Beverage Pricing: How Low Can You Go?

Aggressive pricing rankles retailers who advocate for discipline

By  Steve Dwyer, CSP Reporter

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Cold-vault category managers can be excused for obsessing about the limbo. The traditional dance contest’s challenge of “how low can you go” might be the same question posed about their cold vault.

Aggressive price positions on mainstream teas, juices, energy drinks and flavored waters have often been de rigueur. But as competition percolates across single-serve subcategories, it’s not uncommon to see aggressive pricing for premium and superpremium brands, too. This troubles some retailers.

“We see national chains like Kroger getting involved with energy drinks like Rockstar on huge 10-for-$10 promotions, which portends a dilution of margin in a critical growth category and bespeaks a poor channel management strategy by the brand,” says Joey Hobson, customer fanatics director-Refresh, for 260-site, North Salt Lake, Utah-based chain Maverik Inc.

Hobson says one Utah grocery chain has “eroded profitability on sports drinks and flavored waters that nearly killed the [flavored water] subcategory [in Maverik stores]. Margins are compressed in the cooler because publicly owned companies’ sales teams apply pressure from stockholders and brand teams to deliver volume-driving top-line revenue.

“If brands and retailers can’t have discipline in these categories, pennies will be squeezed from c-stores in a fight to the bottom.” Joe Vonder Haar, managing partner of St. Louis-based c-store consulting firm iSee Store Innovations, echoes Hobson’s cry: “Price is always the easiest button to push in an overpopulated segment of brands. The first step of the weakest player is to play with price.”

Price Is Right?

A growing universe of retailers have made it clear they aren’t interested in many more 79- to 99-cent prepriced beverages, even while acknowledging that price drives the category. Some nascent brand names in the c-store channel are also on board with that thinking.

In the iced-tea segment, overall volume sales in the c-store fell 2.6% through Nov. 1, 2013, according to Nielsen data. But premium-iced-tea sales rose 19.7%.

Arsen Avakian, creator of Chicago-based Argo Teas, is seeking to capitalize on a “growing window of opportunity” in the channel.

“The Argo Tea drinker might be the single female who enters the c-store looking for her one bottle of Argo Tea and doesn’t mind paying a premium,” Avakian says.

Avakian says retailers that partake in aggressive single-serve pricing strategies might need to “shift their priorities to emphasize penny profits rather than how many cases they move through their DSD supplier weekly. The 79-cent to 99-cent drink offer appeals to someone seeking hydration or who is just thirsty.”

The positive news, says Hobson, is that multi-channel pricing discipline is “a way of life for some brands.”

The flipside? “With others, the short-term volume focus compresses pricing, such that the premium nature of a product is relegated to nothing more than just another middle-tier segment.”

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