One of the most important in-store categories in convenience stores is serving up both opportunities and challenges for operators. Packaged beverages are undergoing such dynamic changes—driven by an explosion in new options, health and wellness trends and changing consumer demographics—that many retailers are wondering when it comes to the category, is the glass half full or half empty?

“The amount of product and flavor choices is overwhelming,” remarked Andy Payan Jr., manager of Payan’s Fuel Center in El Paso, Texas. “It’s not like it was 20 years ago, when you only had Coke, Diet Coke, Pepsi, Diet Pepsi and Sprite. Today, it seems that Monster alone has 50 different variations.”

David Collins, president and owner of Quick Shop, with 13 locations in Alabama, agrees. “There are so many SKUs, so many flavors today,” he said, pointing to the likes of Mountain Dew—his top-selling carbonated soft drink—with its many variants. “We have to figure out how to carry them all, along with the mainstays, Coke and Pepsi.”

Indeed, packaged beverages are such a vital traffic driver for c-stores that retailers are feeling particularly stressed in selecting the right products for their customers from an ever-expanding array of options. “The amount of innovation coming in packaged beverages is staggering,” said Ken Sylvia, vice president of sales at Talking Rain Beverage Co., marketer of Sparkling Ice flavored sparkling waters, “but stores aren’t getting any bigger. C-stores are going to be challenged to manage the amount of finite space available in the store, while being able to offer consumers the choices they want.”

Profitable Category

The second-largest channel for packaged beverages, c-stores accounted for more than $27 billion in sales for the category in 2017. While category sales increased just slightly during the period, packaged beverages were still the No. 2 in-store merchandise category after cigarettes, accounting for average store sales of $316,956 in 2018, according to recently presented data at this year's NACS SOI Summit.

The category is a profitable one for retailers, as it brought in $134,761 gross profit dollars, second only to foodservice. “The packaged beverages space continues to tighten with the expansion of ready-to-drink (RTD) products, as well as new products such as kombucha, sparkling water and pressed juices,” said Jayme Gough, NACS analyst. But much of the product proliferation is consumer-driven, she added, so retailers need to at least consider stocking a variety of products. “Younger consumers are opting for new products, new flavors. Generation Z consumers are adventurous, not repetitive when it comes to beverages,” Gough noted.

Health and wellness concerns have forced innovation in packaged beverages.

Packaged beverage trends in c-stores improved a bit last year, according to J.C. Harvey, director of retail channel strategy and commercialization at Coca-Cola North America. Citing Nielsen data, Harvey said RTD beverage sales in the channel increased 2.1% in 2018.

In the cold box, some packaged beverage types are performing better than others. Average store sales of carbonated soft drinks (CSDs)—the largest packaged beverages subcategory—declined in 2018, while enhanced waters and RTD iced tea increased, according to data presented at this year's NACS SOI Summit. “Health concerns within this category have contributed to the decline in CSDs,” remarked Gough. “However, bottled water and enhanced water have grown in popularity.”

Harvey also pointed to shopper interest in variety when explaining the “slight headwinds” facing CSDs. “In an effort to provide more of the beverages shoppers want, we’re offering more options across a range of beverage categories, including juice, water, sports drinks, dairy, tea and grab-and-go coffee,” the marketer said, as well as new CSDs with the likes of the fast-growing Coca-Cola Zero Sugar.

C-store operators verified the subcategory trends. “Bottled water is showing the best growth potential in the whole cooler, and we expect that to remain the case for 2019 and beyond,” remarked Collins, noting that Quick Shop recently expanded the cooler space it devotes to bottled water. CSD sales at the chain are flat, he said, while energy drink growth has slowed. “More people are going for lower calories, less caffeine and sugar,” the retailer explained.

At Kwik Trip, with more than 600 stores in Iowa, Minnesota and Wisconsin, Jack Walter, category manager, said that while CSD sales are flat, bottled water, energy drinks and RTD coffee sales are growing, and sports drinks are seeing a resurgence, thanks to some new entries. Energy drinks are “closing the gap” on CSDs, Walter remarked, whereas “five to 10 years ago, there was no doubt CSDs primarily drove beverage sales.”

Many retailers offer ‘two for’ promotions of packaged beverages to encourage in-store traffic and higher rings.

Energy drinks, sparkling waters and probiotics are performing best at Tank-N-Tummy in Cleveland, Oklahoma, owner DeAnn Tracy said. Waters and probiotics are “perceived as healthier” than other drinks, she said, and appeal to women age 25-35. “Males tend to opt for energy drinks over sodas,” Tracy added.

Health and wellness concerns have forced innovation in packaged beverages. “Keywords seem to be triggering with guests, whether it’s a function or an ingredient,” said Walter. Indeed, Kwik Trip has added kombucha to all stores, he noted, and the product has “shown a strong performance. We’ll continue to test other products to see how they perform before we decide to go full scale.” At least one convenience retailer reported that health and wellness trends have not impacted packaged beverage sales. “We keep hearing about it, but we’re not seeing it in our stores,” said Megan Reckelhoff, vice president of JJ’s, with seven stores in Indiana. “People still want Coke, Pepsi, Marlboros and Snickers bars.”

Best Practices Pay Off

Reckelhoff, Collins and Tracy rely on “two for” promotions of packaged beverages to encourage in-store traffic and higher rings. Several retailers, though, reported that pricing pressures in recent years have made it more difficult to offer the deals and still turn a healthy profit. Payan Fuels in Texas promotes packaged beverages and other in-store products at its 12 gas pumps with embedded LCD screens. Meanwhile, at Kwik Trip, Walter said, “Our most recent focus has been through our loyalty program, whether it’s tied to fuel discounts, punch rewards or coupons. The loyalty program has seen some incredible engagement from our guests and has proven to be a more efficient spend on promotions.”

Packaged beverage suppliers said convenience retailers would be wise to consider best-practice tactics to aid the category’s performance in their stores. In addition to strong loyalty programs, Karen Ress, vice president, retail–out of home, at Nestlé Waters North America, suggested foodservice pairings and ambient beverage sections for both singles and multipacks. Laura-Lynn Freck, director, shopper insights for Red Bull North America, remarked, “Winning retailers are good at deploying coolers and displays at checkout and in other key zones of the store to capture the incremental purchases from energy drink shoppers.” And Coca-Cola’s Harvey suggested bundling packaged beverages with snacks, another commonly purchased category in c-stores. “By building RTD beverages and snacks with the right offer and proactively promoting the offer to customers, store operators can drive in-store traffic and grow basket size,” he said.

Retailers concede that one of their greatest challenges today is offering the right packaged beverages—including mainstays and new variants—in an already-crowded cooler. “It can be challenging to stay on top of the latest trends and keep the right category mix,” remarked Collins. “When you take on something new, something’s got to go.” Nestlé Waters’ Ress agreed but noted, “convenience store consumers still expect to find variety when they shop in the channel. It’s important that the c-store operator find the appropriate balance between core items and innovative items.”

Due to the size and profitability of packaged beverages, not to mention consumer need states, the category also provides continued opportunity for c-stores. Sylvia from Talking Rain remarked that while “there’s no denying the importance of the legacy brands in our industry,” because of changing consumer demands, retailers “need to take some chances on new innovative brands.” Gough added that for convenience retailers to get the best read on shoppers’ packaged beverage interests, “talk to them, get their input.” Retailers may just find that with packaged beverages, the glass is indeed half full.