As more consumers shun carbonated soda, teas and juices are at the ready to quench c-stores’ thirst for category profits.
By Anne Baye Ericksen, Contributing Editor
Of the top 10 merchandise categories in 2014 that demonstrated monthly strength in sales and margin percentage per the average store, tobacco was tops, followed by packaged beverages.
According to this year’s National Association of Convenience Stores (NACS) State of the Industry report, in 2014, packaged beverages generated a whopping gross margin of nearly 39.8%, per store, per month.
Beverage sales for the first two quarters in 2015 increased an average of 6%, thanks in part to improving weather conditions in many regions and low prices at the pumps, according to Wells Fargo Securities LLC.
Certain subcategories of non-alcoholic beverages are outperforming others. Ready-to-drink (RTD) teas, for example, continue to surge in popularity while juices innovate to sustain their market position.
TOTALLY TEA
Tea has been one of the leading beverage choices for centuries, and remains a global favorite, including in the U.S. The Tea Association of the USA (TAUS) estimates Americans consumed more than 80 billion servings of tea in 2014—approximately four out of five people drank tea—making the beverage an impactful influencer in the U.S. beverage market.
In the U.S., wholesale transactions of tea last year equaled an estimated $10 billion.
Whereas many tea-drinkers around the globe prefer to freshly brew one cup at a time, a majority of Americans choose the convenience of RTD versions, especially when craving an iced tea. According to TAUS research, nearly half of all tea sold in the U.S. is RTD. In addition, Beverage Marketing Corp. reported that the segment grew 3.7% in 2014, a dollar amount of $5.2 billion.
“We don’t sell that many hot teas, but the cold drinks are doing very good, better than last year,” said Silvia Gibson, manager of retail operations for Warrior Fuel Convenience Stores in Santa Ana, N.M. “We carry more than 10 brands, but AriZona’s green tea is doing really, really well.”
Indeed, RTD teas have become somewhat of a super-performer for the c-store industry. Wells Fargo reported year-to-year dollar sales of liquid tea for the week ending Aug. 8, 2015, grew nearly 9%, while unit sales for the same period jumped more than 5%.
“Liquid teas have remained strong with dollar sales over 5.5% for us this year,” said Michelle Watson, director of retail operations for two Shakopee Dakota Convenience Store locations in Prior Lake, Minn..
Bottled iced teas are so popular with her customers that Watson devotes several cooler doors just for teas and juices, and stocks 45 SKUs of different brands and flavors.
“The Lipton, AriZona and Coca Cola brands (Nestle, Fuze, and Gold Peak) are the driving brands,” she said. “We also market the tea dispensary area. Throughout the year, we’ll do bundle packages of teas with energy bars. We try to think in terms of what time of day customers buy the products. Do they come in to buy for breakfast? We’ll make sure to have fresh-brewed Lipton or Gold Peak then.”
In many ways, teas have been the unofficial beneficiary of the current trend away from sugary carbonated drinks and toward healthier options. There have been numerous reports about the positives associated with all kinds of teas, such as being high in antioxidants, lowering cholesterol levels and promoting heart health. In addition to the health benefits, unsweetened teas are naturally low in sugar, which resonates with more health-conscious consumers.
“Overall they have a healthy halo. Consumers are opting for healthier refreshments and much of the innovation in refreshment beverages is coming from products with health and wellness attributes,” said Gary Hemphill, managing director of research for Beverage Marketing Corp.
“People want to get away from carbonated beverages, and teas and juices are perceived to have less sugar. And they are looking for variation,” added Watson. “We are bringing in things like kombucha tea to stay ahead of the trends. There are also waves in terms of premium end [products] as people become more educated on the organic and natural. As a result, I think we’ll see a trend away from some of the big brands they’re most familiar with.”
Beverage companies are seizing on the tea momentum by expanding their offerings.
“RTD tea marketers have used flavors as a way to innovate their product lines. Additionally, marketers have explored using other types of tea, such as green, red and white tea to further segment the market,” said Hemphill.
Lipton and Sparkling Ice brands have even introduced carbonated versions to appeal to consumers who still want the bubbly experience without the sugar from sodas.
JUICES STAY STEADY
While tea sales are on an upswing, fruit juices have simply maintained their market share despite perceived health benefits.
“One reason fruit beverages have experienced soft performance in recent years is because many of the products are relatively high in sugar and caloric content,” said Hemphill.
Wells Fargo research indicated year-to-year dollar sales for refrigerated juices increased by slightly more than 1% for the 52-week period ending Aug. 8, 2015. Shelf-stable juices performed slightly better at 2.1% for the same period. However, most of that growth can be attributed to price increases as unit sales dropped for both subcategories, down 4.4% and 0.3%, respectively.
“Fruit beverages are essentially agricultural products, so crop prices can have an impact on the price of products,” said Hemphill. For instance, commodity prices for certain crops, such as oranges, have spiked to record levels in recent months.
That said, summer sales at Warrior Fuel locations have shown some promise.
“The Simply juices, apple, orange, cranberry and grape, are doing well, and the prices have not changed,” said Gibson.
However, trends show some customers, especially Millennials, are willing to pay premium prices for products considered to be better for you, juices included.
“There is growth in fruit beverages, and it’s coming in the high-end of the market with super-premium juices,” said Hemphill.
To cater to health-conscious consumers, Watson has brought in a variety of organic, lower-in-sugar brands.
“We have Naked Juice, Bolthouse Farms and Odwalla. There are also some interesting cold-press juices coming up. These are considered fresher. Perhaps we’ll start carrying smoothies, too,” Watson said. “The key is working in new and healthy items to offset the [decline] from shelf-stable juices. We’ll continue to evaluate our selection and provide customers with a great range of products that include healthy juices and teas.”