2013 | BEVERAGE REPORT

A New Crop in the Beverage Garden Fresh products abound, but which trend is driving innovation? By Steve Holtz || [email protected]

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ew-product activity is at an all-time

recent new-product activity hit an all-time high

ers are increasingly interested in specialty beers,

high in the beverage category, and

of 4,000 new SKUs per year, providing a market-

and Kraft Foods has put beverages in new focus

the desire to drive interest in new

ing boost to the beverage category and keeping

since launching liquid water enhancer MiO.

products shows in terms of new flavors, new sweeteners, new packaging and more.

things fresh in the cold vault.

And the most important move? “People

“There’s huge growth potential here,” says

want healthier refreshment,” Hemphill says.

“After sluggish performance during the

Mel Landis, chief customer officer for Coca-Cola

“Beauty is in the eye of the beholder, and this

depths of the recession, the U.S. beverage indus-

Refreshments, Atlanta. “Particularly as the

is true to some extent to perceptions of what

try is showing signs of life,” says Gary Hemphill,

[convenience-store] industry moves into areas

is healthier, too. That said, lower-calorie, better-

senior vice president of information services

like food and snacking, it really plays into our

for-you products are generally outpacing the

for Beverage Marketing Group in New York.

wheelhouse.”

performance of those that are less healthy.”

“Overall growth has yet to return to what we

Coca-Cola has rededicated itself to new-

It all makes for intriguing groundwork. CSP

saw pre-recession, but the industry is moving

product development. PepsiCo has recommitted

takes a look at the trends driving the evolution

in a positive direction, with some categories

itself to its flagship brand while making tweaks

of some of the fastest-growing categories and

performing better than others.”

to Diet Pepsi. Nestle Waters has increased its

changes made by manufacturers to meet the

portfolio in multiple ways. The major beer brew-

new needs.

Beverage Marketing Group data shows

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BEER & WINE

Beer Gets Special, Wine Gets Sweet

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ith the total volume of beer sold in convenience stores up just shy of 4%, the 2012 volume growth of three of the most-popular import beers in convenience stores tells a significant story: Corona Extra up 8.3%, Heineken up 8.0% and Modelo Especial up an impressive 27.6%. “We expect continued solid performance at the high end of the beer category,” says Hemphill of Beverage Marketing Group. “Specialty beers continue to outperform the market and gain share.” That’s because consumers are continuing on a trend “toward higher-value beers: craft and import,” says Jeff Schouten, director of channel marketing for MillerCoors, Chicago. Yet strength remains in the “core” premium beers in the industry: Bud Light, Coors Light and Miller Lite, which is growing again. For beer brewers, this means investing in high-profile promotions, extending their most popular brands and investing in specialty beers like never before. “We are providing product and merchandising expertise on craft beers through our craft division, Tenth & Blake,” says Schouten of the MillerCoors arm started in 2010. “You’ll see product innovation, including Third Shift Amber Lager, Redd’s Apple Ale and Batch 19, as well as new offerings from the Blue Moon and Leinenkugel’s brewing companies.” Heineken USA, meanwhile, is focused on building its major import brands to drive continued sales. “Wherever beer is growing, ‘upscale’ is driving that growth,” says Nick Lake, senior director, category management, national accounts for Heineken USA, White Plains, N.Y. “Winning in the upscale segment is about building longterm consumer brands that appeal to beer lovers, delivering smart innovations

that change the game and providing real value to our retail partners.” For retailers, this focus on new products and brand building requires knowing what your customer wants. “Convenience-store operators must win the upscale consumer by optimizing assortment by focusing on variety vs. duplication,” Lake says. “The key is to understand which packs actually drive incremental volume and which are substitutable.” More fundamentally, Schouten says, “Retailers should consider beer as a destination traffic driver, as they do with other categories such as coffee and foodservice. [They] should take a hard look at the space they devote to beer, especially as they enter into the craft category. Beer inventory turns are already among the highest in the store, making out-of-stocks a risk.”

