Consumer demand for healthier beverage options continues to spur development in the convenience store cooler. Low-sugar beverages with straightforward ingredients such as flavored waters, sparkling waters and ready-to-drink coffees continue to deliver sales.
By Scott McKinney, Contributing Editor
Health-conscious consumers are the driving force behind the dominant trends in the packaged beverage category over the past year, according to industry analysts and convenience store beverage category managers.
“The two mega-trends most impacting beverage consumption today are consumer demand for healthier refreshment and variety,” said Gary Hemphill, managing director of research for Beverage Marketing Corp. (BMC). “Due to this, the marketplace continues to splinter with a steady onslaught of new product introductions as well as new categories emerging.”
The National Association of Convenience Stores reported this past April that packaged beverages continue to be a leading source of revenue (15.8%) and gross profit (20.1%) for convenience stores, with enhanced water showing the strongest annual increase in 2017 (9.1%).
Other segments with year-on-year growth in convenience stores include ready-to-drink iced teas (3.5%), alternative beverages (3.5%) and bottled water (0.6%).
America’s per capita consumption of bottled water in 2017 exceeded 42 gallons, a 12% advantage over the consumption of carbonated drinks.
Ready-to-drink (RTD) coffee outperformed all other segments, with 12.3% increase in sales volume and 14.4% increase in retail sales. Enhanced water also saw double-digit growth, according to BMC.
In convenience stores, PET/still-bottled water dominated the bottled water segment, accounting for $11.8 billion in sales for the 52-week period ending May 20, 2018, according to scan data from Chicago-based IRI, while sparkling water accounted for nearly $2.6 billion.
U.S. consumers continue to seek out healthier alternatives to traditional carbonated soft drinks and energy drinks. Much of the supply for consumer demands has been provided by smaller, niche segments in the market: per BMC’s research, RTD coffee and enhanced water saw double-digit growth in 2017.
VERC Enterprises, based in eastern Massachusetts, operates 26 stores in Massachusetts and southern New Hampshire. Meghann Eaton, category manager for beverages at VERC Enterprises, saw parallels with the national trend of steady growth in sparkling beverages and RTD coffee.
“Sparkling water has always been a healthy growing category for us, with 15% year-to-date growth,” said Eaton. “This year we added one liter sparkling water to a few sets, which has brought in new customers to the category without eating into the half-liter or 20-ounce market.” Eaton attributes sparkling water’s popularity to customers who seek healthy drinks, but still want a carbonated refreshment.
RTD coffee has also been a reliable generator for the New England chain over the past calendar year.
“Starbucks is still the top dog for us,” said Eaton. “The whole brand does well, from Frappuccino and double shots, to cold brews. We expanded space in the doors for this category from two shelves to at least half a door.”
The new health-savvy consumer is choosing cold brew coffee over high-sugar energy drinks, according to Matthew Barry, senior beverages
analyst at Euromonitor International.
“Cold brews tend to be much lower in sugar than energy drinks, or even other forms of RTD coffee, so you can get a similar energy burst in a healthier way,” Barry said. “At the same time, there is also an incredible quantity of new products entering the category from both large and small players. That means both more space being devoted to cold brews as well as just a better variety of options for consumers to choose from.”
David Hallman, senior category manager at Kum & Go, a West Des Moines, Iowa-based convenience store chain with more than 400 stores in 11 Midwestern states, reiterated the impact health concerns have on the packaged beverage market.
“The main driver of growth in flavored and sparkling water is health-conscious consumers,” said Hallman. “People are more interested in the product nutritionals than ever before, and are looking to consume products with cleaner ingredients and fewer categories.”
This trend has contributed to an uptick in flavored waters, sparkling waters and cold brew coffee sales at Kum & Go. Hallman said that cold brew coffees have improved since the beginning of the year, corresponding with a rapid rise in iced coffee sales over the past two years, and the chain will likely increase space for new cold brew coffee items in 2019.
ON THE BUBBLE
Sparkling and flavored waters have been driving factors behind the growth of bottled water, according to Alexander Esposito, another research analyst at Euromonitor International.
“While in the past sparkling waters have been a relatively niche product in the American bottled water scene, especially compared to European markets, they are now moving out of the premium niche they once occupied and are gaining mainstream popularity,” said Esposito.
Despite La Croix’s nationwide growth, Eaton said the beverage drew lackluster results at VERC.
“We carried La Croix last year, as singles in the cooler, but it didn’t move well,” she said. “We may have been too early for New England, so I would like to try them again in 2019.” Instead, Polar Beverages and Poland Springs are the standout sparkling water sellers in VERC’s coolers.
Polar’s line of sparkling waters has an especially strong following in its home base of New England. “People are trying to cut their soda intake, but want the carbonated taste still. That’s why Polar’s crazy fun flavors do so well,” Eaton said.
Polar offers a wide selection of flavors, including natural flavors such as pink grapefruit, lemon and black cherry, as well as limited edition seasonal offerings. The brand excels at reaching out to its customer base through a diverse array of media, said Eaton, contributing to its popularity in the Northeast.
Traditional carbonated beverage companies are also responding to the high demand for sparkling water.
Pepsi earlier this year introduced its bubly sparkling brand, while Coca-Cola’s Dasani sparkling water and Nestlé Waters’ host of regional sparkling brands are all performing well, according to BMC’s Hemphill. “Sparkling water is hot right now, so most of the leading brands are experiencing strong growth.”
Indeed, one of Coke’s fastest growing lines of products in the U.S. has been sparkling water, anchored by DASANI Sparkling, smartwater sparkling and Topo Chico.