From Share a Coke to Better Together: Wells Fargo ‘bullish’ about c-store growth driven by Millennials, Hispanics, and women

In a note penned after attending the National Association of Convenience Stores (NACS) conference in Las Vegas, Wells Fargo said successful companies are also using demographic data to help deliver more targeted promotions and ranging/merchandising at a local level.

"While the average c-store customer only spends three minutes in the store per visit, generally purchasing on-the-go products, retail lines are blurring as consumers are using c-stores for fill-in purchases in between grocery visits. Therefore it is imperative that c-store operators know which products to carry inside the store as well as how to merchandise products to optimize inside sales."​

Multi-purchase promotions and food pairings are also driving incremental sales, said Wells Fargo, citing PepsiCo’s ‘Better Together’ beverages & snacks promotions (eg. Doritos + Mountain Dew) and Hershey’s tie up with Coca-Cola (Coca-Cola and Reese’s Pieces).

 “We continue to be bullish on the c-store industry as it becomes more sophisticated, particularly with regards to food and merchandise offerings.”​

Coca-Cola: Share a Coke initiative has boosted overall immediate consumption​

One of the biggest success stories in the c-store sector this year has been the Share-a-Coke​ initiative, which has “lifted the entire immediate consumption business in c-stores”, ​said Wells Fargo, which said next year’s campaign will be launched earlier (April rather than June), with targeted programs around specific holidays like Mother’s Day (‘Share a Coke with Mom’) and a broader set of names.

“The run rate of immediate consumption has more than doubled in the time that Share-a-Coke was introduced. In July, retailers that had Share-a-Coke activations saw an 8.7% increase in total volumes of immediate consumption (vs. 5.1% for non-activated retailers), a 14.1% increase in Coca-Cola product volumes (vs. 8.5% for non-activated retailers), and a 25.9% increase in Share-a-Coke 20-oz PET bottles.”​

The bottom line? Share-a-Coke is “evidence that the beverage category responds to successful merchandising”.​

PepsiCo: Targeting the Millennial consumer​

Meanwhile, arch rival PepsiCo was the single largest supplier of dollar growth to the c-store channel in the first half of 2014, delivering almost $500m of incremental sales, said Wells Fargo.

But while PepsiCo's Quaker Express Cups met the demands of Millennial shoppers, Mountain Dew Kickstart has delivered some of the most impressive growth, said the report.

“PepsiCo’s product innovation focused on creating sustainable platforms that build each year. For example, with Kickstart, in year one the focus was on morning occasions. In year two, this was extended to afternoon and evening occasions. Now, it is entering hydration occasions with its coconut-water infused Hydrating Boost Kickstart.”​

Several new products are also in the pipeline, including:

• Propel electrolyte water.
• Lipton sparkling tea.
• O.N.E. coconut water (to be reformulated with new package and product attributes).
• Gatorade (new flavors and package innovation with smaller 22-oz package size).
• Ocean Spray PACt cranberry extract water.
• Starbucks double shot with protein.

Monster Beverage Corp: New customers, new day parts​

Another c-store top-performer is Monster Beverage Corporation, which is continuing to bring new consumers into the energy category through new products like Ultra Sunrise; and adding new occasions/day-parts via products such as Monster Unleaded, said Wells Fargo.

"Ultra Black continues to do great while Ultra Sunrise is bigger than the original Monster Ultra. Monster Unleaded allows consumers to maintain the Monster personality and culture without having the caffeine content which we believe extends Monster into new day parts and drinking occasions.”​

As for pricing, while Red Bull plans to raise prices in 2015, Monster has no immediate plans to follow suit, and will likely make some modest share gains early next year as a result, predicted Wells Fargo. “[But] ultimately ​[Monster CEO Rodney] Sacks indicated Monster will follow Red Bull’s pricing action eventually which should result in better margins.”​

 Latest four weeks: Energy drink sales up 6.4% ​

Dollar sales of carbonated soft drinks (excluding-energy drinks) in the U.S. C-store channel were up 1.6% in the four weeks ending September 27, driven by price increases of 3.8% offset by a 2.2% decline in unit volumes, according to Nielsen data

The energy category had dollar sales growth of 6.4%, driven by solid sequential improvements for Monster, offset by double-digit declines for Rockstar.

Salty snacks category dollar sales increased 6.9%, with 6.9% unit volume growth and flat pricing.