The More Things Change...

Led by a few standout subcategories, in-store sales look steady.

The More Things Change...

June 2024   minute read

By: Ben Nussbaum

The details are different, but the direction is the same. That was the message during the “In-Store Performance Lessons From 2023” session, presented by Annie Gauthier, CFO and co-CEO of Y-Not Stop and St. Romain Oil. She added that this is “a welcome change after the past several years being very volatile and very unexpected in a lot of ways. We seem to be back to incremental moves.”

Her presentation covered foodservice and the top six in-store merchandise categories, which together make up 87.4% of inside sales and 86.2% of inside gross margin.

Foodservice continued its ascent, with all five categories—prepared food, commissary, hot dispensed, cold dispensed and frozen dispensed—showing sales and profit increases. Prepared food, the bell cow of foodservice, posted a 12.2% gain in sales and 13.9% gain in gross profit year over year, bringing in $51,500 per store, per month.

The 2023 numbers show that foodservice made up 26.9% of in-store sales; just a dozen years ago, in the State of the Industry Report® of 2011 Data, it made up 16.8% of in-store sales.

(For more on how foodservice performed, read “Foodservice Sales Stack Up” in the May issue; a follow-up article on foodservice performance will appear in the August issue.)

Some topline foodservice takeaways:

  • Within the commissary category, sandwiches/wraps spiked 19.7% in sales.
  • Coffee had a slight rebound, with 6.0% sales growth.
  • In cold dispensed, non-carbonated (think tea and lemonade) is a big mover at 79.2% sales growth. Non-carbonated now represents 14.6% of the category.


No. 1 inside sales merchandise contributor;
No. 2 inside margin merchandise contributor

Cigarettes saw a -4.2% sales change year over year (NACS CSX data). Units declined even more, with a -7.4% change (NIQ). These are familiar trends that closely mirror last year’s numbers (-3.2% and -7.5%). Of note: Fourth tier saw huge growth (from a very small base) rebounding from a major decline in 2021. The category posted a 14.40% gross margin contribution.

Gauthier highlighted three trends:

  • “There are more options than ever before,” with smokeless tobacco and vapes increasingly putting pressure on cigarette market share.
  • The unusually high usage during the pandemic has waned, and price is on the minds of consumers.
  • Regulations continue to grow. (In a win for the industry, the Biden administration delayed its proposed menthol ban shortly after the Summit.)

A year from now, packaged beverages could well topple cigarettes as the top inside sales merchandise contributor. Packaged beverages also happen to be the category must frequently purchased with cigarettes. Going back a dozen years, in the State of the Industry Report of 2011 Data, cigarettes outpaced packaged beverages nearly three to one, with the combustibles bringing in $52,064 per store, per month while packaged beverages contributed $18,292 per store, per month.

Packaged Beverages

No. 2 inside sales merchandise contributor; No. 1 inside margin merchandise contributor

The star of the in-store merchandise world, the top performer in terms of inside margin was packaged beverages, lending $17,908 per store, per month in gross profit with 44.39% gross margin.

Units ticked up slightly, according to NIQ data, at 0.1% growth year over year, but sales and unit price were both up 7.9%.

The big three of packaged beverages—carbonated soft drinks, sports drinks and energy drinks—comprised about 73% of total category sales. Sports drinks (which showed the strongest seasonality of the three) were a big positive mover in 2022 but lost those gains in 2023, with a -5.8% change in sales, while energy drinks surged 19.6%.

Indexing to January 2021, only one subcategory—the small catch-all of other packaged beverages—showed a decline, while enhanced water showed the most growth (from a small base).

Gauthier noted that private label is currently 2.2% of packaged beverages, and that private label growth in packaged beverages slightly lags behind the overall category growth.

The trends remain the same: Consumers are gravitating towards beverages that can tout some sort of positive effect, whether that’s energy drinks, functional beverages (perhaps endorsed by influencers) or enhanced water, a small subcategory showing strong growth.

“We continue to see innovation in this category, and we continue to be challenged as retailers to figure out how to allocate share of cooler space based on the classics that drive consumer behavior and dominate in the category and balance that with trends that are continuing to show up,” Gauthier said.


No. 3 inside sales merchandise contributor; No. 6 inside margin merchandise contributor

Beer showed signs of consumers trading down, with sales up 2.2% according to NACS CSX data—failing to keep pace with inflation—even while units were slightly up, with 0.6% growth, according to NIQ data. Beer posted a 20.5% gross margin. (Turn to By the Numbers at the end of this issue for more on inflation and in-store merchandise.)

