By Sarah Hamaker
Not hampered much by the weak economy, the cold dispensed beverages category soared 12.7 percent in sales from January to December 2009 (same store, per month) when compared to the identical period in 2008, according to NACS/CSX data. Although the gross profit margin (same store, per month) for the category declined slightly in 2009 — a 1.3 percent drop — gross profit dollars rose a healthy 11.2 percent.
“We’ve seen a decrease in total convenience channel traffic influenced by the downturn in the economy,” said Chris Parks, director of shopper marketing for Dr Pepper Snapple Group.
“However, despite the declining traffic, several top Dr Pepper Snapple brands showed growth in many convenience fountain accounts in 2009 due to fountain value pricing and expansion of diet and flavor offerings at many outlets,” Parks said.
“Longer term, [our fountain drink sales have] modestly been up,” said David Gugliotta, vice president of national accounts for retail foodservice for PepsiCo. “We’ve seen a fairly decent resurgence in 2009 driven by economic conditions that are partially attributed to the trade-off from cold vault to fountain because of the value of cold dispensed beverages.”
“The fountain category, in most cases, has both benefited from and helped grow the beverage category during these tough consumer times,” said Steve Johnson, vice president of convenience retail sales for The Coca-Cola Company. “Beverages are typically the number-one reason for visiting convenience stores.”
While the beverage companies point to a somewhat rosier picture of the category, some retailers haven’t seen the same growth. “Fountain for us has been pretty stagnant,” said Fred Faulkner, manager for sales and marketing for Fastrip Food Stores. Headquartered in Bakersfield, California, Fastrip operates 53 locations in California and Arizona. “Most of the activity for us has been inside the cold box because there’s more innovation there with energy drinks and iced coffees.”
For fountain drinks to stay relevant to today’s consumer, cold dispensed beverage manufacturers need to keep the offerings fresh, said Beverage Digest’s editor and publisher John Sicher. “I think the challenge will be making sure what comes out of the fountain is as contemporary as what a customer can buy from the cooler door,” he said.
“There’s more growth in the cold box because of these innovations,” agreed Faulkner. “But those innovations take longer to translate to fountain.”
Soft drink makers realize innovation in the fountain area needs to happen if the category is going to grow. For example, Dr Pepper Snapple’s Parks commented that the company is expanding its diet and flavor availability at the fountain by leveraging the leading brands in the overall beverage category.
Pepsi is “always working on innovations and we’re testing some new things relating to cold dispensed beverages,” said Gugliotta, although he declined to be more specific. He did say that the trend toward more noncarbonated beverages should continue and that Pepsi has had success with its tea fountain category, “as customers are seeking nutritional value from their beverages.”
Coca-Cola Foodservice’s Total Beverage Solution System is a one-stop beverage support system for convenience retailers. The system maximizes space requirements with new dispensing technology that provides greater flavor variety in a reduced footprint. “This type of beverage system support makes for flexible distribution and innovative dispensing technology. For example, the Variety Tea Tower delivers four Gold Peak or Nestea flavors from a single piece of equipment that would traditionally have taken up much more space,” said Johnson.
FSI Beverage Systems offers flavor enhancers for fountain drinks, such as flavor shots and Booster Shots or healthy beverage enhancers. “The trend appears to be heading toward more healthy and energy-type products,” said Tammy Wenzel, manager of FSI Beverage Systems LLC.
Also, Dr Pepper Snapple has added ice choice — crushed, cubed or pellet — to its cold dispensed beverage machines, as well as the ability to add flavor shots to capture the consumer who wants more choices. And flavor shots allow for individual customization, which may contribute to greater customer loyalty to a specific location.
Since most consumers know convenience stores have fountain drinks, soft drink companies rely on shopper marketing insights “to help them refine their in-store marketing efforts, grow their t-counts, and ensure they have the right mix of beverage brands in the right categories to meet consumer needs,” said Johnson.
Coke works with outlet-level retailers to “activate the selected brands through in-store point-of-purchase signage, relevant targeted messaging and cross-merchandising of beverages with food and snacks in high visibility impact areas. There’s even marketing at the pump to get gas customers inside the store,” said Johnson.
Pepsi approaches in-store marketing in a similar fashion. “We’re always working with our customers, and our merchandising tactics or approaches really mirror both the customer trend and customer goals, whether it’s promoting everyday low prices with register toppers or danglers advertising combo meals or a limited-time offer,” said Gugliotta.
Other suppliers provide retailers with a variety of point-of-purchase materials to promote the cold dispensed beverage category. For instance, FSI Beverage has developed in-store signage, dispensing machine buttons and POP materials for its flavor syrup racks.
Dr Pepper Snapple influences shopper behavior in the convenience channel by leveraging an array of in-store communication tactics—fountain translates, on-cup communication, grill shroud signage, fresh food tie-ins, collectible cups, window posters, pumptoppers, and store front banners to communicate their promotional events.
These manufacturers also see great benefit to developing partnerships with other companies. For example, Dr Pepper Snapple has partnered with blockbuster movie properties, college football, IRL racing and gaming, such as its partnership with Electronic Arts (EA) to drive immediate consumption frequency. “The EA program offers Dr Pepper consumers one of a kind downloadable content for multiple EA games via a unique code on each fountain cup,” said Parks.
Coke also joins with companies outside the channel to bring excitement and sales to the cold dispensed beverage category. “Our relationship with NASCAR is a good example...Properties provide a unique way for the retailer and their customers to become involved in the sport, and become connected through Coca-Cola’s relationship and promotional programs/ events,” said Johnson.
Fastrip frequently uses promotions with other companies to raise awareness and sales of its fountain drinks. “This year, we have a tie-in with Frito-Lay and Dr Pepper, as well as a tie-in promotion with VA Sports, a video game company,” said Faulkner. “These types of promotions help with sales because they create a little more activity in the category. Customers like the fun things these promotions bring. The tie-ins also increase the size of the drink purchased.”
Johnson sees manufacturers of cold dispensed beverages as becoming more innovative to meet customer and retailer expectations. “The future is likely to hold continued downsizing of equipment to optimize retail space, efficiency and operational ease. Also, new green technology will be incorporated into the equipment and supplies to reduce energy consumption and waste,” he said.
“Overall, as food evolves in convenience retail, sparkling beverages will benefit due to their affinity with food. The convenience store today offers more choices and variety in products than ever before,” said Johnson.
Sarah Hamaker is a freelance writer based in Fairfax, Virginia. She’s also a NACS Magazine and NACS Daily contributing writer.