• 2007 CSD READER’S CHOICE AWARDS •
PACKAGED BEVERAGES
NINETY-TWO KEY DECISIONS MAKERSfor 87 chains reported $2.1 billionin sales for the entire packaged beverage category, which includes carbonated soft drinks (CSDs), juices andteas. As may be expected, the top sellersthis year were the big two, Pepsi and Coke.Following them was Cadbury Schweppes’Dr. Pepper.
According to Russ Kidd, Circle K’s category manager for the Southeastern division, CSDs are still the biggest draw indrink sales in his area, the top two SKUsbeing Mountain Dew and Coke.
“Who’s No. 1 depends on where you’restanding,” said Kidd, referring to the backand-forth nature of the chain’s top sellers.
Unfortunately, the juice category hasflattened out over the past several years. “Nationally, the juices haven’t beendoing as well,” Kidd said. On a more positive note, Kidd reported that tea saleshave been riding high recently thanks tothe health-conscious consumer.
“There’s a phenomenon going on in tearight now, which is all about being good foryou,” said Kidd. “All the beverage companies are emphasizing the tea phenomenon and lobbying for more space.”
John Yellman, category manager for RedHed Oil, agrees with Kidd’s analysis ofreplacing underperforming categories.
“Juice has slipped,” he said. “Andspace to sales indicates we need to take ahard look at what is not selling and makeroom for the growing categories.”
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ISOTONICS & ENERGY DRINKS
THE GROWING ISOTONIC AND ENERGYdrink category continued its steadyclimb in popularity. Ninety-four keydecision makers representing 89 chains reported that $776 million wasearned by the drink category. These arestrong sales compared to last year when decision makers reported $749 million insales.
Isotonics, which have been performingwell in c-stores long before energy drinkswere developed, remain strong. PepsiCo’sGatorade maintained its powerhouse standing by holding onto the top sales spot. RedBull held it’s spot in the constantly expanding energy drink category.
“Gatorade offers so many different SKUsand a lot of package variety,” said RussKidd, Circle K’s Southeastern division category manager, explaining Gatorade’s success in his stores. “They grow so muchbecause they’re constantly upgrading andincreasing their SKUs.”
While a lot of industry experts may bedismissing energy drinks simply as a category trend—and one that is oversaturated toboot—some retailers feel that energy drinksare here to stay, such as Kidd, who predictsthat these products are the “soft drink of the future.” However, Kidd doesnot predict that Red Bull will continue toclinch the top spot with competition likeMonster on the market.
“Depending on the region, Monster isalready on top,” said Kidd. “They’ve made alot of headway over the last two years. RedBull is still the baseline player out there, butMonster continues to be innovative and thattakes away from Red Bull.”
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BOTTLED WATER
THE 93 KEY DECISION MAKERS surveyed represent 28,161 stores across88 chains. For those surveyed, bottledwater earns $465 million in sales annually. Nestle Waters North America outdid both Dasani (Coke) and Aquafina(PepsiCo) with its regional brands.
Circle K considers Nestle Waters its”house” brand, as it is the company’sbest seller.
“I think our customers gravitate to theNestle Waters brand because of package variety and value,” said Russ Kidd, categorymanager for Circle K’s southeastern division.”I usually charge less for Nestle—sometimes a 20-cent gap depending on markettrends—and customers feel like they’re getting more for their buck.”
Larger package sizes of plain water areselling very well in Quick Chek stores, butthe company is seeing double-digit growth infunctional beverages and flavored waters.
“The two main products for us areGlaceau’s Vitamin Water and PepsiCo’sPropel,” said Bill Tencza, senior categorymanager of beverages, candy, milk and beerfor the Whitehouse Station, N.J. chain.”Poland Spring (Nestle Waters) one-liter andthree-liter jugs have sold great. We don’t liketo give stuff away, but Poland Spring offeredan eight-pack that was sold as a ‘buy six gettwo free.’ We didn’t have to lower our retailand our customers saw it as a deal.”
