Part II of this month's management briefing on the drinks retail landscape, concerns itself with convenience stores. How is the impulse channel holding up in these trying times?

In the retail arena, convenience stores are highly popular among alcoholic beverage manufacturers: c-stores are widespread, almost always open, and the limited product selection allows not only for consumers to easily pick out their favouritesbut for marketers to look to seed new brands or variants with immediate  and clear results.

In the UK alone, the convenience store sector - made up of around 48,000 stores - is worth GBP30bn (US$48.1bn) a year and is growing by more than 6% annually. According to David Jones at the UK arm of Heineken: “It is an important trade channel for Heineken and we continue to invest in the sector to help retailers maximise their fixtures and drive sales.” He believes that c-stores should not see themselves in direct competition with multiples as the two channels provide very different offerings. For example, Jones says, a chilled beer or cider product in a c-store has the edge over a non-chilled product sold in a supermarket because it increases the chances of an impulse purchase.

With convenience stores often open 24/7 (at least in North America), it is little surprise that the energy drink category performs so well here. In the UK, despite an overall packaged beverage slowdown between 2007 and 2009, some c-store operators are now reporting double-digit growth in the category, according to 'The 2010 Convenience Store News Industry Report', released in June 2010.

The report states that, in 2009, UK sales of the top five packaged beverage segments (which includes alternative beverages – a segment dominated by energy drinks) declined. However, 2009 was also the year that alternative drinks toppled bottled water as the number two best-selling packaged beverage in UK c-stores, after soft drinks.

In 2010, the packaged beverages category rebounded at c-stores, especially for energy drinks. Maureen Maguire, Convenience Store News partner and founder of US-based Think Research, notes that, globally, the trend towards alternative drinks, especially energy drinks, continues to be “explosive in its growth”.

“We predict a huge increase of unit volume versus sales numbers, showing kids are out there buying drinks and consuming them more rapidly,” she says. For the year to 22 January, 2011, US c-store sales of alternative beverages, including energy drinks, were up by 9.4% in value sales and 8.4% in volume, according to Nielsen data.

The 2011 Britvic Soft Drinks Report, published in March, notes that the impulse channel in the UK showed a 7% growth in drinks sales value in 2010. The best selling drinks in impulse outlets (which, of course, includes c-stores) show cola dominating, with GBP411m (US$659.8m) of sales, an annual rise of 4.3%. However, glucose and stimulant or ‘energy’ drinks saw the biggest increase from the year before. with a 19.4% change and sales of GBP353.8m. 

Martin Jones is the president and founder of Artisan Source, a California-based management firm that specialises in the alcoholic beverage industry. He believes that, while the biggest advantage c-stores offer is that they provide great opportunity for impulse purchases, that advantage is only really applicable to larger brands.

“Although convenience stores present great impulse opportunities, they carry a much smaller selection of drinks [than supermarkets or restaurants, for example]," says Jones. "Generally, their selection is based on established, or national brands. Unless you’re a unique product, smaller niche brands usually won’t pursue the convenience store channel – it’s not particularly conducive to brand development.”

However, Tom Pirko, president of food & beverage advisory firm Bevmark, is of the opinion that c-stores are an arena in which brands are born: “Getting your product in an environment with such limited space really presents the opportunity to have it showcased,” he says. “The real advantage for new products is that they have the opportunity for single sales, which poses less risk for the consumers – they can try out a new product without buying a multipack.”

Pirko believes that c-store business is critical to whether a brand takes off. He acknowledges that, while it can be difficult for smaller or new brands to get into c-stores permanently, there is often the opportunity for niche brands to be featured for a short time – which is just enough, he says, to get people talking about the product, if it is good. “Convenience stores are always willing to take on new products that they think have a shot,” says Pirko. “Overall, c-stores are really a place of discovery - true, a lot of consumers go in to purchase those big brands, but they also know it’s a place where they can find the newest stuff, too.”

However, Pirko admits that, even if more niche products do manage to get their foot in the door of c-stores, bigger brands often still have an advantage. “Large players have that economic advantage where, not only are their products featured on the shelves, but they can also pay for big signs and videos at the gas pumps promoting their drink.”

For any drink manufacturer who is able to get their product in a c-store though, Charlie Quinn, vice-president of US-based beverage consulting firm Power Brands, says that drinks manufacturers often have more opportunities for marketing their products in c-stores. “Brands are given a lot more latitude in convenience stores in terms of point-of-purchase materials,” said Quinn. “Brands can put more signage up, as well as things like window-clings on fridge doors promoting their product – that opportunity doesn’t present itself at the grocery store.”

Jones notes that many drinks manufacturers often tailor their products differently for c-stores than for other retail outlets, with flashier labelling or different product sizes that are unavailable in the broader market. One recent trend in the US that Jones highlights is the popularity of single-serve bottles of wine. Quinn concurs, saying that his US-based consultancy firm has noticed a marked rise in the purchasing of single-serve products.

According to Pirko, the types of drinks that sell best in c-stores varies from region to region worldwide, with beverage consultants and manufacturers spending a lot of time researching the lifestyles of their consumers in each different market. “Since c-stores are focused around impulse buying," he says, "it’s important to understand each region’s pace of life, and what kind of drinks tailor to their needs. It’s very much based on a behavioural model.” In Latin America, for example, Pirko says that sweet drinks are the top seller in convenience stores. In the UK, on the other hand, he notes that juices and drinks with a lot of Vitamin C in them - like squash - are the big sellers. “Maybe the lack of sunshine contributes to this,” he jokes. “The further north you go, the more Vitamin C drinks c-stores tend to sell.”

For part III of this four-part briefing, click here. Part one can be found here.