Despite inflation and unpredictable economic conditions, the cold vault continues to pay convenience stores profits.
At the National Association of Convenience Stores (NACS) annual conference last month in Las Vegas, a few offers from beverage makers caught the eye of Goldman Sachs representatives in attendance.
In the company‘s “America’s Consumer Staples: Quick Takeaways from NACS Show in Vegas” article, published Oct. 4, Chief Executive Bonnie Herzog wrote, “Overall, we came away most impressed with Coca-Cola. , Constellation Brands and Monster, all three are clearly leaning towards innovation and focused on building their presence in convenience stores.”
She specifically highlighted Coca-Cola’s introduction of Costa Smart Ready-to-Drink (RTD) canned coffee. Produced in three flavors, Signature Blend, Mocha and Caramel, the new caffeinated drink will be sold in 11-ounce slim cans and will first appear at Sprouts Farmers Market grocers early next year.
“A huge focus (was) on Monster Zero Sugar, with the majority of our group unable to tell the difference between the OG Green and Zero Sugar variants,” Herzog added.
“Innovation is the key to excitement and satisfaction. The Army and Air Force Exchange Service (AAFES) is excited about the introduction of new flavors and new items. New items from top energy brands are leading the category, driving traffic and brand awareness,” said Melissa Kitchen, an AAFES buyer who exclusively serves U.S. military personnel and their families on bases around the world and operates 10 distribution centers.
Still, it could be a while before new beverage brands or flavors hit convenience store shelves. In the meantime, convenience stores must shore up the category responsible for an average of more than $33,600 per store, according to the latest NACS State of the Industry report.
Indeed, 2021 has proven to be a comeback year for beverage sales. In the spring, Beverage Marketing Corp. (BMC) released a report indicating that approximately 39 billion gallons of liquid refreshments were purchased in 2021, in part due to the reopening of restaurants for indoor dining. More importantly, carbonated soft drinks (CSDs) posted the first gain in 17 years, and RTD coffee and energy drinks soared by double digits.
Supply and inflation
However, ongoing supply chain delays in addition to rapidly changing economic conditions continue to test some retailers.
“The Exchange continues to be affected by pandemic-related challenges, including delays and disruptions,” Kitchen said. “We’ve updated our inventory policies and scheduling settings to address these challenges.”
“Many companies have raised prices due to higher input costs,” said BMC chief executive Gary Hemphill.
Still-flavored water and CSDs saw the largest price increases during this period last year, around 24% and 17%, respectively, according to NielsenIQ statistics ending September 24, which were reported by Goldman Sachs. The least affected was RTD coffee, which rose only 2.1%.
Price adjustments offset the flattening of volume sales for most segments. All soft drinks lost 2.4% for the same two weeks. Sports drinks, flavored sparkling water and tea also lost volume. Cold room coffee was the only product segment to post double-digit gains.
Dollar sales, however, continue to generate profits. NielsenIQ data shows that all packaged beverage categories tracked have improved. Low-calorie soft drinks led the category with a positive result of 18% and sparkling flavored water finished with 3.8%.
But even with these encouraging statistics, economic circumstances are forcing category managers to consider how they can further stabilize cold vault activity. Marybeth Benjamin, category manager for Dandy Stores, a Sayre, Pa.-based chain with 67 locations including New York, hopes to redefine customers’ perceptions of value versus cost.
“Due to the increased frequency of price changes and inflated costs, I have moved many of our monthly and daily value promotions to a “savings focused” strategy as opposed to specific pricing (i.e. i.e., buy two/save $1, buy two get one, etc.),” she explained. “This approach increased our uptake and also reduced shifts in point-of-sale marketing. in the event of a price change.
Although prices may continue to climb, convenience store owners and operators are hoping the variety of packaged beverage inventory, including new brands and flavors, will continue to quench customers’ thirst.