Top of the Pops Know when to make room for biggest movers on the beverage charts By Steve Holtz sholtz@cspnet.com Legendary: Among the fastest-growing subcategories in beverages +15.34% +33.52% +21.92% CANNED & BOTTLED TEA SPARKLING/MINERAL WATER TABLE WINE Year to date ending June 10, 2012 There are rock stars in the cold vault. And then there are legends. As with a major energy-drink manufacturer, when the Black Eyed Peas release a new album or in this case, a new beverage flavor consumers clamor for it. Energy drinks are rock stars, as are carbonated soft drinks and beer, among others. But the legends of the cold vault are a trickier bunch. Like a Paul McCartney CD release, when a new iced tea hits the shelves, a certain iced-tea-loving consumer will wait in line to get it, but the larger public may not even notice. Iced tea is a legend, along with brethren wine and sparkling water. These are the categories that seldom get signs in the window of your store, but there d be a void without them in the cold vault. Funny thing about legends, though: Their albums can hang on the record charts for months and even years as word of mouth spreads about a great song here or there, a Grammy award is proffered or a tune makes it onto a movie soundtrack. In the meantime, that rock-star album likely dropped off the charts just weeks in, replaced by the latest flavor of the month. The legends of the beverage world are seeing intriguing growth trends today. During the first six months of 2012, ready-to-drink iced tea, wine and sparkling water all saw double-digit growth in both sales dollars and units in convenience stores. Yes, the rock stars are still growing, but at a slower pace today; energy drinks are the most vibrant, with 23% growth in unit sales. Space Oddity Such trends beget a challenge for retailers: If one beverage category accounts for 40% of all packaged-beverage purchases and grew 3%, while another grew 33% but accounts for less than 3% share of the cold vault, which of the categories should get more space during the next cooler reset? There are many points to weigh: What are the price points? What are the profit margins? Who s the target consumer? How are those subcategories trending in my stores? Clearly, there s no single answer, but these sorts of challenges weighing various data to determine future strategy fill a category manager s day. How much space should I give to a certain category? This is the question every retailer constantly tries to get right, says Brad Higginbotham, group director of Category Advisory Services for Coca- Cola Refreshments, Atlanta. Higginbotham suggests a basic threestep method to meet the shopper s needs and drive profitable growth : Offer a variety that meets shoppers beverage needs. Have enough inventory to remain in stock. 241
Topping the RTD Tea Charts Brand Dollar sales (millions) PCYA* Unit sales (millions) PCYA* Arizona $127 6.5% 119 8.0% Lipton Brisk $91 10.3% 86 12.6% Arizona Arnold Palmer $43 31.0% 41 33% Lipton Pureleaf $43-3.9% 24 5.8% Gold Peak $33 35.8% 20 36.6% Snapple $32 6.9% 22 9.5% Peace Tea $32 60.2% 32 60.3% Lipton $29 7.5% 19 12.1% Nestea $22 0.7% 19 0.1% Diet Snapple $15 22.7% 9.8 19.7% Drive growth and return on investment by limiting cannibalization and focusing on incrementality of assortment. Seems easy enough, but these perennial tricky spots in the data can keep retailers guessing, stuck between the rock of healthy growth in a subcategory and the hard place of low share of the cold vault. It s tough, says Keith Baker, a managing member of Slidell Oil Co., Slidell, La. You ve got pressure from so many manufacturers quoting various statistics to stock the products they want you to stock, but you ve got to do what s best for your company. In recent years, these very trends have led Slidell Oil to cut back its CSD offer from four doors to two. Yes, much of the opened space went to energy drinks, but it also left enough facings to grow some of the less-heralded categories. Still, the challenge remains to make the most of the cold-vault set. Wine Is Fine Take the wine category, for example. In the first half of this year, wine volume in c-stores grew nearly 22% to just more than 3 million cases. John Sokel, director, Center of Excellence, for E&J Gallo Winery, Modesto, Calif., says the reasons for c-store retailers to get into or expand their wine space develop from there. We have to make the presentation: Wine is a top-selling category in the grocery business. It s growing at tremendous rates. It s growing 3% to 6% every year across the board, he says. It [recently] went from the No. 10 category in grocery to No. 7. And it s in the top five categories that are growing in the grocery stores, so it s a category people want. The growing