Wells Fargo: The c-store sector is entering a ‘new era of growth and sophistication’; serves as great incubator for new products

The only food retail channel to post positive growth in unit sales and dollar sales in 2012 compared with 2011, the c-store sector is also increasingly important as an incubator for new products, according to senior analyst Bonnie Herzog. In a note produced after Wells Fargo’s first c-store forum in conjunction with the National Association of Convenience Stores (NACS) conference, Herzog said c-stores are entering “ a new era of growth and sophistication”. She added: “ We are encouraged by food industry innovation efforts and expect that the convenience channel, still small in terms of absolute contribution, can continue to deliver channel-leading rates of sales growth for US food. “Further, our discussions lead us to believe that the convenience channel is increasingly important as an incubator for new products; successful consumer response here will likely translate into broader roll-outs of new products across the Food/Drug/Mass channel.” In terms of health & wellness, we were most impressed by Kellogg So which food and beverage manufacturers are exploiting the opportunity most effectively? And which categories are growing most rapidly? “In terms of health & wellness, we were most impressed by Kellogg ”, said Herzog. “ 2014’s innovation calendar includes K nourish hot oatmeal cereals and bars, and Bear Naked energy bars and trail mix. Also worth a note are single-serve Special K flatbread sandwiches will be rolled out and designed to move from the freezer to the microwave within c-stores.” Meanwhile , other new launches from Kellogg including Pringles tortilla chips and Krave treat bars (while less health-focused) also look poised for success in the channel, she added. Energy drinks category returned to double digit unit growth for the first time this year in c-stores Looking at Nielsen data for the four weeks to September 28, there was strong growth from e-cigarettes, energy drinks and salty snacks in the c-store sector, she said. “ The energy category posted solid +7.2% dollar sales gains this period, up from last month’s relatively soft +4.3% growth, and returned to double digit unit growth for the first time this year. “This was largely driven by Monster, with +9.7% dollar sales growth up from +3.6% last period, and a significant improvement from Rockstar, which grew +9.4%, vs the seven prior periods which all had negative growth. "The ongoing improvements the category has demonstrated in c-stores supports our continued belief in the importance of this channel to the energy category.” However, dollar sales of carbonated soft drinks (CSDs) excluding energy drinks were flat (+0.1%) and unit volumes down 4.8%, with growth from Coca-Cola offset by declines from Pepsi and Dr Pepper Snapple Group, said Herzog. “The weakness of CSDs remains a major concern.” Mountain Dew + Doritos are found in more baskets together in America than peanut butter and jelly On the plus side, PepsiCo brands Mountain Dew and new Mountain Dew Kickstart continued to perform well while PepsiCo’s ability to pair these drinks with salty snacks works well in the c-store market, she said. “ PepsiCo is clearly focused on the integrated model: Gatorade + Cracker Jack’d, Mountain Dew + Doritos – sold in the same basket to the same consumer. In fact, we learned that Mountain Dew + Doritos are found in more baskets together in America than peanut butter and jelly.” On a c-store mission: Morning Startup, Young & Hungry, Fuel & Hydrate? PepsiCo has also done a lot of work around segmenting customers and occasions in the c-store channel, she noted. For example, the ‘Morning Startup’ customer grabs Quaker + Kickstart on the way to work; the ‘Young & Hungry’ Millennial goes for the ‘Doritos + Dew’ combo during the day; and the ‘Fuel & Hydrate’ grans a Gatorade + Cracker Jack’d on the way home. One product we were excited to see was Coco Water Kids At Coca-Cola meanwhile, new Minute Maid and VitaminWater drops look promising and will serve as “ a means for Coca-Cola to participate further in the fast growing water category” , she added. "As long as Coca-Cola is able to limit cannibalization to existing packaged offerings, we think VitaminWater drops could be a strong new entry to the category." As for Dr Pepper Snapple Group, she said: “One product we were excited to see was Coco Water Kids, a juice/coconut water blend targeted at kids. We think this is a promising new product in a healthy and growing sub-category.”

Wells Fargo: The c-store sector is entering a ‘new era of growth and sophistication’; serves as great incubator for new products

The US convenience store sector is poised for continued growth driven by the growing number of Hispanic consumers (heavy users of c-stores), and increased demand for ‘grab n go’ convenience, better-for-you options and foodservice offerings, according to analysts at Wells Fargo.

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