Bonnie Herzog, senior analyst at Wells Fargo Securities, said in a note yesterday that her company had asked retail contacts in the crucial C-Store sector whether they believed all-natural sweeteners would bring back lapsed soda lovers and have a positive category impact.
By way of background, stevia supplier PureCircle will commercialize new GRAS (generally recognized as safe) stevia products Reb D and Reb X/Reb M in 2014 – PepsiCo has applied for US patents relating to the former, and Coke signed a joint venture deal regarding the latter in 2012.
“Almost universally, our retailers do not believe that an all-natural sweetener will have a positive impact on the declining CSD category,” Herzog wrote.
The basis for Herzog’s remarks is data collated via Wells Fargo’s ‘Beverage Buzz’ survey of retailers representing 15,000+ C-Store locations in the US, which aimed to pinpoint Q4 2013 trends.
‘Younger generation wants caffeine all day long’
One retailer said: “I just think it’s a natural shift. Energy is what the younger consumer identifies with as well as health offerings. I anticipate CSD sales decline as consumers seek healthier alternatives that are more functional and have an equal of slightly higher cost.”
Nonetheless, retailers questioned were upbeat given improving general non-alcoholic beverage trends, with energy drinks and teas offsetting the 6% decline Herzog expects in CSDs for Q4 2013.
Herzog said continued acceleration in the energy category over Q4 2013 – she predicted a fourth consecutive quarter of growth, and a second quarter of double-digit growth, at 12.4% versus 12.1% year-on-year – indicated a “long runway of growth for the category for years to come”.
Discussing energy growth, one retail respondent told Wells Fargo: “It has become as important as a morning cup of coffee and the younger generation seems to want caffeine all day long, whereas the older generation only got caffeine in the morning to jump start the day.”
Dr Pepper TEN: 'Cut the bait and run'
To make matters worse for CSDs, Herzog revealed that C-Store survey respondents were keen to expand shelf space for energy drinks – given attractive margins of 40% versus 30% for CSDs.
“Interestingly, while the energy category today only comprises approximately 20% of our retailers’ shelves, our retail contacts think that over time, there is an opportunity to expand the shelf space by 50% to over 30% of total C-Store shelf space,” she wrote.
Glossing 2014 prospects for the top three soda giants, Coke, PepsiCo and Dr Pepper Snapple (DPS) as well as Monster Beverage Corporation, Wells Fargo was especially gloomy on DPS’s TEN platform, despite 2.1% sales growth for DPS in Q4 due to estimated retail price declines of 0.6%.
Around 75% of respondents indicated that Dr Pepper TEN was generating weak repeat sales – as was the firm’s Core 4+ RC TEN platform – despite DPS’s plans to invest more in 2014.
Herzog rounded-up retailer comments on Dr Pepper TEN and the wider platform, including: “It’s a bust from a marketing approach. Cut bait and run”, “Customers do not like the current commercial with the outdoor grizzly man…Does not sell” (in fairness YouTube user comments on the video, you can watch it above, are pretty mixed) and the “10 calorie doesn’t meet consumer needs”.
Analyst hopes DPS pulls plug on TEN
Wells Fargo said the majority of its retailers said they would remove the line during spring resets.
“We are increasingly fearful that TEN may follow in the footsteps of countless other brand extensions that fail to become meaningful brands. We can only hope at this point that DPS discontinues any further investment to promote the platform,” Herzog wrote.
Herzog said Wells Fargo’s survey results indicated flat C-Store sales for Coke in Q4, but believes the firm can outpace the industry in 2014 with the promise of higher prices driving top-line growth and higher profits due to bottler refranchising, which will strengthen Atlanta’s control of syrup costs.
Anticipating a 1.1% rise in C-Store sales for PepsiCo, Herzog said the company’s CSD portfolio was still struggling, but said newer products like Mountain Dew Kickstart and Frappuccino (sold via Starbucks) helped offset declines in 2013.