Dasani and Aquafina sell very well inRichmond, Ky.-based Red Hed Oil’s stores.Category manager John Yellman considers Coke a valuable vendor because it’s beenactively trying to promote its products. Hisbiggest complaint is the over-saturation ofthe category.
“I would prefer manufacturers focus oncertain products rather than trying to outdoone another by adding more products to thecategory,” said Yellman. “Having so manychoices can be confusing for the customer.”
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BEER, WINE & SPIRITS
BEER SALES ARE BOOMING ANDAnheuser-Busch is leading the way,according to the 71 category managersrepresenting the 67 different chains that participated in CSD‘sBrand Preference Study. The category managers, which represented a total of 21,293stores, reported their beer sales reached ayearly combined total of $2.58 billion. That’s a leap from last year, when 65 respondentsreported a total of $1.75 billion in sales.
Approximately 82% of the retailers polledreported Anheuser-Busch as their top performer, followed by Miller Brewing and CoorsBrewing Co. Also on the list were Heinekenand Corona/Gambrinus/Barton.
John Tomlinson, category manager forEnglefield Oil Co.’s Duke and DuchessShoppes, said carrying a variety of SKUsfrom an assortment of suppliers is the key tokeeping beer customers happy.
“Anheuser-Busch is our big seller, butMiller and Coors are catching up as well,”said Tomlinson. He added that bringing inbeer sales revolves around more than simplydedicating yourself to the top seller.
“Anheuser-Busch may make up to 70% ofour beer sales, but we only give them roughly60% of the space,” Tomlinson said. “Youhave to allow the other brands a chance togrow on the shelves as well.”
As far as line extensions go, Tomlinsononly allows suppliers the space they’ve beenpreviously allotted, meaning that if a supplierwanted to introduce a new product into the store, they’d have to remove a low sellerfrom the shelves. When Duke and Duchesstries something new, it allows individual storemanagers to test it themse
lves and makejudgments based on store-by-store sales.
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CIGARETTES
IN THE 2006 NACS SOI, cigarettes dominated in-store sales, accounting for morethan one in every $3 spent in stores (34.4%). And for the 77 chains participating in CSD‘s Brand Preference Study, Philip Morris was voted as the top cigarette supplier receiving 63% of the vote, followed by R.J.Reynolds and Lorrilard. Participating chainsoperate 24,384 stores and tallied $8.69 billion in cigarette sales last year.
While cigarettes continued generatingstrong sales, concerns abound about thecategory’s long-term viability as competitionfrom Native American retailers and increasedtaxation for traditional retailers continue totake a toll. In looking at top contributors toin-store gross margin dollars, cigarettes stillmanaged to top the list, but with a far smaller percentage contribution (18.5%) then inyears past. This is a direct result of risingtaxation at both the state and local levels.
“We expected rising prices and legislation to cut into our cigarette sales, but effective marketing and innovative promotionshave allowed us to keep prices steady andmanageable for consumers,” said RonFreeman, president of Jay Petroleum Inc,which operates 38 Pak-A-Sak locations inPortland, Ind. “It’s a volatile category to manage, but, all things considered, wecould be doing a lot worse.”
Readers were asked to vote on the “bestsales presentation” and the “best qualityproduct.” Philip Morris finished on top inboth of these areas as well with 61% reporting it had the most effective sales programand 72% claiming it had the top products inthe market. R.J. Reynolds finished second inboth categories followed by Lorrilard. Brown& Williamson and Commonwealth Brandstied for fourth in both the sales program andbest quality categories.
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CIGARS & SMOKELESS TOBACCO
RETAILERS CAN EXPECT THE OTHERtobacco (OTP) category to keep ongrowing with flavored cigars driving thatgrowth. Cigar sales last year jumped 5.2% and accounted for 30.48% of OTPsales. As a category, OTP accounted forabout 4% of the c-store industry’s $145 billion in-store sales.
