Sales and gross profit dollars of packaged beverages in convenience stores are on the rise, which demonstrates how vital the category continues to be for retailers. “The packaged beverage segment is a key expected category for c-store consumers, and it accounted for 15.36% of in-store sales in 2019,” said Jayme Gough, NACS analyst. “The category has seen extensive innovation, subcategory blurring and healthy growth in the past year. For the first time in NACS State of the Industry data history, energy drinks passed carbonated soft drinks as the largest sales contributor to the category in 2019.”

Overall, the convenience channel accounted for 43.8% of total packaged beverage sales, just behind the food channel at 49.4% in 2019, according to Nielsen. While unit sales of packaged beverages in the channel slipped 1.7%, as per Nielsen, dollar sales rose 3.3% to $30.5 billion. The packaged beverages category is not only a traffic driver, it’s a top profit contributor to c-stores’ bottom lines.

According to the recently released NACS State of the Industry Report of 2019 Data, the packaged beverage category was the No. 2 in-store merchandise sales contributor and the No. 1 merchandise gross margin contributor. On a per-store basis, average gross profits for packaged beverages increased a healthy 7.3% last year to $147,882 from $137,810. Average sales per store rose 5.1% to $353,123 from $336,127 in 2018.

Breakout Beverages

As with other in-store categories, packaged beverages are being transformed by increased consumer demand for better-for-you products, as well as heightened interest in new flavors. “Products with a perceived health benefit continue to populate the space,” remarked Gough, pointing to the recent “breakout” of drinks like non-alcoholic seltzers and steady gains for enhanced and functional beverages, along with kombucha, specialty, ready-to-drink coffee and bottled water.

More often, customers are looking to try new beverages they have never tasted before.

GT Dave, CEO and founder of GT’s Living Foods, the kombucha marketer, also has seen the shift. “Traditionally, the convenience channel has been the destination for snacks, candy and not-so-healthy beverage options, but that’s changing as consumers continue to seek better-for-you options while on the go,” said Dave, noting that response to his kombucha in c-stores has been very positive.

Pat Determan, owner of Lyons Filling Station in Clinton, Iowa, reported that brands like Propel flavored electrolyte water and Vita Ice flavored sparkling water are popular at his store. “Even energy drinks are putting an emphasis on health,” he added. And like other retailers, Determan said his packaged beverage customers continue to welcome the category’s endless array of new flavors. “More often, customers are looking to try new beverages they have never tasted before,” agreed Gough. “Younger customers especially are more adventurous in their consumption habits, compared with their parents, who might prefer a beverage they know and love.” For this reason, retailers should adhere to a “delicate balance of providing repeat, daily customers with what they want, as well as stocking items for customers who want something new and different every time they visit,” she advised.

Energy drinks now lead all other packaged beverage types in dollar sales and gross profits per store, and 2019 was another strong year for the segment. According to NACS State of the Industry (SOI) data, average per-store gross profit dollars for energy drinks reached an impressive $45,134 last year, more than any other packaged beverage subcategory.

“Energy drinks are a destination category for c-stores,” remarked Laura-Lynn Freck, director of shopper insights at Red Bull North America. In fact, a number of successful new entrants to the segment helped drive growth, she noted, including the Red Bull Peach edition. While the COVID-19 pandemic has been impacting c-store traffic this year, Freck added that energy drinks still play an important role for the channel and consumers. “The need for energy is greater than ever as consumers are juggling more demands than ever,” she explained. “Energy drinks are a trip driver now and will be again with resumed routines.”

The strength in the energy drink segment hasn’t been lost on other beverage marketers. Coca-Cola North America, for example, recently launched Coca-Cola Energy. J.C. Harvey, director of retail channel strategy and commercialization, said early sales for the brand were promising. “We’re confident that the category-crossing innovation will be a big hit for us and our customers,” he remarked.

Energy drinks lead all other packaged beverage types in dollar sales and gross profits per store.

