Soft drinks at a crossroads

July 15, 2011

If non-alcoholic beverage sales shift towards clubs and c-stores, as it appears, supermarkets have several ways to go.

Supermarkets are about to miss their fair share of non-alcoholic beverage sales – as CSD and ready-to-drink teas slow down, and juices, dairy, coffee and bottle water trend up. The recent AlixPartners Beverage Industry Review disclosed 37% of consumers will likely buy soda and other non-alcoholic beverages at convenience stores, up from 27% in early 2010, and 28% will buy from wholesale clubs, up from 19% in early 2010.  Although two out of three consumers – 68% – said in their survey they’ll likely buy in supermarkets, that’s down from 78% in early 2010.

Whether it is the vast cold assortments or the ability to self-serve fountain drinks at convenience stores, or the deep values at clubs causing this shift, supermarkets need their own differentiating reasons for shoppers to buy non-alcoholic beverages from their shelves, The Lempert Report says. They could create these reasons using tools such as pricing and promotion flexibility, cross merchandising, breadth of assortment, knowledge of customer purchase histories, and the DSD teams that regularly work their shelves. If not, sales could flow away.

Category comps will be hurt further by price wars between the soft drink titans; this is a natural occurrence of a shrinking category.

CSD may already be too cheap for the nation’s girth, in the eyes of Minh Wendt and Jessica Todd of the USDA Economic Research Service, co-authors of a study, The Effect of Food and Beverage Prices on Children’s Weights. They note the real prices for CSD have declined over 25 years, and the CSD price index has been lower than the Consumer Price Index overall and indexes for all non-alcoholic beverages and whole milk during the entire period.

As retailers strategize to keep their non-alcoholic beverage share, they could do the right thing by Americans and not prop up the CSD category with price battles – the likes of which we haven’t seen in many years. For example, a CVS promotional e-mail to frequent cardholders last week offered selected varieties of two-liter bottles of Coca-Cola soft drinks for 69 cents each, with a limit of five per purchase. This is possible, of course, because the cost to manufacture CSD is a tiny fraction of the marketed price.  Where this will head, we feel, is into children’s bellies.

CSD may continue to decline in the U.S. due to consumer concerns about sugars and artificial sweeteners. The makers of these brands have boundless opportunities to sell CSD worldwide, and emphasize more the rest of their portfolios here – perhaps even becoming positive influences for families seeking healthful balances in their beverage choices overall.