Of the 73 chains representing more than23,350 stores participating in CSD‘s BrandPreference Study, OTP sales totaled $920million. Readers voted U.S. SmokelessTobacco Co. (USST) as their top OTP supplier, followed by Swisher, Conwood, Swedish Matchand Altadis. John Middletongarnered honorable mentionon the strengthof its Black &Mild cigar line.
For Fas Mart and Shore Stop convenience stores, a division of GPMInvestments in Mechanicsville, Va., OTP wasthe second highest growth category, saidSue Koski, category manager. “We enjoyedmore than 25% growth for 2006, which wason top of a record 39% growth in 2005,” shesaid. “We expect to have double-digit growthfor 2007 as well.”
Aside from flavored cigars, the biggesttrend to watch in the smokeless is the sudden rise of “spitless” and dissolvable products. The nation’s largest cigarette company,Philip Morris USA, in 2006 launched Tabokashortly after and R.J. Reynolds introducedCamel Snus. Swedish Match and USST aredeveloping similar products.
Star Scientific is forging an entirely newsegment of the category with its dissolvabletobacco products: Stonewall Hard Snuff,developed for traditional moist snuff users,and Ariva, which was developed for adult smokers, according to David Dean, Star’svice president of sales and marketing.
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DISPENSED BEVERAGES HOT
INNOVATIONS LIKE FLAVORED coffeeshelped the 69 chains surveyed in CSD‘sBrand Preference Study ring up a total of$836.8 million in sales in 2006. The chains combined operate 21,293 stores. Study participants ranked Sara LeeCoffee & Tea as No. 1 in all three major categories, including most effective sales program (14%), best product quality (13%) andbest supplier (12%). S&D Coffee was a closesecond followed by Kraft/General Foods,Proctor & Gamble and BUNN.
While falling behind Sara Lee in otherparts of the study, S&D was able to pull ahead in the service category. Twenty-twopercent of participants reported hearing fromS&D representatives in the last 60 days,compared to Sara Lee, which had only 14%.
It’s this attention to the retailers’ needsthat led Carolina Convenience Corp. to useS&D. Chuck Pagan, director of operations forthe chain, carries many varieties of S&D’sdrip coffee flavors and relies on them tomake up the majority of the chain’s hot beverage offering.
“The coffee offering is getting a boostfrom the different flavors of drip coffee,which our customers seem very satisfied with,” Pagan said. “We also offer powderedcappuccino and hot chocolate, but a lot ofour customers lean toward the coffee.”
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DISPENSED BEVERAGES COLD
FOR COLD AND FROZEN CARBONATEDdispensed beverages, PepsiCo receivedthe favor of most of this year’s participants, with 59% deeming the company as their top category supplier. Coca-Cola wassecond, followed by Cadbury Schweppes,J&J Snack Foods and Parrot Ice. PepsiCoalso won participants’ votes in two other categories: most effective sales program and best product quality.
Cold and frozen carbonated dispensedbeverages brought in a total of $349 milliondollars this year for the 67 chains participating in the study. This is a drop compared tolast year, when 64 chains reported sales inthis category reaching a formidable $1.17billion.
This reported drop may seem bleak formost retailers, who consider the cold dispensed category to be one of the best waysto bulk up the bottom line, thanks to thehuge margin on the products. However, withmany consumers gravitating towards the coldvaults, retailers are trying to come up withmore ways to redirect consumers to thefountains.
Chuck Pagan, director of operations forCarolina Convenience Corp.—which carriesboth PepsiCo and Coca-Cola products, aswell as the Slushee brand of frozen ca
rbonated beverages—has had success using promotions to catch the eye of consumersbefore they open the cooler door.
“Every quarter, we’ll do some promotionto bring attention to the products,” saidPagan. “We’ll sometimes offer all sizes for79 cents, or maybe pair off the drinks with afood promotion, such as offering it with abag of chips.”
