Coke's ‘savvy’ pricing strategy has helped it take share from Dr Pepper Snapple and PepsiCo in 2014 to date but analysts warn the policy may not be in the brand’s best long-term interest amidst worry about CSDs.
Wells Fargo Securities released its Beverage Buzz 2014 Memorial Day Retailer Survey today – using data from retailers representing thousands of US C-store locations nationwide – with respondents reporting that (on a scale of 1-7) colas were the most heavily promoted product, (5.4) followed by energy drinks, (5.1).
Led by senior analyst Bonnie Herzog, Wells Fargo’s team reported that Coca-Cola had the highest level of promotions on colas, while PepsiCo led the way in promoting teas and enhanced waters, with Monster ahead in energy category and Nestle in Waters.
Sales were relatively solid, Well Fargo said, following a difficult 2013 holiday weekend that was ruined by bad weather – with 80% of those polled reporting better sales compared with last year.
‘We can’t put every beverage on sale all the time!
Wells Fargo thinks promotions rose 5.4% year-on-year over the Memorial Day Holiday and ran at the highest level seen in over a year, actually beginning several months ago as brands sought to drive C-store volumes.
One respondent told the analysts: “All these companies would like to promote more often, but we can’t put the entire store beverage selection on sale all the time.”
“We believe Coke’s increased promotional activity should help continue to drive volumes ahead of its peers. However, we continue to question whether it’s in the company’s best interests to maintain aggressive promos over the long term,” Wells Fargo wrote.
Pulling the promo lever allowed Coke to outperform its rivals, Wells Fargo’s analysts said, with sales up circa. 2% in Q2 versus 1% for Pepsi and Dr Pepper, but they cited retail contacts who believe the firm could raise prices later in 2014.
“We continue to believe that Coke’s savvy pricing strategy has allowed it to take share despite the challenging CSD climate and think further pricing should help drive top line results for the balance of FY 2014,” the analysts wrote.
‘Losses all coming from CSDs…’
Multi-purchase promotions, ‘two for $X’, and lower prices were the most effective promotional activities, Wells Fargo said, while respondents said online media (including social media) also gained traction a successful promotional avenue.
70% of respondents said online promos were either ‘somewhat’ or ‘very’ effective compared to only 50% in 2012, but point-of-sale promos like in-store displays and pricing remain the most effective way to grow sales.
As to which categories are performing, Wells Fargo said isotonic (sports) drinks, energy and single-serve soda (most likely driven by multi-buy promos) offset weakness in multipacks.
“One retailer that indicated sales were down in his stores suggested that ‘losses are all coming from CSDs – the water category and no-carbonates (energy, tea, coffee drinks) are both up high single digits’,” the analysts wrote.
“While we are encouraged by the overall improvement in beverage sales in the C-store channel, we remain concerned about the health of CSDs,” Wells Fargo added.