Tony Gaines, vice president of small format for St. Louis-based AnheuserBusch, agrees, saying, “Most retailers use weekly supply as the metric to make sure they have enough coverage in their sets, but more than 60% of beer is purchased Thursday night through Sunday afternoon. “Winning retailers need to be on top of available cold beer for the weekend, while managing selection. The driver for a convenience store is premium beer. If the store is out of premiums, the consumer will move to another store.”

Sweet Flavors Meanwhile, another trend in alcohol beverages, arguably started by sweet-flavored vodkas and other spirits, is taking root throughout the category. “Consumers continue to look for CSP

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BEER & WINE

Best-Selling Beers C-store sales, 52 weeks ending Nov. 4, 2012

Coors Light continues to gain ground on Budweiser in convenience stores, where six of the top 10 brands saw volume growth in 2012. Brand

slightly sweeter options,” says Gaines. “A key consumer is the millennial, who may not be in the beer category. Since only 20% of the [convenience-store] channel can sell spirits, brands such as Bud Light Platinum and Bud Light Lime-A-Rita can target a traditionally hard-liquor-buying consumer and are strategic items to focus on in these stores.” A-B has made a concerted push toward these sweet tastes, extending its Budweiser and Michelob brands: Bud as mentioned above, and Michelob with fruit-flavored extensions. It also has introduced Michelob Ultra Light Cider, which capitalizes on recent growth in hard ciders, a trend also recognized via purchases by MillerCoors and Heineken USA and a brand rollout by Boston Beer Co. [CSP—Dec. ’12, p. 151]. This swing toward sweet has also hit the wine category, where traditional vintners have introduced sweeter vino, inspired by the strength of moscato. “You’re starting to see a bunch of moscato-flavored items coming out, such as a pink moscato, red moscato, not just from Gallo, but from competition. It’s basically going after what we believe the consumer wants,” says George Ubing, director of the convenience channel for E&J Gallo Winery, Modesto, Calif. Gallo’s recent product launches include a Chocolate Rouge Wine, as well as a new malt-based line under the name Delicia.

Dollar sales ($ millions)

PCYA*

Case sales (millions) PCYA*

Bud Light

$4,052.6

4.9%

191.8

2.9%

Budweiser

$1,441.5

–1.7%

68.1

–3.5%

Coors Light

$1,277.9

7.1%

60.6

4.2%

Miller Lite

$1,066.3

6.8%

50.5

4.6%

Natural Light

$848.4

4.6%

53.6

1.9%

Corona Extra

$588.1

9.8%

18.7

8.3%

Busch Light

$523.1

1.9%

33.9

–0.8%

Busch

$514.3

–2.5%

32.7

–5.2%

Michelob Ultra Light

$353.1

28.3%

13.9

22.9%

Keystone Light

$335.8

–2.8%

22.1

–5.2%

$16,407.2

7.3%

788.7

3.7%

Total category

*Percent change from a year ago Source: Convenience InfoScan, SymphonyIRI Group

Best-Selling Wines C-store sales, 52 weeks ending Nov. 4, 2012

Wines sales saw healthy double-digit growth in convenience stores in 2012, making it one of the fastest-growing segments by percentage in the channel. All brands in the top 10 saw both dollar and volume growth in 2012. Brand

Dollar sales ($ millions) PCYA* Volume sales (thousands)