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CANDY, GUM & MINTS
CONVENIENCE STORES ARE ALAUNCH pad for new candy products. In 2005, total candy sales atconvenience stores totaled $5.5 billion according to the National Associationof Convenience Stores 2006 State of theIndustry report.
Candy sales at the 86 chains participating in CSD‘s Brand Preference Studyreported sales of more than $1.02 billion. The 91 category buyers at those chainsreported The Hershey Co. as their top supplier (59%), followed by Wm. Wrigley Jr. Co., Nestle USA, Masterfoods andPlanters/Life Savers. Honorable mentionsin the category include Cadbury Adams,Farley’s & Sathers, Ferrero USA, Adams &Brooks and Tootsie Roll/Charms.
While candy is a convenience store staple, with strong impulse sales at multiplepoints throughout the store, approximately18% of the buyers reported no sales presentations from any supplier in the twomonths leading up to the Brand Preferencesurvey. In fact, 68% of buyers reportedless than five presentations from the top16 suppliers in the market, a surprisinglyhigh number considering the competitive nature of the category and the strongpotential for incremental sales growth thatcomes with adding new products and lineextensions.
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PREPARED FOOD & FRESH BAKERY
FIFTY-SEVEN KEY DECISION MAKERSfrom 56 stores reported that prepared foods and fresh bakery products brought in $135.7 million in sales last year.
The results of this year’s BrandPreference Study proved prepared food andfresh bakery to be a highly competitive market. Of the participants questioned, 19%reported Bon Appetit as their best supplier.However, Sara Lee Foodservice was hot on their heels (18%), followed by Con-Agra (9%).
Bon Appetit also ranked best for productquality according to 35% of the respondents,again with Sara Lee in second. Sara Lee,however, was considered by the participantsto have the most effective sales program inthe category.
Chuck Pagan, director of operations forCarolina Convenience Corp., reported thechain carries all of Bon Appetit’s products inits stores.
“Their representative is here about oncea week,” said Pagan, referring to the supplier’s direct store delivery distribution system.Pagan decides how much room to make forall products in the category by evaluating astore’s location and if it’s more or less susceptible to the grab-and-go customer basethat makes this category thrive.
“There are some stores where we’ll simply have some space on the counter rack,”said Pagan. “Then there are other stores, such as interstate locations, where we’ll dedicate as much as three feet of gondolaspace or more for these products.”
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BRANDED FAST FOOD
THE 49 KEY DECISION MAKERSsurveyed represent 15,111 storesthroughout 48 chains. Twenty percentof those respondents were executive management, 76% were operations management and 4% were purchasing management.
Subway topped the list for every questionasked, including “Which company has themost effective sales program?” and “Whichcompany has the best product quality?” with22% and 33% of responses, respectively.
Branded fast food represents $783 million in yearly sales for survey respondents.For retailers with little food background but a desire to enhance their offers, branded concepts afford them the opportunity to gettheir feet wet with sales representatives acting as lifeguards.
Six years ago, Gainsville, Fla.-based FastTrack acquired stores with a variety of branded concepts, like Arby’s, Dairy Queen andSubway. The company has since expandedits branded offerings by adding HuntBrothers Pizza to nine of its stores.
“Hunt Brothers has a simple, uniformprogram that enables our employees to putout consistent product,” said Dale Turner,director of operations for Fast Track.”Branded concepts offer disciplined programs so you’re not reinventing the wheel onhow to sell a hamburger. You also get agreat deal of support.”
John Tomlinson, category manager forEnglefield Oil Co.’s Duke and DuchessShoppes, enjoys the traffic his Subway andfour Taco Bells bring into his stores, and fora company with service delis, branded concepts are recognized menu expansions.
“Success with those brands certainlycomes from the name recognition,” saidTomlinson. “The fact that they’re well knownthroughout the U.S. is a major factor in thedraw they give our stores.”
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PREPARED HOT & COLD SANDWICHES
DELI EXPRESS TOPPLED ALL OTHERcompanies mentioned in the survey,with 28% of respondents saying it hasthe most effective sales program and 27% suggesting they have thebest product quality.