demographics of the wine consumer suggest their penetration in convenience stores is as high as in any outlet. The problem: The conversion is awful. We need to get three things accomplished: Carry the product, make sure it s priced competitively, and make people aware your store carries wine the wines that the consumer wants, Sokel says. Sokel acknowledges that most large convenience retailers understand these factors. Still, only 55% of c-stores in the United States sell wine (compared to 79% selling beer), according to the NACS State of the Industry Report of 2011 data. And SIRI Group data from December 2011 shows wine holds only 1.3% share of the cold vault in convenience stores. It becomes an issue of space, Sokel says. Where am I going to get the space? How much space should I devote to it? They get the idea that they should carry it, but they only have so much space. Sokel s Gallo colleague, Brian Crouser, managing director of the Center of Excellence, compares the larger challenge of cold-vault share vs. category growth to one of the largest segments of the wine business: wine boxes and 4-liter jugs. It s a huge piece of business, but it s been in decline for quite a while, he says. If I look at just space and sales, it should justify an awful lot of space. But if I look at who s really buying which products, I can probably get by with fewer SKUs. The Gallo reps say two long-term trends driving growth in the wine business and other beverage segments are the move toward healthier eating and the new generation of adult drinkers coming of age. Consider the demographics of the people that visit your stores, groups like the millennials, says Crouser. For you to be relevant with that group, it s all about new, different and discovery. So if you re not speaking to those consumers, you re painting your picture over the next five or seven years. Drop Me in the Water Similarly, Nestle Waters is hanging its hat on the health-and-wellness trend, con- 242
Topping the Sparkling-Water Charts Brand Dollar sales PCYA* Unit sales PCYA* Perrier $13.2 million 36.1% 8.6 million 33.3% Topo Chico $3.4 million 5.6% 2.4 million 10.5% Poland Springs Sparkling $2.2 million 42.8% 696,320 11.0% San Pellegrino $1.7 million 10.7% 903,836 6.3% Sparkling ICE $1.1 million 1,216.3% 830,189 1,335.5% Private Label $567,982 128.9% 674,448 121.0% Arrowhead Sparkling $457,829 231.0% 83,802 149.2% Cascade Ice $389,641 25.2% 256,711 26.7% Jarritos Mineragua $379,862 86.6% 302,555 80.2% Deer Park Sparkling $375,538 1,977.7% 271,323 3,176.7% tinuing to steer consumers away from sugary drinks and toward healthier options such as bottled water and iced tea. You ve got to look at the long-term trend of consumers moving in healthier directions, says Mike Atkins, vice president of sales, tea, for Nestle Waters North America, Stamford, Conn. There s a spectrum within beverages with soda on one end, which is total indulgence, and water on the other end with total health. Nestle Waters is a healthy hydration company. If we go on that side of the spectrum where water is, what we re doing is expanding our portfolio into logical, natural, healthy alternatives, he says, citing the company s recent move into iced teas. In the past two years, the bottled-water company has taken ownership of the Sweet Leaf and Tradewinds tea brands. Come January, the company will take full ownership of the Nestea line, which it previously shared with Coca-Cola. Tea is the No. 2 beverage consumed by human beings worldwide. No 1 is water, Atkins says. Tea today is not tapping into all the potential it could of a really convenient, healthy beverage that has a tremendous amount of variety in ingredients and flavors. The category is undergoing a period of segmentation, he says, with organic teas growing and premium teas underscoring their brewing methods. At the same time, the mainstream powerhouse brands are growing, Atkins says. So it s this wonderful opportunity. Newer brands are helping lead the way as well, such as Peace Tea (up 60%) and AriZona s Arnold Palmer (up 31%), which combines tea and lemonade, another growing beverage category. Meanwhile, sparkling water has seen a resurgence as Nestle Waters throws more market weight behind its sparkling brands Perrier, San Pellegrino and its newer regional brands and consumers move away from sugar-sweetened beverages. It seems like there s a play being made: Consumers are looking for a treat and migrating to other items, says Jim Donker, director of national accounts, c-stores, for Nestle Waters. They re treating themselves with premium products. Retailers are noticing, he says. Dallasbased 7-Eleven Inc. recently agreed to expand its sparkling-water presence from as little as two SKUs of Perrier to a full shelf in the cold vault. 