Imports continued their upwards trend, registering 11.8% sales growth. The budget category recorded the same growth in sales. Some of the budget category growth may have been taken out of the super premium, microbrew, and premium categories, which all registered sales change of between -5.6% and -3.0%. Also notable: Flavored malt growth halted after a prolonged period of steady growth, showing a 0.1% decline in sales. This subcategory merits watching—will new brands and innovations allow it to recapture upwards growth?

Imports and flavored malt each account for about 17% of category sales, with imports slightly outpacing flavored malt.

Sales in the non-alcoholic subcategory spiked a dramatic 30.2%—but from a very small base. “Younger drinkers are more frequently opting for non-alcoholic beverages,” Gauthier said, flagging it as a trend to watch.


No. 4 inside sales merchandise contributor; No. 3 inside margin merchandise contributor

OTP posted 6.9% sales growth. Retailers have gotten used to positive numbers: As Gauthier noted, “I really like the chart here for OTP. … Nice, consistent year-over-year growth for the past four years.” The category overall posted a 29.58% gross margin.

Where there’s smokeless, there’s fire: The smokeless subcategory, already the category leader, posted 12.2% gains in sales and 19.9% growth in gross profit. It now accounts for almost half of OTP sales.

Smokeless has widened its lead over e-cigarettes, where sales have leveled off, “largely likely a function of increasing legislative and regulatory scrutiny.”

Indexing to January 2021, only two subcategories register a decline: pipes and pipe/cigarette tobacco. Cigars are mostly flat in that timespan, showing small growth, while the catch-all category of other tobacco shows the largest growth.

A major trend continues to be the evolving consumer: The cigarette customer is becoming the nicotine customer, with polyusers crossing categories and subcategories, often in the same basket.

Salty Snacks

No. 5 inside sales merchandise contributor; No. 4 inside margin merchandise contributor

Consumers are still in the mood for a snack. Last year’s SOI Summit revealed that the category jumped 14.2% in sales in 2022, and a positive sales trend continued into 2023, with a 9.2% boost in sales to go with a 41.10% gross margin. That sales increase, though, was fueled entirely by higher prices, as units posted a -1.1% change.

From a subcategory standpoint, the old standby of potato chips increased its share of the category over the last year, representing about 44% of overall category sales.

Looking at all subcategories since January 2021, the trend lines are tight together, with performance across all subcategories closely matching. “The category just kind of goes the way it goes,” Gauthier noted. However, “what we did see, especially the past 12 months or so, is that mixed and pretzels broke away from the pack a little bit in 2023.”

Private label accounted for 2.0% of sales in 2023 (per NIQ) and has increased 61.5% in the category since 2020, compared to overall salty snacks category growth of 41.2%. For those thinking of starting a private label operation, “Your mileage may vary for your company,” advised Gauthier.

Gauthier also noted the importance of two key commodity areas: Fats and oils and potato and corn. Fats and oils have seen steady growth in price, while potatoes and corn has been more of a rollercoaster. After a big spike in the summer of 2022 for both potatoes and corn and another spike in 2023 for potatoes, both areas trended lower in pricing toward the end of 2023.

The fluctuations in the price of commodities is one of the trends driving this category, Gauthier noted. Another trend, one that carries over from packaged beverages, is that consumers are looking for items that have a health benefit of some kind. And, of course: spice—the movement towards heat continues.

“While we’re less constrained in merchandising this category than we are in packaged beverage, with finite cooler space, we still face that challenge of making room for innovation while maintaining the classics that are core to this category,” Gauthier said.


No. 6 inside sales merchandise contributor; No. 5 inside margin merchandise contributor

Candy tells a similar story as other categories, with price increases helping to offset slow or negative unit growth. In the case of sweets, units were down 4.4% while unit prices increased 14.7%, netting to an 8.2% sales change. The category posted a 51.13% gross margin. “We see consistent, steady growth over the past few years,” Gauthier said.

Chocolate bars and packs, combined with pegged candy, combine to account for about 67% of overall category sales.

While the price of corn sweeteners, which spiked in the early part of 2023, have now fallen, the price of cocoa, stable in 2020 and 2021, has jumped to a 46-year high, Gauthier said. Inevitably, this has driven up the price consumers pay for chocolate, a trend that is “likely to continue.” Connecting the dots: “Chocolate sales, compared to other subcategories, have melted a little bit,” Gauthier said.

The past year saw big jumps in bulk candy and change makers/penny candy. These are small subcategories worth keeping an eye on.

Private label growth lagged overall category growth, with private label accounting for 1.4% of candy industry sales in 2023, a 17.5% growth from 2020 in a category that has grown 37.4% overall in that time (NIQ data).

Even in the candy category, consumers are looking for the balance of indulgent but also better for you, said Gauthier. She also noted a trend towards nostalgia in the category, as retailers try to find the right balance between novelty and old standbys.

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