PCYA*

Barefoot

$76.0

26.3%

892.6

25.4%

Sutter Home

$66.0

22.0%

877.0

17.9%

Yellow Tail

$36.1

16.3%

413.3

14.9%

Gallo Family Vineyards $25.1

17.9%

355.1

19.2%

Woodbridge

$23.6

30.7%

279.9

34.4%

Beringer

$13.5

0.8%

169.1

1.8%

Vendange

$11.6

64.4%

178.3

53.3%

Kendall Jackson

$11.2

9.9%

66.4

13.2%

Cavit Collection

$8.8

14.0%

90.3

14.6%

Franzia Box Total category

$8.3

23.9%

344.9

22.1%

$541.9

21.6%

6,743.4

19.4%

*Percent change from a year ago Source: Convenience InfoScan, SymphonyIRI Group

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BOTTLED WATER

A Clear Rebound

“P

rice continues to be an ongoing story for bottled water,” says Hemphill of Beverage Marketing Group about water in all categories. “There remains significant pricing pressure in the category with the emergence of private label as a force in the category.” In c-stores, however, SymphonyIRI Group scan data shows private-label bottled-water volume sales dropped 22% in 2012. Coca-Cola’s Dasani and PepsiCo’s Aquafina saw some growth as a result, but Nestle Waters North America’s regional brands and premium waters were the real winners. And that growth is expected to continue after a couple of slow years in the late 2000s. “We project bottled water will see 5% to 6% growth in 2013 and 2014, and even into 2015 due to health and wellness trends,” says Jim Donker, director of national accounts for Nestle Waters North America, Stamford, Conn. Hemphill also credits the move toward health and wellness as the driving force that allowed bottled water to “rebound since the depths of the recession.” “The category is aided by its positioning as the ultimate health beverage,” he says. “Bottled water is the No. 1 selling beverage around the world, but here in the U.S. it still trails carbonated soft drinks,” Donker says, underscoring the potential of the category. “We’re looking closer at when bottled water will pass CSDs as [the most popular] packaged beverage [in all channels], and what we’re seeing now is probably as soon as 2018.” Of course, in c-stores, water surpassing CSDs is a distant reality—5.4 billion units for CSDs vs. 1.9 billion for water—but the movement in all channels illustrates the opportunity. Landis of Coca-Cola agrees there is tremendous opportunity in the noncarbonated-beverage business and says Coca-Cola hopes to lead the way in innovation. “This whole space for consumers in an active, healthy lifestyle, the hydration space, really resonates well with us,” he says. “Vitaminwater Zero and PowerAde Zero have opened up that category, particularly to women that … wanted the hydration benefits but never wanted the calories.”

One Drop at a Time Meanwhile, enhanced waters have reached a new level of prominence as several beverage company startups—Karma, Activate, etc.—have entered the category to challenge vitaminwater, which dropped almost 5% in volume in 2012. Adding to the new bevy of brightly colored bottles are enhancers that consumers can add themselves. Products such as Crystal Light to Go and MiO from Kraft Foods, Dasani Drops

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Best-Selling Bottled Waters C-store sales, 52 weeks ending Nov. 4, 2012

After a period—the recession—in which many felt private-label bottled water achieved a new level of acceptance, branded waters are making a roaring comeback, including premium brands that saw double-digit growth in 2012. Dollar sales Unit sales Brand ($ millions) PCYA* (imillions)PCYA* Glaceau vitaminwater $368.7

–3.78

210.4 –4.6%

Aquafina

$362.6

5.4%

243.8

3.0%

Dasani

$346.7

3.6%

262.2

4.4%

Glaceau smartwater

$284.0

38.4%

151.2 33.8%

Nestle Pure Life

$188.8

14.8%

125.2 17.2%

Deer Park

$158.3

44.8%

114.6 40.0%

Poland Spring

$148.4

15.8%

97.3

Private label

$127.4

–21.1%

100.3 –22.2%

Fiji

$124.2

36.8%

59.3

30.6%

79.8

–1.2%

Ozarka Total category

$111.5

2.6%

$2,829.6

7.4%

14.0%

1,880.2 5.5%

*Percent change from a year ago Source: Convenience InfoScan, SymphonyIRI Group

from Coca-Cola and private-label brands have pioneered a new beverage/general merchandise subcategory. “We continue to see consumer trends toward customization, flavor variety and convenience,” says Jessica Sheth, senior associate brand manager for Kraft Foods, Northfield, Ill., about the rollout of MiO Liquid Enhancer in 2010. MiO and Dasani Drops come in less-than-2-ounce bottles and are intended to be mixed with bottled water, allowing the consumer to add as much or as little to their preferred taste. “Specifically, MiO targets millennials, and while price is an important consideration for this group, uniqueness and trend-inspired attributes are also essential,” Sheth says. Extensions of MiO have already included an “energy” line that adds caffeine and a “fit” line, rolled out in January, that provides electrolytes for a sports-drink-like beverage. MiO Energy sold more than 7 million units in c-stores in its first year on the market, according to SymphonyIRI Group data. Retailers and consumers can likely expect extensions of Dasani Drops if the first four flavors, introduced this past fall, catch on. “Dasani Drops—that’s an enhanced water, just in a different form,” says Landis. “How do we add value to core water, whether it’s nutrients or flavor or whatever it is? … The whole ingredient-enhanced thing is really interesting. If you can do drops in flavors, why can’t you do nutrients in concentrate? Why can’t I do energy, vitamins, etc.?”

