Beverages Overview 2013

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Water Bubbles Up

A push for healthier options is a driving force in packaged beverages, and no drink compares to water in its reputation for promoting wellness.

C-store sales of bottled water totaled $3.1 billion in the 52 weeks ending Dec. 30, 2012, representing a 4.7% volume increase over 2011, according to SymphonyIRI Group.

Gary Hemphill, senior vice president of marketing services for Beverage MarketingCorp. of New York, says the emergence of strong private-label companies has given bottled water a price advantage.

In c-stores, some of the biggest growth came in premium bottled water, such as The Coca-Cola Co.’s Glacéau smartwater and Fiji Water’s self-named brand. While enhanced waters abound, consumers also are embracing the trend of turning bottled water practically bespoke.

Dasani Drops from Coca-Cola and MiO from Kraft Foods give consumers the chance to add flavors themselves. MiO’s Fit line offers to turn water into a sports drink that includes electrolytes and B vitamins, and MiO Energy gives water both flavor and a caffeinated kick.

“People really like tailoring products to how they want them,” Hemphill says.“Drops are playing to that consumer demand, and they’ve been fairly successful.”

Unsticking CSDs

CSDs have struggled in the face of competing products that consumers perceive as healthier. Sales volumes across all channels declined for the eighth consecutive year in 2012, says Hemphill of Beverage Marketing Corp. And while volumes fell by 1.6% in convenience stores last year, according to SymphonyIRI, the category remained an industry stalwart, totaling $8.8 billion in sales.

“I think it’s important for marketers to realize [CSDs] are still the No. 1 [beverage]category and likely to be the No. 1 category for quite a few years to come,” Hemphill says.

The potential of new all-natural, no calorie sweeteners such as stevia coming into the marketplace could help bolster sales of CSDs.

“We’re likely to see some innovation in the not-too-distant future along those lines. It may not be the magical silver bullet that will turn things around, but I do think it will help the performance of the category twosome extent,” he says.

Mid-calorie products created with a mix of sweeteners, such as Dr Pepper’s 10-calorie Dr Pepper 10 and PepsiCo’s 60-calorie Pepsi Next, all reflect the ongoing effort to improve taste in reduced-calorie beverages, he says.

Energy Spikes

Energy drinks, which rang up $7.2 billion in c-store sales last year, ended 2012 under the cloud of questions about their safety and a looming inquiry by the Food and Drug Administration.

Sales of energy drinks slowed a bit in the fourth quarter of 2012, but Hemphill of Beverage Marketing Corp. says the threat of regulatory action has largely had little to no effect on the category. “But obviously, it’s something that bears watching if there are more regulatory hurdles for energy-drink marketers to jump,” he says.

Innovations from the top three brands—Red Bull, Monster Energy and Rockstar—continue to garner attention. Mintel has forecasted continued growth among these top performers in part because of the consumer connection with the brands.

Getting Crafty

C-store sales of craft beer jumped nearly 22% in the 52 weeks ending Dec. 30,2012, the second greatest increase among the main beer segments, according to SymphonyIRI.

Despite all the attention given to craft’s rise, c-stores should tread with caution, or at least with real strategy, when it comes to embracing the trend, says Joe Vonder Haar, managing partner of beverage consulting firm iSEE StoreInnovations, St. Louis, and a formerAnheuser-Busch exec.

“Over infatuation with [craft beer] for a c-store is a very dangerous proposition. It can’t be a casual romance,” he says.“You had better be prepared to dedicate space and inventory to products that don’t turn at the same rate that you’re used to turning in this category.”

Even with growing sales of craft beer, the segment still accounts for only a small slice of overall beer sales in c-stores, Vonder Haar says—or 2.2% of dollar sales, according to SymphonyIRI.

Some high-end grocers, such as Whole Foods Market, are seizing upon the popularity of craft beers to create stores-within stores that offer walls of craft selections. With their space limitations, c-stores face a much tighter squeeze when it comes to offering the necessary variety.

“It’s difficult to have strong cash flow driven by turnovers that, instead of being an inch wide and a mile deep, are an inch deep and a mile wide,” he says.

Vonder Haar suggests retailers either invest in the necessary space to offer a wide craft selection in addition to their core beers, or create a shelf or two featuring a rotation of craft choices that gives customers the perception of variety.

A Healthy Reputation

Innovation across the beverage category will continue to focus on health and wellness aspects, Hemphill of Beverage Marketing Corp. predicts, with products such as coconut water, and oat- and chia-based beverages in the mix.

“Coconut water has done well, but I think the question is: How high is that probably going to get? Obviously it’s an expensive product and has some other hurdles. But it’s a category that has seen a lot of growth,” he says

RTD tea is another area likely to get a boost from its healthy reputation. The fact that tea appeals to casual as well as more sophisticated tea drinkers also opens it to a range of innovations, Hemphill says. C-store sales of canned and bottled RTD tea rose 8.2% in the 52 weeks ending Dec. 30,2012, according to SymphonyIR.


Flavor, relaxation, health benefits

According to consumer research by Mintel, nearly 75% of all tea drinkers say that flavors are the major reason for drinking tea, which is why flavor innovation is helping drive growth in the RTD tea segment, the firm says.

 

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