Although beverage sales growth has remained steady throughout Q1 2023, convenience retailers showed some trepidation for the months ahead by lowering their annual sales growth projection to +4.6% in the latest Beverage Bytes survey from Goldman Sachs Equity Research.
While retailers are still upbeat about the performance of select companies and categories, such as Constellation Brands’ portfolio of Mexican imports Corona, Modelo and Pacifico, and the surging energy drinks space, macro issues like inflation, unusually cool weather, rising gas prices and unspecified “geopolitical headwinds” have cast shadows over the 2023 projected growth outlook, which was down from anticipated +5.9% growth in the Q4 2022 survey.
In store, “just a few” retailers announced plans to expand their shelf and cooler space for beverages during spring resets, while out-of-stocks have remained an issue (notably, non-alcoholic beverages saw modest improvements in supply, while out-of-stocks for alcohol worsened). On the upside, retailers said they believed the pricing environment was “still healthy” and promotional activity in non-alc increased.
“Heading into Q1, we are cautiously optimistic as we expect companies to broadly deliver healthy, price-driven topline growth (albeit likely below Q4) on the back of a resilient consumer and elasticities that are proving to be broadly manageable despite a good degree of caution still with regard to inflation and a potential pickup in promo activity (esp in non-alc bevs) as price growth benefits abate – sentiments broadly echoed below by our retailer contacts,” the report stated.
Looking ahead, Goldman anticipates “continued, but decelerating” topline performance based on the retailer responses as incremental pricing opportunities “may be harder to come by, while potentially strengthening elasticities weigh on volumes.”
Despite some reservations, 25% of retailers reported feeling more positive in their total beverage category outlook at the end of March versus the first two months of the year.
The quarterly survey received responses from convenience channel retailers representing about 30% of the channel, or roughly 50,000 locations nationwide.
Alcohol Sees Rockier Performance
Beer and flavored malt beverage (FMB) sales were up +4% in Q1, a modest acceleration according to Goldman. Retailers now anticipate category growth to pick up to about +6% in 2023, an improvement over +3% growth outlook in Q4. The improved sentiment comes in light of growth increases for hard seltzer (despite lagging performance from Boston Beer’s Truly).
Within the alcohol segment, Constellation Brands saw strong support as 83% of retailers said Modelo Especial has continued to sell well (one retailer reported the beer up +30% in some markets) and 50% of respondents said they plan to allocate more shelf and cooler space to Constellation’s portfolio during spring resets. Convenience retailers suggested the conglomerate’s beer and malt portfolio was up around +7% in Q1.
Meanwhile, Boston Beer Company has remained challenged, as retailers reported Truly sales down -4% in Q1 (compared to flat sales in Q4) and suggested the brand lost market share in the quarter. Sales of Twisted Tea also slowed during the quarter, up +8%, leading retailers to project the brand will grow about the same (+8%) for the full year, down from double-digit expectations in Q4. But as out-of-stocks improved, 8% of respondents said they expect to give the company more space this year.
Elsewhere, White Claw sales were up +10% in Q1 (versus +1% in Q4) and retailers raised their full-year projections for the brand to +7% (compared to +3% last year). Hard seltzer also benefited from strong sales from High Noon (+43%), Topo Chico (+84%) and Simply Spiked (+138%) in the quarter.
Out-of-stocks for alcoholic beverages worsened in Q1, as 75% of retailers said there were “only a ‘few’” out-of-stocks, down from 87% in Q4. However, 13% reported no out-of-stocks, in line with the previous survey. About 13% of retailers said “the situation was ‘bad’” reflecting the “most severe level” since April 2022, Goldman reported.
Non-Alc Sales Look Brighter
About 57% of retailers said they are seeing promo activity for non-alc beverages increase, up from 38% in Q4 2022, “likely in an attempt to reverse volume pressures,” the report noted. Top beverage manufacturers like The Coca-Cola Company, PepsiCo, Monster and Red Bull have largely maintained consistent promo calendars or increased promotional plans in c-stores. In particular, categories like energy, bottled water, carbonated soft drinks and sports drinks have received more promo attention, and all major companies are increasing their digital offers and combos.
Supply chain conditions for non-alc have also improved, as no retailers reported “significant” out-of-stocks during Q1, compared to 8% in Q4. But some companies have fared better than others, as a number of retailers said they have seen “significant” shortages from Keurig Dr Pepper (29%) and Bang (36%). However, around 35%-55% of respondents cited zero out-of-stocks from Coke, Monster, Red Bull and performance energy brand CELSIUS.
A solid majority (73%) of retailers said they expect more pricing increases this year, down from 85% in Q4. However, about 60% of respondents said they expect more modest pricing action (under 3%) in the future, while just 13% said they thought price hikes would average above 3%.
About 80% of retailers said they expect to allocate the same amount of shelf and cooler space to non-alcoholic beverages this year, while 13% said they will provide more space (up from 8% in Q4).
Energy Grows Double-Digits
Energy drink sales were up +19% year-over-year in Q1, according to survey respondents, compared to +17% in Q4 and 9% in Q1 2022. Outlook for continued growth was “incrementally bullish,” Goldman reported, with total 2023 category growth now projected at +19%, up from +14% in Q4, which would be the space’s third consecutive year of double digit growth.
The strong performance is being driven by both entrenched category leaders Monster and Red Bull, as well as emerging brands CELSIUS, C4, Ghost and Alani Nu. The launch of PRIME Energy has also been a source of optimism.
C4 in particular is set to make big shelf space gains, as 73% of retailers said they plan to give more space to the brand.
A majority (56%) were positive on the potential for Monster’s upcoming Reign Storm line launch, intended to compete in the better-for-you performance energy segment, while 44% said they do not believe it will be successful. But only 47% said the brand, which is poised to compete directly with CELSIUS, is likely to take market share from the Florida-based brand, while the remaining 53% said it will not eat into CELSIUS’ share.
Monster’s Zero Sugar line inspired even more optimism: 36% were “very positive” and 43% were “somewhat positive” on the potential for the line, compared to just 7% negative.
Meanwhile, embattled performance energy player Bang looks to be “the big shelf/cooler space loser” amid the company’s declining sales and legal battles. According to Goldman, 29% of respondents said they expect to allocate “no space at all to the brand” while 50% are anticipating it will receive less shelf space.
As well, 40% of respondents said they expect to give less space to PepsiCo (Rockstar and MTN Dew), with one retailer citing out-of-stocks and a lack of promos as the reason.