7-Eleven s putting in a third flavor and dedicating a full shelf to sparkling with Perrier, a regional sparkling brand and San Pellegrino Sparkling Fruit Beverages, he says. So people are starting to see a value in premium. Drink to My Health So when do you protect the core of the cold vault, and when do you shake things up by expanding smaller categories? The manufacturers and retailers interviewed for this story generally agree that retailers should review their past sales data but also consider new opportunities and long-term trends. Key among them: health and wellness. There s a long-term trend toward health; nobody can deny that, says Atkins. You have a base of business that may not be very health-conscious, but if you re going to take 10 facings from soda or the indulgence end of the beverage spectrum and you re going to invest those facings somewhere, you want to invest in something that, long term, is sustainable. Wine has earned endorsements for its heart-healthy attributes. Sparking water is marketed as an indulgent form of water. Tea has a long list of healthy attributes, as well as functional benefits that range depending on the type of tea leaf from the caffeine in black tea 244
Topping the Wine Charts Dollar sales Brand ($ millions) PCYA* Unit sales PCYA Barefoot $33.5 31.2% 397,022 29.0% Sutter Home $30.1 25.3% 412,204 23.1% Yellow Tail $16.3 18.1% 186,898 17.0% Gallo Family Vineyards $11.6 24.4% 164,913 27.3% Woodbridge $10.3 33.0% 122,623 37.2% Beringer $6.5 4.3% 80,713 4.1% Kendall Jackson $4.9 10.5% 29,079 14.4% Vendange $4.9 71.4% 76,227 58.9% Cavit Collection $3.8 18.3% 39,500 21.6% Franzia Box $3.6 22.4% 148,916 22.2% for energy to the attributes of chamomile tea to de-stress and get to sleep. [Ready-to-drink] tea traditionally has not been marketed, in particular in convenience stores, on its health platform, says Atkins. Donker says Nestle Waters will begin marketing its RTD teas much the way it has managed bottled water, with premium brands and value offerings. We ve segmented the bottledwater offering between a value offer or popular offering with our regional spring waters and a premium offering with our sparkling offering in Perrier, etc., he says. We have that same plan inside the tea category, which as we look at it today is a great opportunity. Can t You Hear Me Knocking? Opportunity is a key word in these beverage manufacturers lexicon. Too much of retailers plan-o-gramming is done in retrospect, rather than through predictive models, they say. What I m advocating is for a c-store to balance its strengths, says Atkins. Category management is a wonderful thing to 246
Consumers are treating themselves with premium products. affect these decisions, but it s only half the story because it s driving the car through the rearview mirror. In addition to reviewing past sales data, retailers should also be looking at the new opportunities coming down the road. If you want to grow, you ve got to satisfy more consumption occasions, Atkins says. You have to continue to satisfy the consumption that you satisfied in the past, and the other half is figuring out the incremental opportunity. That s similar to the process used by Phil Smallwood, senior category manager, packaged beverages, for The Pantry, Cary, N.C., though he underscores the importance of that look back. The starting point on allocating cooler space by subcategory begins with a look in the rearview mirror, he says. Subcategories are analyzed on contribution of sales dollars, units and profitability. The next view is a look to the road ahead. There, he says, the outlook includes consumer trends, how the subcategory and brands with the subcategory are trending, and tactically what needs to be accomplished to maximize sales in the category. The RTD tea subcategory may only currently represent a small percent of the sales mix, he says. The outlook, however, shows a lot of upside, and the subcategory needs more space to achieve its growth potential. Smallwood is also seeing growth in sparkling water, lemonade and enhanced beverages. Crouser of Gallo agrees that a straight space to sales strategy is shortsighted. [Retailers say], I hate to pull from the big category because it s selling a lot. While it may not be trending great, it s still produces a ton for me. So much of the category [planning] has been rearview mirror, and as more consumer insights are becoming available, it s beginning to look more down the road, he says. It s more predictive: What could it be? How much could we do? What do I need to do to capture this consumer? That s a grayer area. It s trying to see the size of the opportunity, and it s harder to define. But the ones who get it right will be the retailer legends of tomorrow. n 248