Nacs State Industry Report

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					THE BEVERAGE CATEGORY
Beverage
Cold
Drinks
The Beverage environment has changed
   dramatically in the last few years

  Environmental Factor           Impact on Soft Drinks


 Consumers seeking more        Explosion of beverage choice
         VARIETY              outside of Sparkling Soft Drinks




    Shoppers need for           Players outside of the c-store
CONVENIENCE is greater than   industry are now targeting on-the-
          ever                     go beverage occasions



   Increasing consumer
                              Consumers are redefining “value”
    concerns about the             in the “new normal”
         ECONOMY
Convenience Retailers, Grocery, Drug, and Restaurant
 Players are proactively pursuing on-the-go beverage
                       occasions
SOFT DRINK REMAINS THE MOST-CONSUMED
BEVERAGE IN THE U.S.
              … with per capita consumption double that of the next closest beverage
              categories and still on par with 1993 levels.
                                 2008 Per Capita Consumption (Gallons)
                                                                                         Gallons per capita
            Soft Drinks                                                        47.5

                    Beer                                                21.9
                                                                                      Sparkling Soft Drinks 15
                                                                                         year comparison
        Bottled Water                                                   21.4
                                                                                      1993             2009
                    Milk                                            19.7

                 Coffee                                      15.9
                                                                                      48.3              47.5
                  Juices                        8.1

                     Tea                       7.3

         Sports Drinks                   4.6

                   Wine            2.6

    Powdered Drinks               2.3

       Distilled Spirits        1.4


Sources: Beverage Digest Fact Book 2009, Nielsen Food/Drug/ConvRetail
PACKAGED AND DISPENSED BEVERAGES COMBINED
REPRESENT 22.76% OF TOTAL IN-STORE DOLLAR SALES




  * % Of In-Store Sales:
  • Packaged Beverages- 15.57%
  • Dispensed Beverages- 7.19%

 Source: NACS State of the Industry Report- 2008
WHILE THE LUNCH OCCASION DRIVES OVERALL
QSR TRAFFIC, PM SNACK REMAINS THE MAIN
               DRIVER IN CR




Source: The NPD Group/CREST year June
2009.
WHAT BEVERAGES ARE SHOPPERS
BUYING WITH FOOD?
  Sparkling Soft Drinks still lead beverage consumption for Meal &
               Snack occasions in Convenience Retail

                                                                    Regular SSDs

                             2% 2%
                                                                    Diet SSDs           Over one-third of
                        4% 2%
                 5%                                     25%         Coffee & Hot Tea        all beverage
           6%                                                       Bottled Water         servings in CR
       6%                                                           Still Soft Drinks     Meal & Snack
                                                                    Juice                 occasions are
        7%                                                          Iced Tea
                                                                                          Sparkling Soft
                                                              12%
                                                                                           Drinks – one
                                                                    Frozen/Slushy
               10%                                                                             fourth are
                                                                    Milk
                                                  19%                                       Regular Soft
                                                                    Alcohol
                                                                                           Drinks Alone
                                                                    Shakes/Smoothies
                                                                    Other


    Source: NPD CREST C-Store Meals & Snacks YE 2008
         WHY BUNDLE FOOD & BEVERAGES IN
              CONVENIENCE RETAIL?
                                       • Meal & snack occasions are driving traffic into c-stores while overall
                                         in-store traffic continues to decline

                                       • Convenience Store Meal & Snack traffic grew 1.3% in 2008, while
                                         Total Convenience Store traffic fell 14.2%

                                       • Foodservice remains one of the highest margin categories in store
                                         and a great opportunity for profit growth

                                       • 30% of in-store shoppers are buying food, and 77% food buyers are
                                         purchasing a beverage
                                       → but only 58% of food buyers are picking up a soft drink

                                       • 66% of in-store shoppers are buying a
                                         beverage, but only 36% of beverage
                                         buyers are buying food and/or snacks




sources: The NPD Group/Convenience Store Monitor and CREST YE 2008, 2008 NACS State of the Industry
     FUNDAMENTALS OF A SUCCESSFUL
          BEVERAGE STRATEGY

 Updated and Proper Equipment
 Multiple Drink Stations
 Ice Selection
 Brand Optimization
 Aggressive Pricing Strategies
       UPDATED PROPER EQUIPMENT

Fountain equipment
  •   Multiple pieces of equipment
  •   16 and 24 fountain heads.
  •   Allows the C-store operator to increase the
      selection on each piece of equipment
  •   Provides a broader selection to the customer.
  •   A new clean machine appeals to a customer and
      lets them know that it is ready for business
     MULTIPLE DRINK STATIONS
•   More conducive to sales
    o Allows for more than one customer to be
      filling a drink
    o More flavors available

•   Creates the opportunity to merchandise
    between each station
•   Drives adjacency and go-together sales
•   Where the space is available, three
    fountain machines are preferred
MULTIPLE DRINK STATIONS
BILLBOARD EFFECT
              ICE SELECTION

