Profitable Pours

C-stores bank on packaged beverages.

Profitable Pours

July 2021   minute read

By: Terri Allan

There’s a reason they call it the cold vault,” remarked Mike Jackson, category manager at High’s convenience stores, with 55 locations in Pennsylvania and Maryland. “Just like the bank vault, that’s where the money is.”

Indeed, High’s and other c-store operators around the country are grateful for the steady stream of revenue and profits that are derived from packaged beverages, particularly in a year like the last one, when the pandemic wreaked havoc on other in-store categories and the forecourt. Despite adverse conditions impacting store traffic for much of 2020, the packaged beverages category demonstrated its value by turning in a 3.9% gain in average sales per store, according to the NACS State of the Industry (SOI) Report of 2020 Data.

“A lot of that can be attributed to retailers executing well and for c-stores retaining their reputation for being the go-to store for packaged beverages,” said Jayme Gough, NACS research manager. “Packaged beverages have always been a great profit center for convenience.”

We continue to see a demand for multipack cans in c-stores today.

Packaged beverages represented 15.6% of in-store sales last year, according to SOI data, and contributed 19.0% to in-store gross margin. The category’s gross margins of 42.46% demonstrate its importance to store profitability. While packaged beverages suffered in the spring of 2020 because of lockdowns and slowed store traffic, both NACS CSX monthly retail sales and NielsenIQ data point to recovery in the summer months. NielsenIQ data indicated a 3.7% year-over-year sales increase and a 0.9% decline in packaged beverage units sold in c-stores last year.

Among subcategories, performances were a mixed bag in 2020. Sales of energy drinks—the largest subsegment with a 28.5% share of the category—declined an average of 1.5% year over year. “Packaged beverages were impacted by commuters and travelers,” Gough noted, and last year’s shutdowns likely impacted energy drinks.

Source: NACS State of the Industry Report of 2020 Data

Laura Lynn Freck, senior director, shopper and category insights, at Red Bull North America, reported that c-store sales of energy drinks lagged the overall market “as many shoppers made shifts to other channels like grocery and mass with changes in work and travel routines.” But at High’s, energy drinks performed well. Jackson noted that even before the pandemic he saw some coffee drinkers shift to energy drinks as their morning beverage of choice.

Return to Indulgence, Favorites

Carbonated soft drinks, meanwhile, posted one of the best performances of the category as consumers reached into the cold box for indulgences and old favorites. According to the SOI report, average store sales of CSDs jumped 8.8% in 2020, accounting for 23.0% of category sales. While in recent years the subcategory has struggled amid consumer health concerns, 2020 was “more about people going back to what they know and indulging more in comfort foods and habits,” Gough remarked.

Source: CSX;

Other subcategories that posted average sales gains included sports drinks, juice and other packaged beverages. Average sales of bottled water, meanwhile, dropped 5.9%. “Bottled waters are big travel beverages,” noted Gough. “There was a lot less of that last year.”

Packaged beverage marketers pointed to the revival of traditional brands in 2020. “Consumers sought out their favorite beverages for comfort during an uncertain time,” said Carlton Austin, director, convenience retail strategy and commercialization at The Coca-Cola Company’s North America operating unit. “Although trips decreased, basket size increased as consumers stocked up for more future-consumption occasions.” Freck agreed. “Shoppers migrated to trusted brands in energy drinks in 2020,” she said.

Still, innovation continues. “Packaged beverage is a category that has exploded with innovation,” said Gough, pointing to CSDs, energy and sports drinks in particular. Kevin Martello, vice president, convenience retail at Keurig Dr Pepper, advised that new brands can help drive sales and profitability. He pointed to Dr Pepper Zero Sugar, launched earlier this year. “We partnered with our c-store operators to provide shopper marketing and points of inspiration,” he said of the unveiling.

Martello and others noted that one of the biggest developments for the category in the past year has been growth in take-home packs. “This drove basket size for convenience stores, and we continue to see a demand for multipack cans in c-stores today,” the marketer said. Steve Morris, director of merchandising and marketing at Oklahoma’s Jiffy Trip, reported, “We saw pantry loading at the start of the pandemic,” and as a result, sales of 24-packs of the chain’s proprietary bottled water were strong, along with 12-packs of Gatorade.

But Morris lamented the constraints that the pandemic placed on category growth. “Our packaged beverage sales increased 20% in 2020, but it could have been stronger if it wasn’t for supply issues that reduced stock,” the retailer said. Morris and Jackson noted that shortages continue today. “It can be hard to keep the cold vault filled due to the supplier shortages,” the High’s executive said.

For more information on NACS category definitions, visit Source: NACS State of the Industry Report of 2020 Data
It can be hard to keep the cold vault filled due to the supplier shortages.

Opportunities Abound

Packaged beverage marketers said that while the category recorded a solid performance last year, there’s still plenty of opportunity to grow sales. Freck, Martello and Austin all pointed to the lift bundling drinks with other in-store categories—whether it’s foodservice or snacks—can bring. “We recommend retailers provide easy, convenient meal and snack solutions paired with complementary drinks,” remarked the Coca-Cola executive, to drive in-store traffic and grow basket size.

Pump-to-store conversion is equally important. “C-store operators need to ensure that gas shoppers know packaged beverages are available inside the store,” Austin advised. “It’s crucial to reach them at the pump, whether through digital or printed signage.” He added that in-store vendor-provided cold equipment and ambient racks can be useful in promoting packaged beverages beyond the cold vault.

As c-store operators look ahead to their post-pandemic operations, the packaged beverages category will no doubt play a key role. “There’s strong opportunity for continued growth in both single-serve and future-consumption packages in convenience retail,” remarked Martello. “As mobility continues to increase, we expect to see a very strong summer of increased beverage sales and total in-store traffic.” Austin concurred and said that whether customers’ upcoming journeys are commutes or road trips, “it’s important for c-store operators to be ready with the right mix of beverages to meet their needs.”

The Power of CSX Data

CSX, the engine behind category metrics and NACS State of the Industry data, provides current and customizable tools for financial and operational reporting and analysis in the convenience industry. Retailers can measure their company by any of the myriad metrics generated via our live database. Contact Chris Rapanick at (703) 518–4253 or [email protected] for a complimentary executive walkthough.

Terri Allan

Terri Allan

Terri Allan is a New Jersey-based freelance writer. She can be reached at [email protected].

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