Beverage Category Provides Key Insights For Independent Retailers

Sep 15, 2020

Think back to the early days of the pandemic when stay-at-home orders were implemented in the United States and panic buying quickly took hold. Nearly every category in the store saw increases, and the beverage category—with non-alcoholic, ready-to-drink (NARTD) beverages in particular—was no exception. 

Bottled water was the big hero in the category, with sales increases of 52 percent in March alone, but retailers also saw a significant increase in sparkling beverages that are staples in the home, as well as tea, juice, and value-added dairy as people looked for ways to boost immunity and more families were having breakfast together. 

Yet in spite of all those increased grocery sales, the picture isn’t entirely rosy. Throughout the pandemic, shoppers have favored large quantity, stock-up items over immediate consumption packaging, and as a result, sales are down in those products (like the 20-ounce plastic bottles in the checkout aisle). 

“Shopping trips really fall into three key buckets,” Global Account Director of Coca-Cola North America Ryan McCann says. “One is weekly shopping or pantry loading. Then you have fill-in food trips to grab a couple of things you need for a meal that evening. And the third trip is grab and go. As consumers were shifting away from the grab and go and fill-in trips to minimize the amount of time and frequency they were spending in grocery stores, that really impacted the immediate consumption packages.”

This creates a two-fold problem at retail: 
  1. Immediate consumption or transaction packaging deliver significantly higher margins than buying in quantity. So even though sales are up on future consumption packaging, retailers’ margins are still feeling the stress.
  2. As shoppers replace grab-and-go and stop-gap buying with larger, pantry-loading grocery trips, there’s been an increase in aluminum can multipacks. The resulting 30 percent increase in demand for aluminum cans has created an unprecedented shortage of aluminum cans. 

Watch the interview with IGA Senior Director of Red Oval Partnerships Heidi Huff and Coca-Cola North America’s Ryan McCann for suggestions to help you navigate supply issues and changing consumer behavior—or read on for more. 

 

A Case for Concern

“Usage for aluminum cans has been relatively flat over the past 4+ years, so it’s clearly not something we were expecting,” McCann says of the aluminum can shortage. “The industry has already used 2 billion more cans than forecasted for the year, and all signs point to this being an ongoing issue that will really impact the entire beverage industry throughout 2020 and into 2021.”

In response to the shortage, U.S. can suppliers are ramping up production and Coca-Cola has been working with its international suppliers to expand global sourcing options. At the same time, Coca-Cola bottlers are also limiting their production to core brands in an effort to avoid out-of-stock scenarios, and it’s those bottlers who can help retailers gain a better understanding of the current package constraints within their respective market.  

“Keep in mind this is a very fluid situation and can vary significantly depending on your geography and depending on your bottler,” McCann says. “So stay close to your local bottler to really understand the situation for your store.” 

McCann suggests these strategies to navigate inventory shortages through the end of the year. 

  • Evaluating current can inventory before running additional promotional activity
  • Revisiting the ad calendar to swap out aluminum cans with offers that better leverage inventory designed for future consumption
  • Considering additional advertising on multi-serve (2-liter and 20-ounce packages) to provide a more favorable inventory mix
  • Driving additional still product promotion, led by Smartwater and PowerAde
  • Increasing store display positioning on packages without inventory constraints
  • Mixing and matching transaction/point-of-sale packages with cans in ads and display activity to improve the overall package mix

Another snag to hit retail beverage promotions is the absence of product sampling due to COVID-19 health and safety guidelines. To encourage consumers to try new products, McCann recommends including a new product offer alongside a more traditional product. Coca-Cola recently released Aha!, which is helping to grow basket size and household penetration in the mainstream sparkling water category at IGA. To boost sales of this new product, a retailer could run a product promotion that offers an 8-pack of Aha! at a special price with the purchase of two half-liter 6-packs of Coca-Cola products, like IGA is doing with upcoming National Digital Ad offers (each of which run during a two-week timeframe). 

