Writing in the Wells Fargo equity research newsletter about the recent National Association of Convenience Stores (NACS) conference in Chicago, Herzog explored the innovation pipelines of a number of companies, with a specific focus on their implications for the C-Store channel.
Coca-cola’s pipeline, for example, is “a good mix of both flavor and package innovation with slightly more focus on flavors”, wrote Herzog. Craft beverages such as Coca-Cola Georgia Peach and California Raspberry, the new Vitamin Water “Active”, and Barrilitos fresh fruit infused waters were among the key brands to look for next year. The Barrilitos products, “are very much on trend and should play well particularly to Hispanic consumers”, she added.
Herzog and her colleagues were also impressed by Coke Zero Sugar, which they expect to be a big hit, and the Coca-Cola’s strong pipeline with RTD coffee.
Blurring retailer lines
The innovation pipeline at PepsiCo includes Dew Ice, which is due to launch early next year. The carbonated beverage is lemon-lime flavored with a higher-caffeine content. This was described as the “highest scoring concept in Dew history”, which Herzog said is “promising”.
Moving beyond beverages, PepsiCo will also launch new products under the Doritos brand, including Doritos Crunch Nuts: nuts flavored with classic Nacho Cheese and Cooler Ranch seasonings.
“[PepisCo] remains focused on straddling spaces amidst the blurring of lines of retailers (e.g. c-store, food retailers, dollar stores, etc.), occasions (e.g. snacks vs. meals), and categories (e.g. hydration & CSDs),” said Herzog.
BodyArmor challenging Gatorade
For Dr Pepper Snapple, a lot is expected of BodyArmor, an all-natural, premium, “better for you” sports drink, which boasts Kobe Bryant among its investors. Dr Pepper Snapple owns almost 16%, having invested about $26 million in the brand.
“[BodyArmor] has a strong appeal to athletes and today’s consumer that is far more “label-focused”. We think Gatorade’s recent challenges in c-stores can be partially attributed to BodyArmor’s success (the brand is up 110% in c-stores this year),” noted Herzog.
BodyArmor is aiming for a 10% share of the sports drinks market within 18 months – it is currently at 3%.
Dr Pepper Snapple (DPS) is also focusing a lot of attention on Bai brands and allied brands, said Herzog, which remain very attractive to retailers due to a combination of high growth and high retailer margins. “We continue to be highly encouraged by DPS’s ongoing diversification through its various allied brands, which continue to perform well and drive incremental volume and operating income,” wrote Herzog.
Herzog explained that she and her colleagues were very impressed with Post’s work to re-make its PowerBar business, which it acquired from Nestlé in 2014.
“We think [Post] management has hit on the most differentiated and disruptive concepts yet,” wrote Herzog. “First, PowerBar Jerky & Nut Savory Snack bars have launched with 10g protein and no artificial sweeteners in Teriyaki, Original, and Barbeque flavors. We see it as a unique approach in the salty & sweet space and judging by its competitors having toured the booth, we sense an impactful brand on the category.
“In addition, PowerBar Plant Protein has launched. It is a gluten-free, Non-GMO Project verified, and artificial sweetener-free bar with 10g of plant-based protein. It is available in three varieties (Dark Chocolate Almond Sea Salt, Dark Chocolate Peanut Butter, Dark Chocolate Salted Caramel Chew). Until now, we have seen the PowerBar acquisition as transformative for Post’s Active Nutrition unit given its ability to be leveraged into a bar format at Premier. Now, between Jerky & Nut and Plant Protein, we sense that PowerBar can directly drive segment growth.”
Competition in the RTD coffee sector is also increasing. Click HERE to read our report on that sector.