Beverage sales in the convenience channel remained “healthy” in Q3 2023, up by 4.4%, despite decelerating from stronger 6.6% growth in Q2, according to the latest Beverage Bytes survey of retailers conducted by Goldman Sachs Equity Research.
The slightly muted performance has now led the retailers (who represent about 40,000 stores nationwide, or about 27% of the channel) to downgrade their total growth projections for the year to 5.1%, compared to 6% in the prior survey, and are anticipating 4.5% growth in 2024. Foot traffic in c-stores was up 0.4% in Q3, compared to -1% in Q2.
On average, retailers were 50% more negative on beverage sales over the last 1-2 months (compared to 47% in Q1) with inflation, channel shift and a trend towards smaller packs as key headwinds. One retailer noted that promotions, such as those tied to gas rewards, did not lead to an uptick in volume growth. In the prior 1-2 months, soft drink sales growth slowed as well, retailers noted.
Meanwhile, 7% of respondents were positive in their outlook (down from 16% in Q2). One retailer said that beverage sales outpaced overall store performance, with categories like energy and sports drinks (driven by PRIME and Gatorade) leading to a surge, while spirit-based RTDs helped boost alcohol sales.
Promos Decelerate, Pricing Continues
A 57% majority of retailers said they are “seeing signs” that promotional activity is picking up, compared to 62% in Q2. One retailer said they expect pricing to stabilize as unit velocity remains sluggish while another respondent said they believe more promo activity is going towards the grocery channel than convenience.
Around 7% said they are seeing promotions decrease – which no respondent had suggested in any of the prior three Beverage Bytes surveys.
Around 62% of respondents said they expect brands to continue with price increases and that promo activity could “start to level off.” Compare to the Q2 survey where 54% of respondents said brands will need to increase their promos to stave off volume slides.
Among the brands who are increasing promotions are Monster, Red Bull and Celsius, while Coke and Pepsi are both maintaining “Two for $X” sales on 20 oz. bottles.
A strong 77% majority of retailers, meanwhile, expect beverage manufacturers will roll out additional price increases this year, up from 56% in Q2. Among those respondents, they were evenly split (38.5% each) on whether those increases will be significant or modest. The remaining 23% said they believe current pricing will be maintained, with no one expecting decreases.
Energy Benefits from Wider Category
The energy drink category was up around 11% in convenience stores in Q3, softening from +13% growth in Q2. Outlook remained positive, with expectations for 12% growth in 2023, which is in-line with Q2 projections and would outperform 2022’s 11% increase and mark the third straight year of double-digit energy growth.
Retailers were even more bullish on next year, expecting sales to rise 13% in 2024.
Category leader Monster Energy trailed the set slightly, up 8% in the quarter (+10% in Q2), while Red Bull reported 7% growth (+11% in Q2) as retailers anticipate that the latter’s recent price increases will be permanent.
Emerging performance energy brands have continued to be cause for excitement. Retailers said sales of Celsius rose 71% in Q3 (+89% for Q2) and expect the PepsiCo-distributed brand to begin moderating its growth in the next year, as respondents said they expect it to see 65% sales growth in 2023 and +42% in 2024.
C4 (+46%), Ghost (+46%), Alani Nu (+63%) and PRIME (+62% for the energy line) all received praise from respondents as well, although one retailer questioned whether or not the rapid growth for PRIME could prove to be a fad.
Monster and Bang: A Right Match?
Retailers remain bullish on the energy drink category, which has consistently driven double-digit sales growth over recent years, and in particular they see Monster Energy’s latest innovations, including Monster Energy Zero Sugar, as vital to that performance. Where sentiment was mixed, however, was in the company’s acquisition of a bankrupt Bang.
Although Goldman’s analysts said they view the Bang purchase as being ultimately beneficial to Monster’s top and bottom line growth, retailers are concerned about the performance energy brand’s sales, which fell -23% in Q3 (an improvement on -27% in Q2).
But some see Monster’s stewardship of Bang as a positive, at least for those willing to wait out a lengthy rebuild: survey respondents said they now anticipate Bang to decline -23% overall this year, compared to a -25% projection in Q2, and are projecting just -3% declines in 2024.
One retailer pointed to Bang’s transition into the Coke bottling network last month, combined with Monster’s “marketing prowess,” as a strong opportunity. As well, with the company’s decision to rationalize the VPX brand portfolio down to just 12 SKUs of Bang, retailers were optimistic that a smaller line would benefit the brand. Another retailer suggested that Bang could eventually level out to around a 5% category share.
However, the report noted that moderation in the context of Bang is “an easy compare to last year” when the brand was hemorrhaging distribution and pull-through. Some respondents were concerned about Bang consumers adopting other energy brand preferences amid the long streak of out-of-stocks and worried that it may struggle to regain shelf space.
“While retailers were broadly mixed on the acquisition, we ultimately continue to believe Bang could prove to be a very strategic acquisition,” the report stated. “Based on our detailed scenario analysis, we estimate Bang could generate an incremental ~$1B of net revenue … and ~2pts of incremental annual EPS growth for [Monster] by 2027.”
Beer Accelerates, Hard Seltzer Losses Soften
Beer sales were up 5% in Q3, a slight acceleration, and retailers project the category to grow 6% this year (up from 3% outlook in Q2) and 4% in 2024.
Hard seltzers continued to struggle but saw some improvements, -3% (slightly better than -4% the prior quarter) and a -2% decline is expected for the full year, up from a more pessimistic -5% outlook in Q2. Around 78% of respondents said that Boston Beer’s Truly brand is still not improving despite new packaging and marketing campaigns, but among other malt categories Twisted Tea continues to gain momentum, and they don’t expect Monster’s Nasty Beast Hardcore Iced Tea launch to take much share from the brand.
According to Goldman, Constellation Brands has been “one of the best growth stories” across CPG staples with strong volume-driven topline growth across its portfolio, and products like Modelo Especial (up 35%-40% in some markets) and Modelo Oro were among the most cited positive drivers by retailers. Around 70% of respondents said they intend to increase shelf space for Constellation products in the coming months.
Bud Light Controversy “Stabilizes”
The transphobia-fueled Bud Light controversy appears to have stabilized, as 100% of retailers said that although the brand’s sales are still in the negatives (around -25% to -26% per store) the trend has leveled out.
The backlash, which began as a result of the brand’s decision to enlist transgender TikTok star Dylan Mulvaney as an influencer, may finally be dissipating and a majority of retailers (64%) said they believe Bud Light will be able to regain at least some of the share losses. Around 45% of respondents said they believe the share recapture “will be limited” to around 0-3 points and that the brand will need a “big push” during the holiday season this quarter. Another 36% said they believe the damage is permanent and Bud Light will not regain any lost share.
But 18% of respondents were optimistic that the brand could regain as much as 5 points of share and 38% said it can bounce back by the end of 2024.