Cold Beverage
November/December 2000

Energising your drinks fridge

The latest entrants in the fridge look like theyíre making a huge splash, but beware. Sometimes the sparkle can become a fizzer. ASS&CSN reports.

While the fridge may seem an unlikely place to make a fashion statement, it does happen. The latest ëcoolí additions are the so-called ëenergyí drinks, but the experts warn they may not be as hot as they seem.

There is no doubting that beverages can play a big part in the profitability of a C-store. Like many other products, they are the mainstay when there is very little money in actually selling petrol. However, itís not quite as simple as accessing a captive market in real terms, only one in 10
C-store customers walks in with the intent of buying a drink.

Peter Ballard, MD of JOLT Corporation, admits he's still a little wary of the energy drink market. JOLT has one such product (XTC) which is not yet on the market here. Mr Ballard is watching to see how the likes of Lift Plus (Coca-Cola Amatil), X-Fuel (Pepsi), Red Eye and Red Bull perform before leaping into the fray.

"I believe it could be a short-lived fad, partly because they don't represent very good value for money - they're very expensive - and secondly we haven't really gone through a hot summer with this type of product yet.

"They tend to dehydrate rather than rehydrate, so I can't see why people would buy them in the heat of summer when they want to quench their thirst. They're far more likely to grab a JOLT, a Coke or Solo or even some spring water. Our product has high caffeine levels, so it's almost a cross-over product, but it is still a soft drink that quenches your thirst."

While a quick glance at the figures might suggest energy drinks are the next best thing to a get-rich-quick plan, the truth could be very different. Alec Wagstaff, corporate affairs manager for Coca-Cola Amatil, stresses that they are only part of the equation and that while they do show huge growth, they're starting from a very small base and operators need to manage them as part of their total soft drink offer.

"Our customers need to look at the whole category and manage energy drinks as part of a total offer to consumers. They have an important part to play but customers need to consider their overall profit story.

"If you get five or six per cent growth on Coke, you're generating great profit compared to perhaps much higher growth on the small energy drink sector. Volume is a very important consideration."

While figures are hard to pin down between C-stores and other outlets, one expert suggested that energy drinks might represent a sales figure in the single millions (of dollars) whereas cola alone would be several hundred millions.

According to Patrick McAlary, national manager - gas and convenience accounts manager for Schweppes Cottees, the demographic for the trendy new beverages tends to be 15-to-25 year olds, and predominantly male.

"But you can't just lock into that idea. Because of the kick these drinks provide, they're also popular with taxi drivers, truckies and shift workers - anyone who needs that little helping hand occasionally! So if you're trying to maximise the appeal of your drinks fridge, even though these people don't fit the demographic in terms of age, you can't afford to ignore them. You really have to know who your customers are when you're balancing the supply on the shelves and that isn't easy without really thinking it through."

Although the energy drinks are not having a huge impact, their arrival has been registered by the traditional players, with suggestions that it is the market leaders that will feel the impact most. Therefore they canít afford to ignore the trend - and that's why they're keen to work with convenience store operators to maximise results on all products.

"The whole beverage market is growing at around two or three per cent per year, but the make-up of that market is changing," says CCA's Mr Wagstaff.

"Still water makes up nine or 10 per cent of the market and itís growing well over 10 per cent a year. We've already acknowledged that despite their apparent popularity, energy drinks donít yet rate a percentage. Theyíre growing at huge rates but they have yet to register on the scale whereas carbonated soft drinks are still around half the market.

"The key to really profitable growth is to promote the leading brands of carbonated drinks whilst making sure you have all the bases covered - some new products and plenty of stock of the regular favourites.

"Itís all about having a business plan, knowing whatís going on with your stock. You have to think about selling it, not just stocking it, so work out what youíre trying to do then put pressure on your supplier so youíre both working towards achieving the same result."

Mr McAlary of Schweppes Cottees (which recently acquired the rights to bottle Pepsi in Australia) says that smart operators will realise that their supplier is an allie in the same battle with the same objectives: to sell as much product as possible.

"So talk to him. Work together to pinpoint your location, the type of customer base you have and the products that they like to drink, so you can work out the best stock for your store and the right quantities to have on hand.

"The margins are very similar on these products, so it's important to get the mix right to avoid product being left on the shelf. That doesn't work for the operator or the supplier. Look at the new products, and water, but realise that the bulk of your drinks income is still the colas and flavoured carbonated drinks."

JOLT's Mr Ballard also suggests operators give their customers plenty of choice, while keeping a close eye on what the supermarkets are doing.

"Increase the range of new and innovative products because they are less price-sensitive. If you're being price-cut on those products, move into other products that aren't being stocked by the competition - providing your own research suggests that's what your customers are interested in.

"The key to doing this is understanding consumer behaviour and realising that there is no such thing as the average customer. You need different propositions for different people."

"It's a simple fact," says CCA's Mr Wagstaff, "that some people are just going to come in for petrol and can easily walk out with nothing else, unless you've planned for it.

"If itís a hot day and you have something near the cash register, you may prompt an impulse purchase. So it pays to give careful consideration to the store layout to ensure your beverages are in the right spot.

"So if you have the traditional ëcold wallí layout up the back of your shop, youíll never get those people who go only as far as the cash register because it wonít be at the front of their mind."

Mr Wagstaff suggests operators consider a range of in-store activations to tempt both the impulse buyer who wants to drink the beverage immediately, and those who are buying for later use. On that basis, position a small cooler close to the cash register to tempt the drink-now brigade, and a forecourt trolley so those who want to take drinks home can transfer the cans directly into their car.

While the advice is useful, it's interesting to consider just how daunting it is to try to get the mix right. The number of available beverages has grown enormously in the last few years, from around 800 different SKUs (stock keeping units) in 1995 to about 2800 now.

Because of those numbers it's even more important to look at category profitability rather than being swayed by what seem to be huge growth rates and high margins. The bottom line is that if the volume isnít there, you wonít make a profit.

CCA's Mr Wagstaff says the simple fact there are so many products available means stock control has become a science.

"In days gone by, the rule was to ëbuy it cheap, stack it high and hope it goesí but it doesnít work any more. You have to keep up with both the customers and the suppliers find out what theyíre promoting and make sure you have in stock so you can benefit from their promo spend.

"If weíre pushing the 600ml, you want to have that in stock so our push is making it walk out the door for you. That way we both win. At the end of the day, unless our customers are growing their business, weíre not growing ours."

The table below shows the AC Nielsen C*Track rankings market share for the top 30 sports drinks for each of the five quarters to June this year. The figures are based on dollar volume and rankings are for the June 2000 quarter.