Beverage sales in the convenience channel grew 12% in Q3, with a 3% increase in foot traffic in spite of economic headwinds, according to the latest Beverage Bytes retailer survey from Goldman Sachs Equity Research.
The survey of convenience channel retailers found a “broadly cautious” consensus, as respondents expect strong beverage sales momentum to continue with a projected 10% year-over-year rise in 2022 and 9% increase for 2023. However, sustained inflation and high gas prices has tempered optimism while out-of-stocks continue to be a challenge in both the alcoholic and non-alc spaces (albeit to a lesser extent than in past surveys) and retailers said they expect more price increases in the new year.
“Overall, we are broadly optimistic heading into Q3 earnings as we expect strong topline growth, reflecting strong pricing and resilient underlying volume trends as we have yet to see any significant changes in consumer elasticities,” the report stated. “That said, the challenging cost environment will likely continue to pressure gross margins, albeit to a lesser extent than Q2, as commodity pricing has modestly improved lately.”
How did retailers feel about the beverage category?
Around 33% survey respondents said they were now more negative in their outlook for beverage sales compared to recent months, down from 39% negativity in the Q1 Beverage Bytes survey. Concerns around elevated gas prices, inflation, supply chain issues, labor challenges and price increases all contributed to the pessimistic projection.
While 39% of respondents said their outlook on beverages is the same (up from 28% in Q1), 28% of retailers reported feeling more positive about the category (down from 33% in the prior survey), citing strong dollar and volume sales increases during Q3. Some retailers said they have taken to reducing the variety of available items in order to optimize their shelf space, which they suggested has improved in-stock positions.
Among non-alcoholic beverages, retailers said they’ve seen significant out-of-stocks from brands like Propel Water, Dunkin’, Muscle Milk, select Monster and Red Bull varieties, AriZona and – cited as “one of the worst” – Starbucks Frappuccino. Coca-Cola and Pepsi 20 oz. bottles have also seen “modest” out-of-stocks.
What was the sentiment on energy drinks?
Retailers were “very positive” on the energy set, with sales up 16% in Q3. While out-of-stocks have still plagued some retailers, the overall sentiment is bullish thanks to strong performance and new innovations from leading brands.
Monster outpaced the category, up 18% in Q3 while Red Bull improved 16%. Although more than 60% of retailers, as well as Goldman’s analysts, expressed skepticism for price increases from Monster (+6% in Q3) and Red Bull (+7.5%) to continue, noting that “energy drinks have crossed the $3/can psychological threshold for key brands,” around 90% of retailers felt that recent pricing hikes have been successful. One retailer said sales of Monster initially fell 5% after pricing adjustments took effect in September.
Recent innovations from Monster, particularly the brand’s Zero Sugar versions as well as the alcoholic Beast Unleashed line, are expected to drive incremental sales growth with minimal cannibalization. Among retailers, 67% were positive about Zero Sugar while the remaining 33% were neutral, with no negative responses.
Any potential distribution upheaval for CELSIUS as it transitions from its DSD network on PepsiCo trucks could also benefit both Monster and Red Bull. Retailers projected a 17% sales increase for Monster in 2022 and 14% growth in 2023. Red Bull is expected to finish the year up 15%, and to rise 12% in 2023.
Meanwhile, sales of CELSIUS were up 48% in Q3 and around 55% of respondents were positive about the brand’s distribution partnership with PepsiCo. While some retailers were concerned about the partnership, based on the failed relationship between PepsiCo and Bang Energy, many felt that the difference in management styles between the two brands would help to maintain strong execution. Other performance energy brands like C4 (+38%) and Alani Nu also fueled retailer optimism, however survey respondents were “broadly concerned” about the performance of Bang and Rockstar.
Where did retailers stand on alcohol?
Beer sales rose 3% year-over-year in Q3, “partially reflecting the ongoing shift back to on-premise channels,” according to the report. Retailers said they expect dollar sales growth to “remain broadly stable” at 3% for 2022 and an increase of 4% in 2023.
Broken down by brand, Boston Beer Company’s portfolio was up 2% in Q3 – a sharp deceleration from 17% growth in Q1 – and retailers projected sales will only grow around 2% this year, falling far short of predicted 13% full year growth in Q1.
Retailers were more bullish on Constellation Brands, outpacing the category at 15% growth in the quarter. Sales are expected to increase 10% in 2022. Meanwhile, Molson Coors sales were flat for Q3 and retailers projected the same for full year 2022 sales and a modest 1% increase in 2023.
Anheuser-Busch InBev and Heineken are both expected to grow sales 1% in 2022 while craft beer sales will remain flat, according to the respondents.
Sales of hard seltzer fell 2% in Q3, impacted by declines from Truly (-3%) and White Claw (-5%) but offset by growth from Topo Chico (+9%) and High Noon (+19%). According to Goldman analysts, the trend reflects “increasing interest in newer alcoholic beverage categories such as RTD cocktails, a return to premium light beers, as well as continued consumer/category fatigue for hard seltzers and tough comps.” Retailers now expect the hard seltzer category to be down 2% in 2022 – down from projected 4% growth in the Q1 survey – with a 2% increase in 2023.