 Ice that is dispensed for customer
  consumption can be a huge driver for sales
 Customer intercepts has shown that there is
  a clear preference for crushed/chewy ice
 Sales growth after the addition of chewy ice
  has ranged between 9.4% and 23.4%
              BRAND OPTIMIZATION
   Different demographics require different flavors or
    additional flavors
   Consumers have become more calorie conscious
   A broader selection of diet drinks must be offered
    to appeal to a broader base of consumers
   Examples are Diet Caffeine Free Pepsi, Diet
    Caffeine Free Coke, Diet Dr. Pepper, Diet Sprite,
    and Diet Mountain Dew
AGGRESSIVE PRICING STRATEGIES
   Pricing is not a one size fits all strategy
   Potential price points for an any size program can
    be between 49 cents and 99 cents depending on
    demographics and the competition’s price points
   Aggressive pricing has to be a long term
    commitment and the results will not be overnight
   The aggressive pricing strategy may negatively
    affect cold vault sales
   Long term profits will rise if the program is
    implemented properly
           ADDITIONAL PROFIT DRIVERS
   Frozen Carbonated Beverage
       Drives new customers in, especially children, and old customers to come
        back more frequently
       four head machines are preferred in most locations
       There is a clear correlation to rotation of flavors and increased FCB
        sales
   Advertising Campaign
       Use in-store signage to drive go-together sales.
       A successful in-store advertising and marketing campaign creates a
        destination
   Flavor Shots
       Can be used as an additional profit driver
       Most popular flavors are cherry and vanilla
       New sour flavors for FCB are becoming very popular
                WHY USE THIS STRATEGY?
   A successful fountain program can insulate a C-store from
    declining gas margins
   Margins for the category should be at a minimum 45%
   Creates another reason for customers to come to the store
   Increases the number of trips a customer makes to a C-
    store
   It is a strategy that is hard to duplicate for big box retailers
    because of the advantages of time and proximity a c-store
    can offer
   Drives more in stores sales due to adjacency sales and go
    together sales
Hot Drinks
Coffee
          PENETRATION OF TOTAL COFFEE
                                    % of Population Age 18 and Over

                                                                        80            80 82 82 80
                                                                             77 79 79             77   01'
                                                        68 67 66                                       02'
                                          63 64 64 64              63
                         57 55       59                                                                03'
     52 52 51      53 56       54
              49                                                                                       04'
                                                                                                       05'
                                                                                                       06'
                                                                                                       07'
                                                                                                       08'
                                                                                                       09'

          Drank Yesterday                   Drank Past Week                    Drank Past Year




Total Coffee includes all types; regular, instant, flavored, gourmet, iced and blended

  Source: National Coffee Drinking Trends
          DAILY CONSUMPTION OF COFFEE

                                                                % of Population Age 18 and Over
      56 57 55 54
 53                      53 53
                    50           49 49        47 48
                                         44           43
                                                           40                                                                                   2005
                                                                                                                                                2006
                                                                                                                                                2007
                                                                                                                                                2008
                                                                                              15 16 14 17 14
                                                                             10 10       10                                  10 10       10 9   2009
                                                                6 7 7 7 8            8 9                       6 7 6 7 5             8



 Total Coffee        Traditional              Regular             Instant       Decaf         Gourmet Coffee Espresso-Based Gourmet Coffee*
                    Coffee (net)                                                                  (net)




*Gourmet Coffee defined to respondents as “premium whole bean or ground varieties”


Source: National Coffee Drinking Trends 2009
AWARENESS OF GOURMET COFFEE BEVERAGES
                      % of Population Age 18 and Over
                                          Heard of it and know what’s in it
                                          Heard of it but don't know what's in it
                                          Not heard of it


        Iced Coffee                       57                         35              8

   Gourmet Coffee*                   48                         42                   10

       Cappuccino                    44                         52                    4


         Espresso                    44                         50                    6
                                                                                                  *Gourmet Coffee defined
              Latte                 39                         53                    8            as premium whole bean or
  Powdered Coffee                                                                                 ground varieties
                                36                       41                     24
      Mixes

       Café Mocha               34                        52                     15

    Frozen Blended
                               28                   37                     35
        Coffee

         Macchiato        10         27                         64

                      0             20         40         60              80          100   120



 Source: National Coffee Drinking Trends 2009
                                  2009 MENU TRENDS

                                                                            Hot Beverages
                          Top Hot Beverages
                          (% of restaurants serving)                      Penetration: 2 Year Growth
                                                                              CHAI TEA         32%

       Coffee
                                              55.1%                         CAFÉ AU LAIT       31%

     Hot Tea
                                      21.8%                                     LATTE          20%

Hot Chocolate
                                18.6%                                          MOCHA           18%
                               16.6%                                          ESPRESSO         18%
 Cappuccino

                              14.7%                                         CAPPUCCINO         13%
    Espresso

                        8.3%                                                   HOT TEA          7%
        Latte

                       7.2%
                                                                               COFFEE           2%
      Mocha
                                                                           HOT CHOCOLATE       -5%
                   3.3%
    Chai Tea

 Cafe Au Lait    2.1%

                                                      Analysis of:
                                                       5,700+ menus
                                                       600,000+ dishes

Source: Datassential
        HOT BEVERAGE TRENDS
 Coffee is a personal beverage
 Regular and decaf are not enough

 Highly caffeinated, dark, Columbian, fair
  trade, breakfast blend, flavored, etc…
 Choice is what appeals to the masses

 Presentation and execution wins

 Fresh brewed iced tea and iced coffee
Condiments and Toppings
“If there is something you want for your coffee, we have it”
                    • Fresh brewed iced coffee
                    • Fresh brewed iced tea:
                       • Sweet and Unsweet




Many choices to
create your own
personal iced tea
or iced coffee
beverage
Food options drive beverage sales
THE BATTLE OF THE BREW

				
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