some retailers went so far as to say that they are seeing a very high correlation with the roll out of the vaccine in their area to a recovery in traffic in their stores,” the report stated. “What’s more, retailers also noted that recent Covid-related stimulus payments are also driving improvements in demand – something that should likely continue to drive improvements through the balance of the summer.”

Though some respondents raised concerns that a sudden burst in demand could lead to out of stock issues, they expected consumer behavior to even out and normalize later this year. Others suggested that a mix of old and new habits created by the pandemic could impact sales, as some consumers resume their daily commutes and travelling while others have grown accustomed to ecommerce and working from home.

Energy drinks are the source of much of the optimism: The segment saw a 15% sales increase in Q1, with retailers predicting the category will grow 16% in 2021, beating prior expectations in previous surveys. Retailers have increased their assortment of energy drinks by 25-35%, typically at the expense of shelf space for CSDs.

Within the energy category, retailers predict “robust” growth of 12% in 2021 for Monster Energy Company, up from prior expectations of 5% growth in the previous survey. Though expectations for the brand are trailing slightly behind overall category growth, the survey notes that the brand is “likely poised for even greater momentum in other channels” where the company has increased its focus in recent years. About 20% of those surveyed said they intend to increase shelf space for Monster products this year, in part driven by the brand’s new 12 oz. can line.

“All-in, our survey results give us increased confidence in [Monster’s] topline growth trajectory,” the report stated, predicting 20% topline growth for the brand. “Importantly, we also continue to think this will likely more than overshadow margin pressures (something [management] noted following Q4 earnings could be impacted by rising aluminum and transportation cost pressures — and that [Monster] is likely not hedged as much as they would like, since their topline has been so much stronger than their expectations).”

Overall, retailers are looking to increase their shelf space allocation for the energy set, with better-for-you and clean energy products such as CELSIUS generating enthusiasm among buyers.

Although the trend towards health and wellness is beginning to make a splash in convenience, one much-hyped brand — the Dwayne Johnson-backed category play ZOA — is receiving a mixed reception and has struggled to generate repeat sales. Less than half of respondents said they planned to make room for the product. As well, new energy entrants from strategics are struggling to connect with consumers, particularly Coca-Cola Energy, a product that survey respondents do not expect to gain momentum this year. Retailers were mixed on expectations for MTN Dew Rise, with some respondents being bullish on the new line while others are taking a “wait and see” approach.

With shelf space already tightly packed, many respondents said “it might be difficult” to create any more space for energy drinks without significant reductions in juice and CSDs. Just under 60% said they will create incremental shelf and cooler space for energy, but this is a decline from 76% in the Q4 Beverage Bytes survey. Overall, 18% of retailers plan to allot incremental space to Monster products and 41% plan to increase Red Bull’s presence. Others are testing brands like CELSIUS and 3D Energy.

“We attribute this in large part to some of these constraints on space – and not necessarily concerns about category momentum (which retailers have consistently called out as increasingly strong throughout this survey),” the report stated.

Roughly half the retailers surveyed said they expect price increases across the beverage space, primarily driven by Coke, PepsiCo and Keurig Dr Pepper (KDP). Pricing, they suggested, is exacerbated by the aluminum can shortage and that increases may be necessary to cover the costs. Other retailers however disagreed, saying they believe promos will increase instead.