  • September 20: Buy (2) .5L 6pk Coke products get a FREE 8pk of AHA (up to a $3.75 value)
  • October 4: $1.00 off (2) 8pk of AHA
  • December 27: $1.00 off (2) AHA 8pk 12oz cans 

Trends That Won’t Go Flat

The U.S. NARTD industry has an estimated retail value of $200 billion, which, to put into perspective, is about the same size as the U.S. commercial aviation industry and about 33 percent larger than the motion picture and sound recording industry. Sparkling soft drinks make up about 40 percent of the industry value, but over the next four years all NARTD categories are expected to grow—and in turn, fuel total retail growth. 

2019 Year In Review_EXTERNAL

According to McCann, trends in the sparkling beverage market offer great insight into consumer behavior today and a glimpse of what’s ahead in the category for independent retailers. 

“Without question COVID-19 has been a significant disruption and will change shopper behavior moving forward,” he says. “However with all disruptions, it’s helped clear the fog and really accelerate some of the trends already happening in the marketplace.” 

2019 Year In Review_EXTERNAL 2

McCann outlines four key trends that will continue to change shopper behavior this year and into 2021:

  1. Community-centric shopping
    Consumers are eager to support their local community businesses, which includes gaining a better understanding of how supply chains impact quality and freshness. Independent retailers have a clear Local Equals Fresh advantage consumers had been looking for long before the pandemic, and McCann commends IGA retailers’ dedication during COVID as well. 

    “IGA retailers continue to do an absolutely amazing job at keeping everyone safe in their stores and keeping their stores in stock so we can feed our families,” McCann says. “I’ve been inspired by what the local retailers have done to support their local communities and their employees.” With IGA at the heart of many American small towns, each store’s local purveyors and community connections serve as ties that reinforce customer loyalty and goodwill during trying times. 

  2. Acceleration of eCommerce adoption
    COVID-19 has been a massive accelerant to eCommerce, McCann says. “We are now where we thought we’d be in three years. But, we got here in less than three months,” he says.

    Online grocery shopping has doubled its share of retail food spending during COVID-19 with 20 percent of Americans trying online grocery shopping for the first time. Some retailers have seen a 300 percent increase in the volume of online orders, while others have received as many orders in an hour as they typically received in a week.

    The IGA network currently has about 25 percent of its retailers on an eCommerce platform–a huge opportunity to capture additional growth now and into the future. While eCommerce won’t completely replace the in-store shopping experience, McCann is confident. “Whoever wins at eCommerce now is going to win those families for the future.”

  3. Increased emphasis on value
    Nielsen market research indicates food prices rose 5.8 percent in the 13 weeks from March 1 to May 30 compared with the same period in 2019. Considering the added strains of business closures and job losses, shoppers are seeking to maximize the value of the dollars they spend on food. 

    “They’re looking for deals, leveraging coupons,” McCann says. “IGA National Digital Ad is an awesome way to pass along additional savings, and it’s really easy to execute in your store.” As customers are eager to capitalize on deals and discounts, the IGA National Digital Ad helps retailers build basket and grow loyalty with shoppers, he adds. 

  4. Easy-to-prepare meal solutions
    In spite of more people eating at home, meal planning continues to be a formidable challenge, especially for families. “We need to offer our shoppers a solution or provide an ‘easy button,' if you will, to help them feed their family,” McCann says. 

    According to McCann, as restaurants are slow to return to full occupancy, IGA retailers have a chance to fill the void with easy-to-prepare meal solutions like those provided in the Family Meals Made Easy recipe and product display program, sponsored by Coca-Cola. “If retailers are able to address this need with prepared meals, it will increase loyalty, market share and sales as well.” 

McCann recommends IGA retailers use these insights to help their shoppers during this trying time to boost future loyalty. “I believe when you follow the consumers, good things will happen,” McCann says. “So you really need to have a good pulse on the consumer and the trends in the marketplace and be agile and flexible to meet their evolving needs. And I truly believe if you do that, you’ll grow sales and share." 

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