C-Stores Face More Competition_Beverage Industry_011009

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According to Information Resources Inc. (IRI), Chi-

cago, household penetration in the convenience chan-

nel has remained flat so far this year. By comparison,

the market research firm reported in its August 2009

“Times and Trends” report that the same measurements

have supercenters up 1.8 percent, dollar stores 1.4 per-

cent, and club stores and drug stores 0.7 percent. Like

convenience stores, grocery was nearly flat, up a slight

0.1 percent, but grocery has a 99.1 percent household

penetration rate vs. convenience stores’ 27.2 percent.

In terms of average purchase occasions per house-

hold, convenience stores gained 0.4 percent, where dol-

lar stores jumped 10 percent, supercenters 7.9 percent,

grocery 5.2 percent, club stores 6.4 percent and drug

stores 3.3 percent.

“The big thing that they are challenged with cur-

rently is the trips to the stores,” says Matt McCourt,

director of convenience stores and spirits at IRI. “We’re

actually seeing a decline in this channel vs. the grocery,

drug, mass and supercenter channels as far as quick-trip convenience stops. So the big thing is how do the

c-store operators continue to hold and grow their

current consumer base?”

Last year, high fuel prices kept consumers out of

stores, but 2009 has been impacted more by the overall

economic decline than any specific factor.

“Unlike last year, the fuel prices are not impacting the

consumer’s ability to go and seek out the best value,”

says Dan Wandel, IRI’s senior vice president of bever-

age alcohol client solutions. “They’re actually shopping

in five or more channels. That was not the case last

year when the gas prices went up, but now that they’ve

moderated, we’ve definitely seen the consumer today

going out and seeking out the best value, regardless of

where they have to drive to go get it.”

In addition, traditional take-home channels such as

grocery and mass merchandise outlets are competing

for the on-the-go consumer.

“It’s a channel that continues to be under attack by

other formats,” says Nick Lake, vice president and

group client director at the Nielsen Co., Schaumburg,Ill. “What I mean by that is a lot of retailers are experi-

menting with small formats.”

He cites Kroger, Wal-Mart and Tesco as non-conve-

nience retailers that have created small-format stores to

attract the quick-trip shopper.

Despite the challenges, the convenience industry

grew overall sales 8 percent last year, with in-store

sales increasing 3.2 percent, according to the National

Association of Convenience Stores’ State of the Industry

report. The industry saw a drop in the number of stores

nationwide, as about 1 percent of stores closed their

doors due to poor economic conditions. Last year’s

high fuel prices did nothing to help the retailers who

sell gas, the association reports, citing low fuel margins

as another reason for the store closings.

While single-store retailers make up the majority — 62

percent — of the convenience trade, they also accounted

for the most store losses last year. Of the 1,419 stores that

went out of business, 1,116 were single-store operations.

LIQUID ASSETSBeverage sales helped the 2008 sales increases, accord-

ing to NACS. Non-alcohol packaged beverages grew 14

percent, while beer, the top-selling beverage in the con-

venience channel, was up a little more than 10 percent.

| Beverage Industry | OCTOBER 2009 | bevindustry.com

THE CONVENIENCE CHANNEL IS GETTING A RUN FOR ITS MONEY FROM

alternative retail formats in the battle for quick-trip customers, say retail industry

experts. In addition, today’s price-sensitive consumers are looking to save more

than just time, and they are shopping multiple channels for value.

Channel Strategies

C-stores facemore competition

BY SARAH THEODORE

Shoppers makefewer impulse buys,

shop alternatechannels for value

Beverage category sales through theconvenience channel

DOLLARSALES

UNITSALES

% CHANGE VS.PRIOR YEAR

% CHANGE VS.PRIOR YEAR

Source: Information Resources Inc., Chicago. Total U.S. Convenience-AllScan, year-to-date sales ending Sept. 6, 2009.

Beer/Ale/Cider $9,999,442,000 (1.5) 1,973,063,000 (4.0)

Carbonated Beverages $5,837,686,000 0.8 3,572,176,000 (0.9)

Energy Drinks $2,821,176,000 (0.5) 1,121,374,000 (1.4)

Convenience/Pet Still Water

$1,834,924,000 (6.9) 1,266,736,000 (9.2)

Shelf-Stable Canned andBottled Tea

$623,686,200 6.5 471,033,000 10.1

Energy Shots $367,467,800 72.6 122,152,900 69.6

Shelf-Stable Cappucino/Iced Coffee

$246,766,000 (14.1) 102,084,000 (19.8)

Jug/Bulk Still Water $136,108,800 (10.7) 79,033,700 (12.4)

Refrigerated RTD Teas $114,337,900 10.8 71,833,620 7.5

Sparkling/Mineral Water $28,245,500 (2.8) 19,170,110 (5.6)

Refrigerated RTD Coffee $4,300,127 (47.1) 1,948,557 (46.9)

continued on page 38

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38BI7094CRY.indd 1 7/2/09 11:44:18 AM

That trend has not held so

far in 2009. IRI reports that beer

sales through the convenience

channel are down about 1.5

percent in dollar terms and

almost 4 percent in volume.

