Younger consumers are redefining top sellers among packaged beverages.
By Anne Baye Ericksen, Contributing Editor
Earlier this year, John Archer noticed the display for LaCroix sparkling water in his local grocery store kept growing in size and prominence. He wondered what would happen if he elevated the brand’s real estate in his convenience store
As owner of Shell Food Mart in Hinsdale, Ill., Archer always stocked 12-packs of the carbonated water in a variety of flavors toward the back of the premises, mixed in with other packaged beverages, but it didn’t really sell at notable levels. However, noticing the change happening within his regular grocery store and at the supermarket near his business, Archer decided to rethink that strategy.
“I was able to convince a vendor to put a display of 12-packs up front in my store, and it’s unbelievable how fast that sells now,” he said. “We also sell single cans, and you can’t believe how much we sell of that. I ordered 10 [cases] in a month before and now I order 300 in a month. I also do well with Perrier, but I only sell it individually. San Pellegrino, which comes in both bottles and cans, does well, too.
“If you want a bubbly drink like a soda, but not the sugar and calories that come with it, LaCroix is a great alternative,” Archer continued. “For people who are trying to be healthier, but want to feel like they’re drinking soda, they can switch to something like LaCroix.”
SHIFTING PREFERENCES
Indeed, a growing number of people are ditching carbonated soft drinks (CSDs) for beverages they consider to be better for them. According to IRI, a Chicago-based market research firm, sales of sparkling/mineral water jumped 15.5% in a year-to-year comparison for the period ending May 15, with dollar totals tallying approximately $2 billion. But carbonated water is not the only packaged beverage gaining popularity.
“The leading categories for non-alcoholic drinks are CSDs, juice and dairy milk. But these categories’ sales have plateaued as categories like bottled water experience strong growth, or even smaller categories, like coffee, energy drinks, tea and non-dairy milk, all see healthy growth themselves,” said Elizabeth Sisel, beverage analyst for Mintel Group Ltd.
According to Beverage Industry Magazine’s “2016: The State of the Industry” report, several subcategories either outperformed CSDs or registered significant gains last year while CSD sales continue to fall off. In fact, soda consumption is down 25% since 1998 levels, and Technavio estimated compound annual growth for CSDs will decline by about 1.3% over the next three years.
For another year, bottled water made impressive inroads. IRI revealed bottled water grew by 9.3% for the 52 weeks ending May 15. The International Bottled Water Association and the Beverage Marketing Corp. (BMC), also reported that consumption of bottled water increased by 7.9% and sales in 2015 rose by 8.9%. What’s more, bottled water has gained such a large foothold among packaged beverages across all retail sectors that BMC predicted it will surpass CSDs in volume sales by next year.
Even soda manufacturers have conceded the shift in consumers’ preferences. Coca Cola’s financials for the first quarter of 2016 showed double-digit growth for its water brands, including Dasani, Ciel, Glacéau Smartwater and Glacéau Vitaminwater, and another 7% growth for non-carbonated still beverages, which include Minute Maid and Simply Orange juices as well as Powerade sports drink, Fuze Tea and Honest Tea.
“Once a year, Coke and Pepsi come in and fight over cooler space. Usually, I never like how they set things up, but this year, Coke did a good reset, and I’m really happy with it,” said Archer. “They recognize soda is shrinking and other offerings are growing. They’ve set up a good ratio of soda versus other things that are selling better.”
Other beverages are posting impressive percentages, too. Year after year, ready-to-drink (RTD) teas have experienced extraordinary growth. One study states that, between 2000 and 2015, the subcategory grew 91%. The Tea Association calculated the U.S. market expanded 4% to 5% in 2015, and BMC has anticipated tea sales to record a compound annual growth of 5-6% over the next several years.
“Teas are seeing premiumization and greater emphasis on functionalities,” said Sisel. “Teas have the ability to take advantage of their inherent nutrition, and many consumers believe that tea has health benefits, with more than a third believing teas have long term-health benefits and therapeutic benefits.”
RTD coffees also gained market share and dollars. For example, sales of bottled iced coffees and cappuccinos in all retail channels rose by 17% for the 52 weeks ending May 15, accounting for $1.8 billion.
“Starbucks does really well in both cans and bottles. It amazes me because they’re not cheap,” said Archer. “We’ve had a Starbucks cooler on the counter for about the past six months. We used to stock the fridge with Illy iced coffee, but since we put Starbucks in, we’ve sold a lot more.”
Of course, energy drinks are still a major market force.
“This has been a trend for a couple of years, though, this year was the first year we saw a decline in energy drinks in the first part of the year,” said Reilly Musser, marketing/merchandise manager for Robinson Oil Corp. Based in Santa Clara, Calif., the company operates 34 Rotten Robbie locations throughout the Silicon Valley.
GENERATION GAP
Because convenience stores account for 42% of all packaged beverages sold nationally, according to Nielsen data, recognizing these generational trends and marketing to them could further ensure c-stores remain a preferred retailer of iGens as well as Millennials and other generations.
So what are the forces driving this trend toward water and other non-carbonated beverages? Previously, market-watchers have attributed the shift away from sodas to the public’s evolving fascination with healthier alternatives. Although that factor still applies, analysts also cite the emerging consumer power among Generation Z. Also called iGeneration, this group, which loosely covers individuals born between the mid-1990s and up to 2010, is more willing to experiment.
“Younger Millennials and iGens are more likely to be aware of the different cross-category offerings and other more niche products that fall in between categories, like sparkling beverages, which is that gray area between sparkling waters and CSDs,” Sisel said. “Cross-category beverages have really changed the market. They give consumers a mix of their favorite beverage attributes in one offering. Cross-category beverages also provide consumers with a plethora of options to choose from.”
Musser reasoned that interesting beverage formulas will also entice.
“We just started selling Yerba Mate [by] Guayaki; we are selling it by the caseload in the Santa Rosa area,” she explained. “It’s an energy drink made from the holly trees in South America. I think drinks like these (kombucha, etc.) will really make an entry in our market over the next 6-8 months.”
Perhaps the most compelling characteristic of iGen members is the fact that they regularly bypass sodas. Earlier this year, BMC conducted a survey of college-age consumers (18- to 24-year-olds) and discovered this generation would rather drink coffee, water or tea. Currently, iGens choose coffee most frequently (22%), then bottled water (13.2%), followed by brewed tea (12%).
More important to retailers, they plan to purchase more beverages thought to be better for them.
