Beverage sales in the convenience channel remained “healthy” in Q3 2023, up +4.4%, despite decelerating from stronger +6.6% growth in Q2, according to the latest Beverage Bytes survey of retailers conducted by Goldman Sachs Equity Research.
The slightly muted performance has now led the retailers (who represent about 40,000 stores nationwide, or about 27% of the channel) to downgrade their total growth projections for the year to +5.1%, compared to +6% in the prior survey, and are anticipating +4.5% growth in 2024. Foot traffic in c-stores was up +0.4% in Q3, compared to -1% in Q2.
On average, retailers were 50% more negative on beverage sales over the last 1-2 months (compared to 47% in Q1) with inflation, channel shift and a trend towards smaller packs as key headwinds. One retailer noted that promotions, such as those tied to gas rewards, did not lead to an uptick in volume growth. In the prior 1-2 months, soft drink sales growth slowed as well, retailers noted.
Meanwhile, 7% of respondents were positive in their outlook (down from 16% in Q2). One retailer said beverage sales outpaced overall store performance, with categories like energy and sports drinks (driven by PRIME and Gatorade) leading to a surge, while spirit-based RTDs helped boost alcohol sales.
Beer Accelerates, Hard Seltzer Losses Soften
C-store beer sales were up +5% in Q3, a slight acceleration, and retailers project the category to grow +6% this year (up from +3% outlook in Q2) and +4% in 2024.
Hard seltzers continued to struggle but saw some improvements, -3% (slightly better than -4% the prior quarter) and a -2% decline is expected for the full year, up from a more pessimistic -5% outlook in Q2.
Segment leader Mark Anthony Brands’ White Claw holds about 60% of the hard seltzer market, with Boston Beer’s Truly Hard Seltzer in second place at roughly 24% share. The gap between the two was closer in 2020 and 2021, but White Claw has steadily gained share since Summer 2022. One respondent said “there is room for only one hard seltzer band in the c-store channel” and Truly “will likely be more prominent in the grocery channel.”
Around 78% of respondents said Truly is still not improving despite new packaging and marketing campaigns, while 11% said sales are weakening and another 11% said they saw “no change.”
According to Goldman, Constellation Brands has been “one of the best growth stories” across CPG staples with strong volume-driven topline growth across its portfolio, and products like Modelo Especial (up +35%-40% in some markets) and Modelo Oro were among the most cited positive drivers by retailers. Around 70% of respondents said they intend to increase shelf space for Constellation products in the coming months.
Twisted Tea Momentum Continues
Boston Beer’s Twisted Tea, the company’s best-selling brand, has “strong momentum” according to 80% of respondents, marking a +2% acceleration from the Q2 survey.
More than half (56%) of respondents said they expect Twisted Tea sales to slow throughout the end of the year due to seasonality, the “growing popularity of higher ABV beverages,” and the “law of large numbers,” because the brand has been “growing at >30% levels for the past four years.” One-third of respondents said they believe the brand will maintain momentum and another 11% said they think it will accelerate.
Still, some retailers believe “an eventual slowdown is inevitable given increased competition in the category.” That competition includes Monster’s Nasty Beast Hardcore Iced Tea, slated to roll out later this year, which has garnered a “positive” response from “all retailers” in the survey.
However, 57% of respondents said they do not expect Nasty Beast to steal share from Twisted Tea. One respondent said Nasty Beast will not be “a true competitor in the hard tea space” and another said it will not “make a big dent at least initially.”
Of the 29% who said Nasty Beast could “maybe” take share from Twisted Tea and the 14% who said it definitely will, one respondent pointed to the strength of Monster’s brand recognition, which is bolstering its first bev-alc offering, The Beast Unleashed. Year-to-date through October 8, Monster is the 16th largest beer category vendor in the convenience channel, with dollar sales of $44.59 million, according to market research firm Circana, which tracks Monster-owned CANarchy Craft Brewery Collective separately.