CSDs

A Subcategory in Search of a Boost

S

tagnation: That’s the 2012 story for the carbonated-soft-drink (CSD) category. “Premium niche categories outperformed traditional categories,” says Hemphill of Beverage Marketing Group. “Broad-based beverages, such as CSDs, milk and fruit beverages, which are consumed by more middle-class and blue-collar consumers with higher levels of unemployment, continue to stagnate.” Beverage Marketing Group data for all channels shows CSDs “are on pace to decline for the eighth consecutive year” as aggressive competition comes from other categories, especially bottled water, and consumers seek healthier alternatives. In c-stores, however, CSDs saw small dollar-sales growth—1.7%—in 2012, while volume was flat, according to SymphonyIRI Group scan data. But in general, it’s another lackluster year for one of c-stores’ largest categories. While bottled water threatens to overtake CSDs in terms of overall volume sales, Landis of Coca-Cola says it’s much too soon to play “Taps” for the soda category. “I think people forget how big of a category it is,” he says. “When you have a category this big, this mature, it’s not going to grow at double digits. You’ve got smaller categories like energy and others that are half or a third of the size of [CSDs]; they can do that. This is a big category. If it ekes out 1%, 2% or 3% growth, you’re talking about a massive amount of growth. “We’re still really bullish on the category, but it’s going to drive into that lowsingle-digit growth rate [going forward].” Coca-Cola has tackled the problem through new package sizes, downsizing the classic single-serve 20-ounce bottle to 16 ounces and then 12.5 ounces, creating more options for consumers. And there may be more repackaging to come. “If you look around the globe in the

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Coke system, the way they’ve been able to keep the category growing and relevant is through packages,” says Landis, citing that in Mexico there are more than a dozen package sizes of Coke based on demographics, occasion, etc. “You’re seeing a little of that here now as we do 12.5-ounce at the entry level under $1” on up to “1 liter playing the big-size value role.”

“We think there’s still room to grow within that construct,” he continues. “I think you’ll continue to see us diversify packaging.”

Meet Me Halfway Meanwhile, mid-calorie colas have become the newest battleground for the three major CSD manufacturers.

Dr Pepper’s Dr Pepper 10 was the first to hit shelves, in fall 2011. Success with the 10-calorie drink, created with a combination of sweeteners, has since led to several 10-calorie line extensions, including 7-Up, Sunkist, Canada Dry, RC Cola and A&W Root Beer, rolled out in January. PepsiCo followed suit and introduced Pepsi Next, a 60-calorie version of its namesake cola made with a mixture of sweeteners, in early 2012. PepsiCo CEO Indra Nooyi has since said she expects to experiment further with the multiple sweeteners now on the market, beginning with Diet Pepsi, which quietly changed its sweetener mix ahead of a major rebranding of the soft drink set for the first quarter of 2013, according to various reports. This comes after Pepsi said it would devote more funding to advertising its key brands Pepsi and Diet Pepsi. Finally, Coca-Cola is testing Fanta Select and Sprite Select in a few markets. The sugar- and stevia-sweetened sodas promise 70 calories per serving. “We’re going to look at those as ways we may want to go,” said Landis. “That’s consistent with our health and wellness message. We’ve got full-calorie, we’ve got no-calorie, and we’ve got mid-calorie options. And we want to have all those things.”