Functional Favorites

Carbonated soft drinks (CSDs), meanwhile, have been struggling in recent years as consumers ease up on sweetened drinks. CSDs accounted for 24.2% of average per-store sales in the packaged beverages category last year, according to SOI data, down from 25.3% in 2018. Still, the news wasn’t all bad as average sales per store last year rose slightly. And Harvey noted that despite the overall decline for the segment, some brands, such as Coca-Cola Orange Vanilla and Sprite Lymonade, are seeing growth.

Bottled waters, of course, have been a beneficiary of the shift away from CSDs, and in 2019, the inroads continued. Average sales per store, average gross profit dollars per store and average gross margins all rose, according to SOI data. Harvey reported that Smartwater Alkaline, Smartwater Antioxidant and Topo Chico were Coca-Cola’s top water performers.

Tom Hipwell, vice president of retail sales at Nestlé Waters North America, noted that bottled water is generally within the top three packaged beverage segments in c-stores, depending on the market. At Nestlé Waters, Acqua Panna is a growth brand, Hipwell said.

Enhanced waters, meanwhile, are now hitting their stride. While comprising just 2.9% of category sales, enhanced waters containing caffeine, protein, probiotics and other additives are increasingly appealing to consumers interested in more functional water products.

Indeed, retailers report that traditional beverages are seeing share loss to newer, often functional drinks. “While there will always be a market for Coke, Diet Coke and bottled water, the big trends we’re seeing in the packaged beverage space are kombuchas, ready-to-drink coffees—including those with alternative milks—all-natural sodas and CBD drinks,” said Dani Cone, owner of Cone & Steiner General, with three stores in the Seattle area. Whenever possible, Cone tries to stock locally made beverages, including RTD coffees and kombuchas.

The big trends we’re seeing in the packaged beverage space are kombuchas, ready-to-drink coffees, all-natural sodas and CBD drinks.

Space Age

With both established and new beverages, c-store coolers are increasingly stressed. Lynette Stoudt, owner of Tramway Market in Stateline, Nevada, lamented, “My biggest challenge is finding space for all the new energy drinks, while maintaining room for the staples like Red Bull and Monster that continue to perform well.” In addition to space constraints, Coca-Cola’s Harvey said c-stores find it difficult to encourage fuel customers to enter the store for packaged beverage purchases. Signage at the pump can be effective in converting those consumers, the beverage executive noted.

Other best practice merchandising tactics can go a long way in helping retailers get the best results from their packaged beverage offerings. Harvey suggested food and beverage bundles, while Freck pointed to merchandising energy drinks in multiple areas of the store. Nestlé Waters’ Hipwell said that while selection should appeal to the majority of consumers, it’s important to consider special needs, too. “Some consumers like to have bottled water at room temperature, and some may want to purchase a case pack,” he noted. Among retailers, Lyons Filling Station’s Determan has found everyday low pricing to be effective, while Cone calls out new products on social media.

Then there’s Pops in Arcadia, Oklahoma, located on famed Route 66. The c-store is renowned for its more than 700 different sodas—most of which are sold as singles in glass bottles—and its iconic 66-foot tall neon soda bottle that serves as a beacon for many tourists. While brands like Coke and Pepsi are top sellers year-round, Pops specializes in limited-volume and hard-to-find soft drinks. “We see a run on a lot of crazy flavors,” remarked general manager Missy Smith, adding that the store does its best to fulfill customer requests. Unlike other c-stores, Pops isn’t seeing a retreat in CSD sales, Smith noted, with the drinks—stocked in some 13 cooler doors and end-aisle coolers—accounting for about half of the store’s sales.

While not all c-stores can take the same approach to packaged beverages as Pops, there’s still plenty of opportunity to grow category sales. Harvey advises retailers to tailor their product offerings to the store’s specific customer base. Cone, meanwhile, believes in a “trial and error” approach. “Packaged beverages is a strong category for us,” she said, so managing it is important. “We’ll take on two or three new flavors, see how customers react, and move on from there.”

The Power of CSX Data

CSX, the engine behind category metrics and NACS State of the Industry data, provides current and customizable tools for financial and operational reporting and analysis in the convenience industry. Retailers can measure their company by any of the myriad metrics generated via our live database. Contact Chris Rapanick at (703) 518–4253 or [email protected] for a complimentary executive walkthough.