Bud Light Controversy ‘Stabilizes’
The transphobia-fueled Bud Light controversy appears to have stabilized, as 100% of retailers said although the brand’s sales are still in the negatives (around -25% to -26% per store), the trend has leveled out.
The backlash, which began as a result of the brand’s decision to enlist transgender TikTok star Dylan Mulvaney as an influencer, may finally be dissipating and a majority of retailers (64%) said they believe Bud Light will be able to regain at least some of the share losses. Around 45% of respondents said they believe the share recapture “will be limited” to around 0-3 points and that the brand will need a “big push” during the holiday season this quarter. Another 36% said they believe the damage is permanent and Bud Light will not regain any lost share.
But 18% of respondents were optimistic that the brand could regain as much as 5 points of share and 38% said it can bounce back by the end of 2024.
For the past two consecutive quarters, 80% of retailers have said Bud Light’s losses during the controversy have had a “positive impact” on Constellation’s business.
Energy Benefits from Wider Category
The energy drink category was up around 11% in convenience stores in Q3, softening from +13% growth in Q2. Outlook remained positive, with expectations for 12% growth in 2023, which is in-line with Q2 projections and would outperform 2022’s 11% increase and mark the third straight year of double-digit energy growth.
Retailers were even more bullish on next year, expecting sales to rise 13% in 2024.
Category leader Monster Energy trailed the set slightly, up +8% in the quarter (+10% in Q2), while Red Bull reported +7% growth (+11% in Q2) as retailers anticipate that the latter’s recent price increases will be permanent.
Emerging performance energy brands have continued to be cause for excitement. Retailers said sales of Celsius rose +71% in Q3 (+89% for Q2) and expect the PepsiCo-distributed brand to begin moderating its growth in the next year, as respondents said they expect it to see +65% sales growth in 2023 and +42% in 2024.
C4 (+46%), Ghost (+46%), Alani Nu (+63%) and PRIME (+62% for the energy line) all received praise from respondents as well, although one retailer questioned whether or not the rapid growth for PRIME could prove to be a fad.
Monster and Bang: A Right Match?
Retailers remain bullish on the energy drink category, which has consistently driven double-digit sales growth over recent years, and in particular they see Monster Energy’s latest innovations, including Monster Energy Zero Sugar, as vital to that performance. Where sentiment was mixed, however, was in the company’s acquisition of a bankrupt Bang.
Although Goldman’s analysts said they view the Bang purchase as being ultimately beneficial to Monster’s top and bottom line growth, retailers are concerned about the performance energy brand’s sales, which fell -23% in Q3 (an improvement on -27% in Q2).
But some see Monster’s stewardship of Bang as a positive, at least for those willing to wait out a lengthy rebuild: Survey respondents said they now anticipate Bang to decline -23% overall this year, compared to a -25% projection in Q2, and are projecting just -3% declines in 2024.
One retailer pointed to Bang’s transition into the Coke bottling network last month, combined with Monster’s “marketing prowess,” as a strong opportunity. As well, with the company’s decision to rationalize the VPX brand portfolio down to just 12 SKUs of Bang, retailers were optimistic that a smaller line would benefit the brand. Another retailer suggested that Bang could eventually level out to around a 5% category share.
However, the report noted that moderation in the context of Bang is “an easy compare to last year” when the brand was hemorrhaging distribution and pull-through. Some respondents were concerned about Bang consumers adopting other energy brand preferences amid the long streak of out-of-stocks and worried that it may struggle to regain shelf space.
“While retailers were broadly mixed on the acquisition, we ultimately continue to believe Bang could prove to be a very strategic acquisition,” the report stated. “Based on our detailed scenario analysis, we estimate Bang could generate an incremental ~$1B of net revenue … and ~2pts of incremental annual EPS growth for [Monster] by 2027.”
Brewbound managing editor Jessica Infante contributed to this report.