CSD Growth C-store sales, 52 weeks ending Nov. 4, 2012

Carbonated-soft-drink sales growth continues to lag behind many smaller beverage categories. Manufacturers say single-digit growth of a nearly $9-billion category shouldn’t be overlooked. Total category

Dollar sales ($ millions)

PCYA*

$8,855.7

1.7%

*Percent change from a year ago Source: Convenience InfoScan, SymphonyIRI Group

Unit sales (millions)PCYA* 5,383.8

0.1%

ENERGY DRINKS

Energy Faces Its First Big Challenge

T

here’s been no stopping energy-drink volume growth since the category was established in the mid-1990s. But energy drinks’ first real challenge, by congressmen and potentially the Food and Drug Administration, could put the category to the test in the next year or two. The FDA confirmed in November that it is reviewing the safety of energy drinks containing caffeine and other ingredients that act as stimulants, and it may require regulatory action if evidence of a health risk is found. The agency said that because energy drinks are new products that have raised safety concerns, they warrant investigation: “New products and patterns of use require us to remain vigilant, and we are working to strengthen our understanding of the nature of energy drinks and any causal risks to health.” Possible regulation could vary from an age limit to caps on caffeine allowed in a drink—as enacted in Canada in January—to an all-out ban of the products. Consider it a warning, but until some action is taken, the category continues to deliver on the promise it has established over the past almost 20 years, growing more than 17% during the past two years. This comes after comparatively lackluster performance during the recession—including flat volume sales in 2008—but a healthy distance from the 27% growth seen in 2006. Continued double-digit growth is anticipated in the next two years as well. “According to Mintel, we can anticipate 14% growth in total energy-drink sales in 2012 and 13% growth in 2013 and 2014,” says Guy Wootton, director of category insights for Red Bull North America, Santa Monica, Calif. The main drivers of this growth, according to Wootton: ▶ Energy drinks heavily overindex in two core emerging demographic sections, Hispanic consumers and millennials, resulting in increased category penetration. ▶ Busier lifestyles are fueling consumers’ need for an energy boost; 96% of the U.S. population claims to purchase a “pickme-up product.” ▶ Innovation from the top three brands—Red Bull, Monster and Rockstar—continue to generate buzz and excitement among consumers and provide new reasons to enter the category. Wootton says an increased focus on category management will mean additional growth for the category in c-stores. “Investment in these programs will inevitably drive growth as the category becomes more efficient and expands its in-store presence,” he says. Red Bull is doing its part in adding new products this year with the March rollout of its first three flavored line extensions.

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Best-Selling Energy Drinks C-store sales, 52 weeks ending Nov. 4, 2012

Even as less successful energy drinks begin to fall away, the top 10 best-selling brands in c-stores are all seeing growth, and the category as a whole is again growing by double digits. Dollar sales Unit sales Brand ($ millions) PCYA* (millions)PCYA* Red Bull

$2,367.9

14.9%

803.8

14.8%

Monster Energy

$1,369.9

15.2%

597.2

15.7%

Monster Rehab

$265.3

227.0%

117.6 224.3%

Rockstar

$251.4 14.5% 123.1 16.2%

NOS

$227.8

8.6%

106.0

10.5%

Java Monster

$219.5

27.5%

86.4

30.9%

Monster Mega Energy $211.4

21.0

68.5

20.1%

AMP Energy

$143.4

7.9%

71.7

10.7%

Rockstar Recovery

$110.5

0.7%

54.4

1.5%

Rockstar Sugar Free

$102.4

1.4%

50.1

3.5%

$6,229.6

17.3%

Total category

2,527.3 17.4%

*Percent change from a year ago Source: Convenience InfoScan, SymphonyIRI Group

Mixing It Up Coca-Cola Refreshments is also making moves in the energy category with a hybrid new product that brings thirst relief to its NOS energy brand. “NOS Active Energy is a hybrid between a sports drink and an energy drink,” says Landis of Coca-Cola. “We think this fits well into that space for consumers in an active, healthy lifestyle, the hydration space.” Rockstar has a hybrid extension of its own. Rockstar Energy Water is a noncarbonated, caffeinated vitamin- and herbenhanced water beverage. Las Vegas-based Rockstar is urging retailers to merchandise the drink, which comes in tropical fruit, orange tangerine and blueberry pomegranate acai, in the enhanced-water section of the cold vault rather than with energy drinks. It’s part of a frequent refrain from manufacturers in the category to give it more space wherever possible. “C-stores can continue to drive these trends by planning the right amount of shelf space for the anticipated future growth for the category,” says Wootton. “By 2014, the category will be 30% bigger, and c-stores need to plan their shelf space to accommodate that. Additionally, secondary placement of cold product is critical for driving impulse purchase of energy drinks.”

