Comment - Soft Drinks & Water - An Inconvenient Truth for Soft Drinks
The convenience channel is giving soft drinks and bottled water producers a headache
This month, Richard Corbett looks at the changing role of the convenience store when it comes to soft drinks and bottled water sales.
The convenience channel has long been a valuable outlet for those that ply their trade in the soft drink’s industry. BUt, today, it is struggling.
According to drinks researcher Canadean, in terms of off-premise sales, convenience outlets, which also includes petrol stations, account for 12% of value but just 5% of volume in Western Europe - an average litre of soft drink sells for EUR1.85 (US$2.50) in these outlets compared to just EUR0.73 in the overall off-premise. In the developed markets of West Europe, soft drink volumes slipped last year by 1%, but in convenience outlets they dropped by nearly 4%.
This is causing a few furrowed brows but the factors behind the decline are relatively logical.
Price is one stand out factor. In these financially-sensitive times, consumers are reluctant to pay a premium for instant refreshment when they can wait a little longer and quench their thirst more economically when they get home. In the opulent days of the turn of the century, we were prepared to pay the same price for half a litre of cola in a petrol station as we would pay for one-and-a-half or two litres in a supermarket. That is increasingly not the case now.
The garage forecourt has traditionally been a good source of soft drink sales, as weary travellers look to rehydrate or perk themselves up with an energy drink. Today, however, the number of forecourts is shrinking and pump payments are becoming more widespread, restricting the opportunities for soft drink trading. The price of fuel is also acting as a deterrent, as it limits car use and puts consumers off spending more on ‘extras’ when they are in the forecourt shop.
On my travels to other parts of Europe recently, I have also noted that hot drinks, notably coffee, are gaining a rising presence in many convenience outlets. The success of Starbucks, Costa and other premium coffee shops has not gone unnoticed, and has prompted many convenience store operators to recognise the potential of the on-the-move coffee consumer. They have responded by selling hot coffee which delivers a premium experience; a move that more often than not comes at the expense of the cooler refreshment of soft drinks. To varying degrees, we are witnessing a shift from cold to hot drinks in the convenience channel in many markets.
Historically, one paid a premium for soft drinks in the convenience sector because it was the only outlet that was still open during unsociable hours. However, defining the term 'unsociable hours' is becoming more difficult, as supermarket opening times across Europe have lengthened, eating into the times when convenience outlets would flourish.
There has also been a trend for supermarkets to look to open smaller stores, a move which has blurred the lines between supermarket and convenience store. The supermarkets have also identified fuel as a key tool in their price wars and the supermarket petrol station is reducing the overall number of regular garage forecourts.
There are also some more subtle issues that are contributing to the convenience sector's troubles. The relationship between the convenience store and the tobacco smoker has always been a close one, for example, but falling smoking rates have played a part in reducing the footfall - and subsequently the sales of soft drink - in convenience stores. For those that might question the impact of smoking on soft drink sales, consider this: In Denmark, the sale of packets of 10 cigarettes was recently outlawed to discourage children from taking up the habit. This had a measurable downward effect on soft drink sales: Smokers were forced to buy packs of 20 cigarettes and consequently did not have to visit the convenience store so frequently.
On-line grocery shopping too has a role to play in shaping how consumers buy their drinks. In Europe, this form of shopping is expanding rapidly in certain places, limiting the need for consumers to ‘top up’ on such a regular basis. Topping up on products like milk was often a key purpose of the convenience store.
The plight of the convenience channel is a worry for soft drink players because it is a high-value channel that is not dominated by the hard negotiating supermarket chains. The 4% decline in sales in West Europe last year will undoubtedly have been amplified by the damp Summer in some key markets and the comparable sunshine in the same markets this year may even have put the channel back into growth this year.
There is no doubt, however, that the underlying trend is downwards and the industry will need to plan accordingly.
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