Convenience store retailers were excited about energy drinks but had a “slightly more pessimistic outlook” for beer trends in Goldman Sachs’ Q2 Beverage Bytes survey, citing “broader economic pressures/fears of recession [and] impacts from cooler weather.”
Respondents in Goldman Sachs’ quarterly survey represented 36,000 c-store retail locations, representing about a quarter (24%) of the channel, according to Goldman Sachs analyst Bonnie Herzog.
Retailers are “slightly more optimistic” about total beverage sales (non-alc and bev-alc), expecting sales to increase +6% this year, up from their +5% prediction in Goldman Sachs’ Q1 survey. However, retailers were “slightly more guarded” in their expectations for beer category growth, projecting a +3% increase in dollar sales this year, below +6% expectations shared in Q1.
While brands continued to see sharp year-over-year price increases throughout Q2, retailers felt that the pricing environment “remains healthy/rational” with a majority expecting more incremental increases later this year.
Energy drinks, however, are the “big winners” of incremental shelf and cooler space and 36% of retailers said they plan to allocate more to the category. Celsius, Monster and C4 led the category for the largest increases. Energy drink dollar sales were up 13% in Q2, a deceleration from 19% in Q1.
Overall, retailers believe the energy category is on track for its third consecutive double-digit growth year in 2023, but projections have lowered to around 12%, compared to 19% in Q1.
The strong performance of innovations like Monster Energy Zero Sugar is leaving many feeling bullish, however. Just over half of the respondents said sales of that product have been “very strong,” while 33% said sales are incremental to the Monster brand.
Out-of-stocks have also continued to be an issue for all categories, but the situation for non-alc beverages has gotten “incrementally better,” as 40% of retailers reported no NA out-of-stocks at all – the first time in two years any retailer has said they’ve been fully stocked. However, shortages of alcoholic drinks have worsened.
But retailers can’t seem to shake the feeling that it might all come apart. Despite the higher annual growth projection, respondents were 47% more negative about the state of the beverage category over the last 1-2 months, compared to 30% in Q1. They cited economic pressures and fear of recession, strengthening elasticities, cooler weather, and the continued impacts from the anti-transgender boycott of Bud Light. However, 16% of respondents were more positive in their outlook, particularly on the back of the energy drink boom.
Beast Unleashed and Simply Spiked Top Crossover Products for Retailers
Monster remains one of Goldman Sachs’ “top picks” for investors, despite a risk with gross margin, Herzog wrote. Analysts predict “tremendous outside growth over the long term” for the energy drink brand “over the long term, given its full innovation pipeline, further international expansion,” and its “opportunities and incrementally from alcohol,” such as The Beast Unleashed.
Retailers are “broadly positive” about The Beast Unleashed – the 6% ABV flavored malt beverage (FMB) Monster launched earlier this year – and expect it to gain incremental shelf/cooler space in the rest of 2023. One-fifth of respondents indicated volume trends for the FMB brand are “very strong,” while 40% characterized trends as “strong.”
More mixed expectations were shared for another non-alc beverage brand’s bev-alc offering: Jack Daniel’s & Coca-Cola, a spirits-based RTD, with half of retailers seeing “modest” volumes for the brand and 13% seeing “weak” volumes.
Simply Spiked was the most favorable crossover product for retailers after Beast Unleashed, with 20% of respondents indicating “very strong” volume trends for the Molson Coors’ FMB, and 30% indicating “strong” trends.
Mixed feelings were shared for Hard MTN Dew (25% “strong,” 50% “modest” and 25% “weak”); Vita Coco Spiked (57% “modest” and 43% “weak”); and Fresca Mixed (28% “modest” and 63% “weak”).
Retailers also commented on Monster’s planned acquisition of Bang. Respondents were uncertain of Bang’s future, but viewed the deal “favorably,” focused on its positive impact on Monster, including access to a new production facility in Arizona that will help “grow the Monster brand,” Herzog wrote.
Beyond Monster, retailers expect to allocate more space to Celsius and C4 this year. Retailers also expressed “mostly upbeat” opinions about innovations from Celsius, Monster and PRIME.
Herzog also shared that analysts are “more cautious” on Keurig/Dr. Pepper, lowering net sales growth estimates to +3.7%, below +4.6% expectations in Q1. Herzog credited the drop mainly to lower expectations for the company’s coffee business.