The difference between the two

is indicative of overall price

increases that the beer industry

has managed to implement,

despite consumer price sensitiv-

ity, IRI’s Wandel says.

Carbonated soft drinks are

up a little less than 1 percent in

dollar sales, but down nearly the

same in volume. The only stand-

out beverage categories this

year seem to be energy shots, re-frigerated teas, and shelf-stable

ready-to-drink teas.

Foodservice also is an area of

interest for a growing number

of convenience retailers. In fact,

foodservice represents the larg-

est portion of convenience store

retailers’ gross margin dollars,

at almost 24 percent, NACS

reports. Packaged beverages

account for 16.6 percent of those

gross margins, and beer 6.9

percent.

Industry experts say food-

service is one area where

beverage manufacturers can

partner with convenience store

operators.

“The primary focus for the

channel certainly has been

foodservice,” Lake says. “I think

there’s a lot of retailers that have

been doing interesting things

with foodservice, whether it be

hot dogs, pizza, coffee… and

they’ve been driving those with

a lot of promotion.”

NACS says the average

convenience store does $20,000

a month in foodservice sales,

which includes prepared foods

at $11,600 per month; hot dis-

pensed beverages at $6,900 permonth; cold dispensed bever-

ages at $2,200 per month; and

frozen dispensed beverages at

an average $2,000 per month.

Lake recommends beverage

companies “try to partner with

convenience retailers on the

foodservice end so that food-

service operators can become

full meal replacement destina-

tions ... think pizza and beer,

for example, or a hot dog and a

Coke.”

GETTING CRAFTYConvenience store retailers are

shifting their product mix a

bit to compete with bulk sales

through grocery and supercen-

ter outlets. Large pack sizes

such as 24- or 30-packs are more

common in convenience outlets

these days, say industry experts,

as retailers pick up on some

of the habits that are driving

Channel Strategies

continued on page 40

continued from page 36

| Beverage Industry | OCTOBER 2009 | bevindustry.com




40

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consumers to other channels.

Despite its low growth rate,

beer is benefitting from large

pack sizes, IRI’s Wandel says.

“As more and more home en-

tertainment occurs, we’re seeing

a lot more stocking up trips, and

that would include beverage

alcohol,” he says.

However, smaller single-serve

items such as 16-ounce soft

drinks allow for a lower price

point, and also are making a

showing.

“What that does is that al-

lows for a 99-cent price point,

whereas when you get to that

20-ounce, it’s a little more dif-ficult to get to that 99-cent price

point,” Lake says.

A seemingly opposite shift

has led many convenience retail-

ers to add more craft beer.

“The retailers are starting to

take a harder look at something

like the craft segment, which

despite the economy, contin-

ues to grow in supermarkets,

liquor stores and drug stores

at a pretty good rate,” Wandel

says. “That’s another trend

that you might see some of the

convenience retailers starting to

jump on.”

Nielsen’s Lake agrees “The

convenience industry has seen

about a 14 percent growth in

craft styles,” he says. “You have

to keep in mind, it is a fairly

small percent of the business

— craft beer represents only 1.5

to 2 percent of the convenience

channel’s total beer business.”

But, he adds, “As more and

more convenience stores see

the value in selling higher-

end products, you’re going to

continue to see that grow. It’s a

huge opportunity for the conve-

nience channel.”

Experts agree that any bever-age company that hopes for suc-

cess in convenience stores has to

keep in mind the very fragment-

ed nature of the channel.

“You’re going to have to see

who’s shopping the retailer that

you’re calling on and under-

stand who their shoppers are,”

McCourt says. “The old adage

of just one promotion and blan-

keting it across a whole channel

doesn’t work.”

He also recommends a focus

on healthier items as a way to

draw more women into stores,

which historically have been

dominated by men.

“When you’re doing pro-

motions, look at the female

consumer and what they’re

looking for,” he says. “Sugar

drinks and things of that

nature are just not top of mind

with moms. You’re looking at

people who want to look for

healthier choices.” BI

Channel Strategies

continued from page 38




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C-Stores Face More Competition_Beverage Industry_011009