Beer and flavored malt beverage (FMB) sales were up +2% in Q4, while hard seltzer sales declined -3% in the same period, according to the most recent Beverage Bytes survey conducted by Goldman Sachs Equity Research.
The survey results, which are generated from approximately 30,000 retail locations that represent nearly 20% of the total U.S. c-store channel, found that convenience retailers are increasingly concerned about the risks of a recession and its potential impact on consumer spending, particularly as manufacturers continue to increase prices.
Looking to 2023, retailers expect modest growth (about 3%) in the beer and FMB categories and believe hard seltzer sales will remain flat. That being said, almost half of retailers (43%) plan to allocate more shelf and cooler space to alcoholic beverages this year, with the beneficiaries being Constellation Brands’ Mexican imported beer portfolio and FMB brands Twisted Tea (Boston Beer), The Beast Unleashed (Monster Energy) and Simply Spiked (Molson Coors).
Respondents said Molson Coors’ top two light beer brands — Miller Lite and Coors Light — aren’t seeing any signs of the benefits of consumers trading down. Molson Coors is expected to lose space in c-store coolers and craft beer 6-packs will be favored less than single-serve cans. One retailer highlighted a decline in imported beer, which is consistent with recent corporate earnings reports and data from National Beer Wholesalers Association, the report said.
Constellation Brands’ Modelo Especial is showing no signs of slowing down, with survey respondents saying there are no signs the brand has peaked or lost share. However, the majority of retailers surveyed said they’ve seen no signs of improvement in the momentum for Boston Beer Company’s Truly Hard Seltzer, despite the offerings being reformulated with real fruit juice, which the firm said has received a “lackluster response so far.” As such, Goldman Sachs reiterated its sell rating.
Out-of-stocks remain an issue for the alcoholic beverage set broadly, with companies including White Claw and Mike’s Hard Lemonade maker Mark Anthony Brands, Boston Beer Company and Molson Coors experiencing significant challenges. The majority of retailers believe the out-of-stock issue has not improved since last month, but the same rate also expects the issue to be resolved by the end of the year.
All retailers surveyed believe beer manufacturers will input additional pricing actions in March though some believe a second round of increases could come in September, repeating the double price increases several suppliers took in 2022. Around half of respondents said they anticipate “significant price increases of greater than 3%.” Survey analysts said this was “broadly surprising” due to survey results that also indicate some brewers are beginning to discount products.
“Further, [Constellation Brands] STZ’s comments on its FQ3 earnings call regarding pricing was also more cautious as [management] indicated that elasticities have begun to strengthen in key markets and also that pricing in STZ’s FY24 will be more subdued (albeit in-line with typical 1-2%).”
According to the report, 88% of retailers have seen no sign of increased promotional activities yet and some believe this year’s price increases will be largely driven by distributors rather than brewers due to increased transportation costs.
What’s the state of Non-Alc Bev?
In the non-alcoholic set, sales accelerated, increasing +3% in Q4 compared to the previous quarter despite seasonal decreases to in-store traffic (-1%), attributed to lower consumer mobility in the winter months.
Retailers are cautious about the looming potential for out-of-stocks this year, though the issue is less severe than previous quarters (less than 10% in Q4 compared to ~18% in Q3). However, robust pricing growth (expected to be near about +3%) coupled with continued, limited promotional activities across both alcoholic and non-alc beverages have led retailers to lower expectations to about +6% sales growth versus the +9% rate of growth from survey results in Q3 22.
“Retailers believe that the incremental price increases will impact unit sales, even if total dollar sales growth remains positive,” the report states. “Elsewhere, some retailers believe that manufacturers are likely taking a wait and watch approach, and are assessing the effects of the latest price increases before changing any promotional activity.”
One retailer highlighted that both PepsiCo and Coca-Cola have already enacted price hikes of between 13% to 16%, which took effect the first day of the year, on top of the pricing actions taken in August.
Many have seen increased promotional activity for brands including Monster, Ghost, C4 Energy, Keurig Dr Pepper (KDP)’s bottled water portfolio, The Coca Cola Company water brands, LIFEWTR, Gatorade, Electrolit as well as PepsiCo and Coke’s CSD lineups. C-store operators expect to dedicate the same amount of shelf and cooler space to non-alcs in 2023 as was allocated last year.
What are attitudes like toward Energy Drinks?
Strong pricing actions and little to no indication of consumer sensitivity has generated a positive outlook for energy drink sales growth in 2023 with retailers expecting the category to jump about +14% during the year ahead. In Q4, energy drink sales rose +17% compared to +15% growth in Q3 and in the full year, increased +11% year-over-year.
As retailers plan shelf and cooler sets, they noted intentions to slightly increase allocations for Celsius, Monster and Red Bull. Some called out both Red Bull and Bang for out-of-stock issues and for reducing “feet on the street and merchandising” teams; however, many indicated they would cut down or entirely eliminate space for Bang which faced inventory issues at 45% of retailers in Q4. Respondents did not cite any inventory issues with Celsius following its recent move into PepsiCo’s distribution network, though some said it was too early to weigh in.
Innovation in the category has bolstered attitudes with the majority (~70%) of respondents stating they are very-to-somewhat positive about the launch of Monster’s Zero Sugar. Most retailers are also optimistic about the performance of newcomers to the set including Alani Nu and Anheuser-Busch-backed Ghost which some retailers said are beginning to grab some market share.
“Retailers remain broadly concerned about Bang’s performance, with some indicating that the product is no longer relevant in the energy drink category,” the report states.
Pricing growth has yet to significantly affect total dollar sales, according to the survey, though nearly one-third of respondents said pricing actions have negatively impacted volume growth. Some retailers said they expect two rounds of price increases this year. Others noted there has been a decreased demand for multi-packs as consumers increasingly reach for smaller cans and singles to minimize spending.
Justin Kendall contributed to this report.