The 60 key decision makers surveyedrepresent 18,889 stores across 60 chains,and prepared hot and cold sandwichesaccount for $155 million in sales per year.
Red Hed Oil Inc. has only had DeliExpress sandwiches in its stores for twomonths, but it’s already seeing results.
“Deli Express offers a nice variety ofproducts that cater to a wide array oftastes,” said Keith Deaton, category manager for the Richmond, Ky.-based chain. “It’sreasonably priced and they pay attention topackaging.”
Variety is key for Ankeny, Iowa-basedCasey’s General Food Stores. The companyprides itself on giving customers somethingnew on a regular basis.
“Hot and cold sandwiches are popular inour stores,” said Darryl Bacon, vice president of foodservice. “We are constantlyswitching up our items because customersare always looking for something new to try.”
Quick Chek Food Stores keeps its menuexciting by incorporating variety and highquality ingredients.
“People are more open-minded to upscale ingredients. It’s about raising thebar, not
lowering it,” said Jennifer Vespole,senior category manager of foodservice forthe Whitehouse Station, N.J.-based chain.”Our customers visit fast casual and QSRs,and we aren’t afraid to incorporate thoseideas into our menus.”
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PACKAGED SNACKS
PACKAGED SNACKS pulledin $912 million this year forthe 90 key decision makers polled. Compare that to lastyear’s findings, which had 69decision makers reporting atotal of $390 million, and retailers are enjoying tasty profits.
Leading the pack is Frito-Lay,proving that popular grab-and-goitems are still holding strong inthe market. Also high on the listwas Jack Links, riding the popularity meat snacks have been enjoying. While it may be leading the category, Jack Links is still facing formidable competition from ConAgra’s Slim Jim brand.
According to John Tomlinson,category manager for Heath,Ohio-based Englefield Oil Co.,increasing sales for packagedsnacks isn’t just a matter ofkeeping an eye on sales, butalso being willing to lend available space to the next big trend.
“We’ve just expanded ourmeat snacks section,” saidTomlinson. “We’ve dedicated afour-foot section. They’ve beendoing extremely well lately.”
Despite the importance ofmaking room for booming categories, Tomlinson is still sure tokeep plenty of space for the bigsellers. “We still typically giveFrito-Lay products 50% of thespace,” he said.
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HBC & GENERAL MERCH
THE 68 DECISION MAKERSsurveyed represent 20,606stores in 65 chains. HBC and general merchandise earnthese companies $49 millionper year.
For Richmond, Ky.-based RedHed Oil Inc., HBC is a mainstaycategory that generates 15% ofinside sales and about 12% ofgross profit. The companyrecently cut its HBC section inhalf because it’s consciouslymoving away from take-homepackages for individual, convenience-style packaging.
“Convenience-style packaging creates more turns and lowers our inventory levels,” saidKeith Deaton, category managerfor Red Hed. “We see throughmarketbasket and movementreports that we’re selling threeconvenience packs for every one multi-pack.”
Lil’ Drug is the company’sHBC supplier and, according toDeaton, it has a vested interestin Red Hed’s success.
“Lil’ Drug looks to providegeneric items if they know theywill sell,” he said. “They wantturns as much as we do.”
Deaton’s only criteria for general merchandise is that his suppliers keep the category fresh.
“The key is having vendorsthat can get new items in ourstores in two weeks,” he said.
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ICE CREAM & FROZEN NOVELTIES
THE 70 KEY DECISION MAKERS surveyed represent 21,636stores across 68 chains. Ice cream and frozen novelty earn theseretailers $493 million per year.
While ice cream only represents 1% of Richmond, Ky.-basedRed Hed Oil’s total inside sales, it’s a category thecompany monitorsclosely to ensure it’smeeting customers’needs. Few of itsstores offer pints orgallons, it’s strictly anovelty game.
