A New Crop in the Beverage Garden - CSP Daily News · ... chief customer officer for Coca-Cola Refreshments, ... to Diet Pepsi. ... BEVERAGE REPORT A New Crop in the Beverage Garden

C S P February 2013 55

N ew-product activity is at an all-time

high in the beverage category, and

the desire to drive interest in new

products shows in terms of new flavors, new

sweeteners, new packaging and more.

“After sluggish performance during the

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

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

senior vice president of information services

for Beverage Marketing Group in New York.

“Overall growth has yet to return to what we

saw pre-recession, but the industry is moving

in a positive direction, with some categories

performing better than others.”

Beverage Marketing Group data shows

recent new-product activity hit an all-time high

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

ing boost to the beverage category and keeping

things fresh in the cold vault.

“There’s huge growth potential here,” says

Mel Landis, chief customer officer for Coca-Cola

Refreshments, Atlanta. “Particularly as the

[convenience-store] industry moves into areas

like food and snacking, it really plays into our

wheelhouse.”

Coca-Cola has rededicated itself to new-

product development. PepsiCo has recommitted

itself to its flagship brand while making tweaks

to Diet Pepsi. Nestle Waters has increased its

portfolio in multiple ways. The major beer brew-

ers are increasingly interested in specialty beers,

and Kraft Foods has put beverages in new focus

since launching liquid water enhancer MiO.

And the most important move? “People

want healthier refreshment,” Hemphill says.

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

is true to some extent to perceptions of what

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

for-you products are generally outpacing the

performance of those that are less healthy.”

It all makes for intriguing groundwork. CSP

takes a look at the trends driving the evolution

of some of the fastest-growing categories and

changes made by manufacturers to meet the

new needs.

Fresh products abound, but which trend is driving innovation?

By Steve Holtz || [email protected]

2013 | BEVERAGE REPORT

A New Crop in theBeverage Garden


W 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 per-

formance at the high end of the beer

category,” says Hemphill of Beverage Mar-

keting Group. “Specialty beers continue to

outperform the market and gain share.”

That’s because consumers are continu-

ing on a trend “toward higher-value beers:

craft and import,” says Jeff Schouten,

director of channel marketing for Miller-

Coors, 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 long-

term 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 prod-

ucts and brand building requires know-

ing what your customer wants.

“Convenience-store operators must

win the upscale consumer by optimiz-

ing assortment by focusing on variety

vs. duplication,” Lake says. “The key is to

understand which packs actually drive

incremental volume and which are sub-

stitutable.”

More fundamentally, Schouten says,

“Retailers should consider beer as a desti-

nation 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 Anheuser-

Busch, 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 pur-

chased 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 con-

sumer will move to another store.”

Sweet FlavorsMeanwhile, another trend in alcohol bev-

erages, arguably started by sweet-flavored

vodkas and other spirits, is taking root

throughout the category.

“Consumers continue to look for

BEER & WINE

Beer Gets Special, Wine Gets Sweet


Best-Selling BeersC-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 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%

Total category $16,407.2 7.3% 788.7 3.7%

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

Best-Selling WinesC-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 $8.3 23.9% 344.9 22.1%

Total category $541.9 21.6% 6,743.4 19.4%


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 recog-

nized 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.

BEER & WINE

C S P February 201360

“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 popu-

lar] 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 TimeMeanwhile, enhanced waters have reached a new level of promi-

nence 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

from Coca-Cola and private-label brands have pioneered a new

beverage/general merchandise subcategory.

“We continue to see consumer trends toward customiza-

tion, 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 tar-

gets 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 differ-

ent 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.?”

A Clear ReboundBest-Selling Bottled WatersC-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 salesBrand ($ 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 14.0%

Private label $127.4 –21.1% 100.3 –22.2%

Fiji $124.2 36.8% 59.3 30.6%

Ozarka $111.5 2.6% 79.8 –1.2%

Total category $2,829.6 7.4% 1,880.2 5.5%


BOTTLED WATER


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 over-

take 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 cat-

egory, but it’s going to drive into that low-

single-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

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 demo-

graphics, 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 HalfwayMeanwhile, 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 combina-

tion 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 rebrand-

ing of the soft drink set for the first quar-

ter 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 GrowthC-store sales, 52 weeks ending Nov. 4, 2012

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

Dollar sales ($ millions) PCYA* Unit sales (millions) PCYA*

Total category $8,855.7 1.7% 5,383.8 0.1%


A Subcategory in Search of a Boost

CSDs


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 Janu-

ary—to an all-out ban of the products.

Consider it a warning, but until some action is taken, the cat-

egory 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 “pick-

me-up product.”

▶ Innovation from the top three brands—Red Bull, Mon-

ster 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.

Mixing It UpCoca-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 herb-

enhanced 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 accom-

modate that. Additionally, secondary placement of cold product

is critical for driving impulse purchase of energy drinks.”

Energy Faces Its First Big Challenge

Best-Selling Energy DrinksC-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 salesBrand ($ 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%

Total category $6,229.6 17.3% 2,527.3 17.4%


ENERGY DRINKS


Those 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 three-

tiered products will receive strong pushes from sales representa-

tives 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.

“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

Best-Selling Iced TeasC-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 salesBrand ($ millions) PCYA* (millions) PCYA*

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%

Total category $1,211.4 8.6% 995.2 8.6%


Good Things Come in Threes

ICED TEA

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A New Crop in the Beverage Garden - CSP Daily News · ... chief customer officer for Coca-Cola Refreshments, ... to Diet Pepsi. ... BEVERAGE REPORT A New Crop in the Beverage Garden