ICED TEA

Good Things Come in Threes Best-Selling Iced Teas C-store sales, 52 weeks ending Nov. 4, 2012

Acquisition activity on several iced-tea brands could add up to major changes in top brands, though the independent AriZona brand remains a c-store favorite. Dollar sales Unit sales Brand ($ millions) PCYA* (millions)PCYA*

T

hose little bags of tea that need to steep in water and then refrigerated in pitchers? Their days may be numbered. Instead, “ready-to-drink tea has accounted for virtually all of the growth in the U.S. tea market” since 2006, according to Beverage Marketing Group data. And RTD tea “now accounts for over 30% of the total volume,” up from 24% in 2006. The boom, including an 8.6% jump in RTD tea unit sales in c-stores in 2012, according to SymphonyIRI Group, is due to two reasons: a reflection of consumer demand for convenience, and an increasing focus on health and wellness. Major suppliers have noticed and reacted by creating full complements of brands. Call them the “three tiers of tea.” As two major suppliers—Coca-Cola Co. and Nestle Waters North America—solidified their iced-tea lineups in 2012, their threetiered products will receive strong pushes from sales representatives and heavy marketing and advertising campaigns designed to draw relevant consumers. For Coca-Cola, its triumvirate includes Honest Tea at the high end, Gold Peak in the premium-to-popular range, and an expanded Fuze product line in the popular-to-value play. “Tea is a huge platform,” says Landis of Coca-Cola. “Over the last five to seven years, we’ve been in the [tea] category but probably not in the way we would have like to have participated, given the growth. So you’re going to see a hard push this year— as we’ve ended our Nestea relationship—around Fuze, Gold Peak and Honest Tea.

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AriZona

$284.6

0.1%

269.1

1.1%

Lipton Brisk

$200.8

0.4%

189.1

1.6%

Lipton Pureleaf

$107.5

1.8%

60.6

–0.4%

AriZona Arnold Palmer $96.6

10.4%

92.2

11.2%

Gold Peak

$82.2

34.8%

48.9

35.6%

Snapple

$73.2

3.8%

50.2

4.8%

Lipton

$64.7

–4.4%

42.1

–7.8%

Peace Tea

$62.6

28.7%

63.2

28.6%

Nestea

$41.5

–19.8

34.9 –20.9%

Diet Snapple

$36.0

28.7%

23.0

27.1%

$1,211.4

8.6%

995.2

8.6%

Total category

*Percent change from a year ago Source: Convenience InfoScan, SymphonyIRI Group

“We want to dive into tea, which is an untapped category for us.” Nestea, meanwhile, is now in the hands of Nestle Waters, which, after years as a water-only company, has three iced-tea brands of its own. “We’re trying to do the same thing that we did in water. We’ve created [three tiers],” says Donker of Nestle Waters. “We’ve got the mainstream tier, where Nestea’s going to play. Stepping up, we’re creating a premium category, where Tradewinds will play. And in the specialty category, we’ve got Sweet Leaf.” Retailers can expect promotions around all three of those brands “as we attack the category and build our brands and our business for the long term,” Donker says. Between the refocused brands and the growth in the category, retailers may want to review their tea sets. To that end, Donker recommends retailers consider dedicating a full door to tea. “With the predicted growth of over $1 billion in the next four years, it’s important to make sure they are capturing this trend,” he says. “By doing so, they will be able to offer their customers the variety they are looking for, particularly in the premium [fresh-brewed teas] and specialty teas that are providing some of the greatest growth.” n