“Novelty dealswith two demographics: adults and children. You have tocater to both,” saidKeith Deaton, category manager for Red Hed Oil. “With children’s novelties, you dealwith price points more than you do with adults. Adults spend a bigger dollar amount on themselves. Making sure we have productsfor each is what makes the category more profitable.”
The most popular items forRed Hed are Orange Push-Upsfor the kids and Nestle’sKlondike Bars. The companyrecently switched to Edy’s as itsice cream supplier, and it’s adecision Deaton stands behind.
“Edy’s contacts me about newitems and suggest promotionalideas,” he said. “Not only will theyoffer great promotions, but theyproject what our lift will be. It’s abig improvement for us.”
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CAR WASH & EQUIPMENT
GROWING THE CAR WASH BUSINESS has proved to be asmart business decision for retailers looking to grow incremental sales, and there seems like there is plenty of room for growth in this segment. Yet, of the 34 chains representingapproximately 11,000stores participating in CSD‘s Brand PreferenceStudy, 14% said not onecar wash company calledon their business overthe past year, and all buyers reported less thanfive sales presentations from the 12 major suppliers in the market. Seventy-four percentreported they were visited by one or two companies.
Of the marketers with car wash programs, 26% said RYKO isthe best supplier of equipment and support, followed by Mark VII,PDQ, Autec and Belanger.
Scott Prall, director of car wash operations for Alon USA’sSouthwest Convenience Stores in Dallas, said his company’sdecision to partner with NuStar Inc. for its new car wash systemswas in part because of NuStar’s persistence and support.
“NuStar has been veryreceptive to the needs of convenience store car wash operators versus standalone operators,” Prall said. “As a result,they do things like remotelymonitor our systems to makesure they are operating properlyand not dispensing too muchsoap, which decreases profitability. These are importantfeatures to convenience storeoperators.”
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TECHNOLOGY
THE 56 KEY DECISION MAKERS surveyed represent 16,485 stores across 52 chains. Gilbarco/Veeder Root was the clear winner of this category, with 29% saying it has the best product quality.
Waycross, Ga.-based Flash Foods has been ahead in the technology game, thanks greatly to its CIO Jenny Bullard, who is also the elected vice chair of the Petroleum Convenience Alliance for Technology Standards (PCATS). She’s formed a profitable partnership with Pinnacle Corp. Most recently, Pinnacle brought Flash Foods the solution of converting its loyalty card to an ACH debit card.
"A good technology solutions provider is constantly looking for ways to gain information and use it to increase sales—making us more profitable an
d efficient," said Bullard.
Bullard and PCATS are working to make it easier for retailers to choose technology providers.
"Retailers may want a technology to work with specific car wash equipment, but they don’t have the necessary interface," she said. "PCATS is trying to develop a standard messaging so any POS will talk to any car wash or price sign. Getting all the technology players together is a slow process, but the companies staying ahead of the curve are the ones actively pursing solutions."
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ATM & POS
THE 35 KEY DECISION MAKERSresponding to the survey represent 10,646 stores across 34 chains. Payspotcame out on top acrossall the questions in the survey, but Cardtronics and Tritonfollowed very closely behind.
Waycross, Ga.-based FlashFoods has been able to cut itsATM transaction times from 30seconds to 10 since putting itsWide Area Network (WAN) intoplace. The high-speed connection has also made it easier forthe company to advertise its loyalty promotions at the ATM.
“Everyone is in a hurry todayand we’ve seen our ATM trafficpick up considerably since we’vesped up our transaction times,”said Jenny Bullard, CIO for FlashFoods. “While the idle time forcustomers has been more thancut in half, we’ve made the mostof that time by informing them ofloyalty promotions by downloading advertisements directly to the ATM.”
One POS issue Bullard hasbeen working with PCATS on ispayment card industry (PCI)compliance, which is a deadlinefrom Visa and Mastercard thatall payments being processedon point-of-sale systems need tobe encrypted.
“It requires extensive auditsfor retailers, especially publiclyheld companies,” she said.
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