Drink Up

With beverage trends shifting quickly, retailers see opportunity with emerging products.

Drink Up

May 2020   minute read

By: Terri Allan

Early this year, Kent Couch, owner of Stop & Go convenience store in Bend, Oregon, reset his beverage coolers to accommodate the wave of new brands taking the market by storm. “Hard seltzers have exploded,” the retailer explained, pointing to the likes of brands like White Claw, Truly and Bud Light. In fact, just a couple months into the reset, Couch confided, “I’m not sure I’ve given hard seltzers enough attention.”

Couch and other convenience retailers are finding that beverage trends are changing faster than ever, and it’s critical to be cognizant of any shifts. “You have to make adjustments and make them pretty quickly,” Couch said. “Today, it comes down to replace, replace, replace.”

There’s no question that hard seltzers, unheard of five years ago, are one of the hottest beverage segments today. And that momentum has spilled over into the c-store channel. According to Nielsen, for the 52 weeks that ended January 25, 2020, hard seltzer sales in c-stores surged 428% to $486.3 million from $92.1 million in the previous 52-week period.

Sara Hillstrom, senior director, category development, at Anheuser-Busch, said the big gain in hard seltzer sales accounted for 43% of convenience store beer growth in 2019. And the segment is expected to see continued “impressive” growth this year, she noted, citing planned expanded distribution and strong consumer demand. (NACS currently characterizes all hard seltzers, regardless of their alcoholic beverage base, as flavored malt beverages within the beer category.)

We’re seeing increased overall consumption from seltzer drinkers and new consumers entering the beverage alcohol space.

C-store operators and marketers report that unlike other beverage segments, hard seltzers field a broad consumer base. Matt Yorkston, secretary and treasurer at Yorkston Oil Co., with four Yorky’s Markets in Washington state, described his hard seltzer customers as “a mix of males and females” interested in low-carb, low-calorie and gluten-free drinks. “We’ve done really well with regular seltzer water, including brands like LaCroix and Polar, so I’m not surprised that a seltzer with 5% alcohol by volume (ABV) is also doing well,” Yorkston said. Hard seltzers at Yorky’s have performed so well that the chain has ceded cooler space previously devoted to craft beers to the emerging segment.

Sean Bumgarner, vice president of Missouri’s Scrivener Oil Co., operator of Signal Food Stores, meanwhile, noted that his hard seltzer customers, who range from “white collar to blue collar,” often purchase beer or liquor as well. Indeed, the opportunity to appeal to a wide range of consumers drove Anheuser-Busch to launch a portfolio of hard seltzer brands, including the Bud Light, Natural Light and Social Club (launching this month) entries, Ramona Giderof, vice president of c-store sales, said.

While Mike’s Hard Beverage’s White Claw and Boston Beer Co.’s Truly brands dominate the hard seltzer segment, new malt-based entries include Anheuser-Busch’s Bud Light and Constellation Brands’ Corona hard seltzers, as well as wine- and liquor-based offerings from E. & J. Gallo Winery. Barefoot hard seltzer “allows the consumer who typically doesn’t drink malt-based products to enjoy a wine-based hard seltzer,” remarked Herb Smith, vice president, sales and customer development, at Gallo. Vodka-based High Noon Sun Sips, meanwhile, which boasts a modest 4.5% ABV, can be sold in c-stores that carry other liquor products, and even in Florida, due to its low proof, Smith said.

While hard seltzers are expected to be the rage this summer, there’s some debate over the segment’s long-term prognosis. “I believe they’re a fad,” said Signal Foods’ Bumgarner. “However, they may stay longer than the hard sodas from a few years ago.”

Yorkston and others disagree. “I think we’re just seeing the beginning,” the Washington retailer remarked. Constellation Brands is also bullish. “We definitely don’t see seltzers slowing down anytime soon,” commented Ann Legan, vice president of brand marketing for Corona. “We’re seeing increased overall consumption from seltzer drinkers and new consumers entering the beverage alcohol space.”

CSD Alternatives

The non-alcoholic packaged beverage category is also home to emerging subsegments. Kombucha, the sparkling, fermented tea, is one example. According to Nielsen, for the 52 weeks that ended January 25, 2020, kombucha sales in c-stores jumped 71% to $850,300 from $498,400 in the previous 52-week period. At Yorky’s, which has offered kombuchas for several years, consumers are typically “millennials, and those who are health conscious, work out and are concerned with what they put in their gut,” Yorkston said.

Vanessa Dew, co-founder of Health-Ade kombucha, described the brand’s c-store purchasers as “well-educated, diverse shoppers primarily between the ages of 25-34 and living in urban areas.” Launched in c-stores three years ago, Health-Ade kombucha is currently available at 7-Eleven, Chevron Extra Mile, Jacksons Food, Circle K, VERC Enterprises and United Pacific stores, as well as a variety of individual bodegas in markets like New York City, Boston and Los Angeles, Dew noted.

Kombucha has a less than 1% household penetration in the convenience channel, compared to soda that has 35% household penetration.

While Dew acknowledged that the kombucha segment is still tiny in c-stores, she pointed to the growing opportunity for the products. “In c-stores, the better-for-you segment is small but growing fast,” the marketer said, driven by consumers who are replacing CSDs with products like kombucha. “Right now, kombucha has a less than 1% household penetration in the convenience channel, compared to soda that has 35% household penetration,” Dew reported. “As consumers are switching from soda, I see a ton of runway in this channel as consumers look for a feel-good beverage that’s bubbly and tastes great.” Among the tactics Health-Ade uses to build awareness in c-stores are “tons of in-store samplings,” Dew said, as well as POS merchandising and digital coupons.

Stop & Go’s Couch was an early supporter of kombuchas, first stocking the product a dozen years ago. “At first, I didn’t believe it had legs. I felt it was more of a hipster beverage, while our clientele is more blue collar,” the retailer recalled. “But word got out and it really took off.” Indeed, in addition to packaged kombucha, Stop & Go has offered kombucha on tap in recent years as part of its growler program.

Hard kombuchas may be the next wave. Ty Gilmore, president of Flying Embers, producer of a line of spiked kombuchas, said that with the “evolution of better-for-you food in c-stores, there’s so much opportunity for the same movement in beverages, including alcoholic beverages.” Gilmore pointed to the strides being made by hard seltzers as telling. “Hard kombucha plays in the same space,” he said.

Still, early adaptors of kombucha like Couch and Yorkston note that sales of the products have slowed in recent years. As such, both Yorky’s and Stop & Go have downsized their kombucha offerings. Couch called kombucha a “faddish” segment and said that CBD beverages are now the big trend at his store.

Leverage the Potential

With beverage trends and consumer demands changing so quickly, marketers advise that retailers stay informed and be prepared to adapt. “The days of looking at the beer cold box for just malt beverages are over,” remarked Gallo’s Smith. “Best-in-class retailers are introducing a full seltzer door of products, giving consumers an easier way to shop and retailers a variety of price points and margin offerings.”

Flying Embers’ Gilmore pointed to the incremental purchase opportunities that products like kombuchas offer. “It would be wise for c-store operators to leverage space for better-for-you beverages,” the marketer said. Health-Ade’s Dew agreed, adding that emerging better-for-you beverages drive higher basket rings, a goal of every convenience retailer.