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Energy segment stirring up c-store beverage category

Energy Drinks Generic_Sm_041219The latest look into the cold vault by Wells Fargo Securities LLC is finding a shakeup may be coming to the energy segment.

The first quarter Beverage Buzz survey noted retailer concern about disruption among energy drinks as a result of new products.

“The disruption taking place in the energy category is clearly top-of-mind for our retailers as new entrants such as Bang [Energy Drink] continue to disrupt established players such as Monster Beverage Corp. at an alarming rate,” said Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities.

“As such, we’re increasingly cautious on Monster and concerned that the core energy category is being upended by an onslaught of ‘healthier’ competition,” she said, adding Monster’s pricing is not sticking and a  small minority of retailers suggested the beverage company’s prices could come back down in 2019.

Beverage Buzz surveys beverage retailers representing approximately 20,000 convenience stores.

According to Herzog, 90 percent of retailers either carry Bang or plan to carry it. As she noted, “Bang has evolved from a looming threat to a very real threat.”

In addition, many retailers are increasingly wondering if Monster’s own entry into the burgeoning fitness energy category with Reign “is too little too late,” she added.

Furthermore, while it’s still very early days, some retailers indicated that the early response from consumers to Reign has been underwhelming, Herzog said.

In addition to buzz around the energy segment, other the key survey takeaways, according to Herzog, included:

  • Overall total beverage sales were up a solid 4 percent in the first quarter, ahead of the 2.9 percent in the fourth quarter of 2018.
  • Promotions were elevated in the first quarter, up 2.5 percent year over year and ahead of the 0.5 percent year over year in the previous quarter.
  • Retailers’ outlook for 2019 is more muted with sales likely to be up “a somewhat reticent” 3.2 percent year over year. This is compared to the 3.7 percent in the prior survey.
  •  Retailers’ outlook for the total energy category has moderated, up only 6 percent in 2019 vs. prior expectations of 7.8 percent.

Looking at specific beverage companies, the survey found retailers’ commentary for The Coca-Cola Co. was generally positive, with some exceptions, Herzog said.

However, retailers were “decidedly more cautious” on Keurig Dr Pepper and are still concerned that PepsiCo Inc. is struggling to gain traction despite stepped-up investment spend, she added.

The outlook for Constellation Brands remains strong, with retailers still expecting increases in both sales and shelf space in 2019.

Packaged beverage options are exploding: 4 tips for boosting offerings and efficiencies in-store

From new ready-to-drink (RTD) coffees to infused teas to sparkling waters, packaged beverage options are at an all-time high, driven by innovation and consumer demand for variety.

BeverageBuyer-teaserBeverage manufacturers recognize that having diversity in their offering is critical and the same is true for convenience store operators, who want to keep customers coming back for more.

“Culturally, we’ve become so accustomed to having more choices than ever and from a consumer’s standpoint, beverages are low investment, low commitment,” explained Satoru Wakeshima, chief engagement officer at New York-based branding agency CBX. “It’s not a major decision and people like to try new things.”

Wakeshima predicts 2019 will see more of the rising beverage trends and new product explosion seen in 2017 and 2018, but with greater blurring of product types — more hybrids.

“Our expectations are higher than ever, and the bar continues to rise,” he said.

How can convenience store operators manage the packaged beverages category in a way that capitalizes on new and emerging opportunities, but maintains efficiency?

Beverage experts, offer the following tips:

1. Allocate intelligently

Because the category cannot expand infinitely, especially within the limited confines of the convenience store format, space needs to be allocated intelligently, which includes scaling back in some areas. It’s a simple concept that is not always executed.

“Reducing space for declining or slow-moving segments to make room for innovative or higher-velocity segments that attract shoppers to the store is the key to success,” says Peter Keaney, business analyst at Cadent Consulting Group. An example would be to reduce space for milk, where sales have been declining, to make space for more sparkling waters.

2. Rotate offerings with marketing support

“People want to discover new beverages, but they also want to be reassured that they’re making a good choice,” said Wakeshima. “Educating customers at retail, mobile or online to aid the deselection process becomes the expectation.”

3. Think like consumers

Thinking like consumers means in terms of “need states” rather than subcategories, as this is how consumers shop, according to Keaney. Moving forward, the plethora of packaged beverage options could be rearranged in the cooler by needs.

The NPD Group has identified four macro consumer needs: fueling, wellness, connecting and gratifying.

The NPD Group has identified four macro consumer needs: fueling, wellness, connecting and gratifying. These fundamental needs can then be broken down into more specific behaviors, known as need states. Examples of need states under fueling include “easy on-the-go” and “staying awake.” Meanwhile, need states under gratifying include “nostalgic drinks” and “morning drink favorites.”

4. Keep abreast of beverage trends

In addition to staying on top of the latest packaged beverage trends, retailers also should watch what’s trending outside the category, since trends often spill from one category into another eventually.

The fastest-growing packaged beverage segments currently are sparkling water, energy drinks and RTD coffee, all which are up by double-digits recently, according to Keaney.

Still and sparkling water continue to be big as consumers seek alternatives to carbonated soft drinks, he added. “In addition, plant-based and probiotic beverages are driving sales, as well as functional beverages and innovations like nitro cold brewed coffee. We’ll have to see how high CBD-infused beverages can fly.”

Originally published at Convenience Store News.