Carbonated soft drinks have become a lightning rod for consumer health concerns and the resulting regulatory initiatives. This sentiment is contributing to a continued shift in preference toward the wellness and functional beverage categories. This trend is increasingly pronounced in vending as operators go head to head with c-stores, harnessing the merchandising power of glassfront cold beverage machines and micromarkets, striving to deliver the optimal balance of products to quench their patrons' evolving and wide-ranging thirsts.
"The public is focused on health, and I think what we're seeing in the Northeast is what most operators are seeing across the country," said Mark Beaudoin of Bee's Vending, a three-route operation based in Waterbury, CT. "Our customers are mostly buying water and anything that's not carbonated. Water is our No. 1 seller, with no debate. I have one college where a 'noncarbonated' machine, filled with water, vitamin water and energy drinks, does better than a machine with traditional Coke and Diet Coke."
Despite lackluster carbonated soft drink sales over the past several years, diet varieties had been holding their own, according to Beaudoin, a former Coca-Cola employee. But now even sales in the diet category have fallen off as consumers seek noncarbonated alternatives they perceive to be healthier, and find a growing array of them from which to choose.
"The word 'diet' is associated with artificial sweeteners and carbonated sodas, which consumers are turning away from," Beaudoin observed. "Meanwhile, many zero-calorie alternative beverages have the same ingredients but customers perceive them as being healthier."
Energy drinks, he pointed out, are the single carbonated beverage category for which demand is growing among Bee's Vending's customer base, in which younger consumers predominate.
Keeping control of the ever-expanding range of packaged drinks on the market in order to plan menus that best meet specific location tastes can be a daunting task. Beaudoin follows a basic planogram that he tweaks according to location demographics and customer and client requests.
The operator said he's able to offer his customers the extensive variety they demand because he has access to up-to-the-minute sales and inventory data through remote monitoring, and maximizes the flexibility of machine menus by prekitting products in the warehouse.
"With the old school 'rolling inventory' model, you can only put so much on a truck, which limits variety," he observed. "But with the ability to forecast and prekit just what's needed, we can deliver dozens of the SKUs that people want. Glassfronts provide greater variety and improve the whole experience, so they sell more product."
Second-generation operator Todd Elliott of Tomdra, a 12-route operation based in Tucson, AZ, told VT that he is seeing similar trends in his Southwestern market.
Like Beaudoin, he has observed carbonated beverage sales falling off as customers turn to alternatives they perceive as being healthier. This trend has included a more recent drop in diet soft drinks in many locations, while sugar-free noncarbonated drinks have held their own or edged up.
"So much is driven by societal and political input, and what's under attack and gets publicized," Elliott pointed out. "With 'what's better for you' and the science behind it all, you can spin it any way you want. Soda has been under attack for being high in corn syrup, but now what about artificial sweeteners? What's healthy, what causes obesity and what demographic is exposed to political ideas all have an impact on what consumers are seeking and choosing, and it's not always easy to figure it out."
Water is standard in every Tomdra machine, to meet the demand hightened by the extra effort it takes to stay hydrated in the hot Arizona climate, especially during the summer months. "I couldn't have thought, 15 years ago, that bottled water would be so popular, and it has a good margin," Elliott remarked. "It gets so hot that, at certain temperatures over 100°F, soda sales go even further downhill and waters and isotonics kick in; people get into survival mode."
The veteran operator observed that, although soft drink sales have dipped, CSDs still have a substantial loyal following, and that preferences vary widely depending on the demographics of each account.
"Working, active, younger consumers are not as worried about calories, and are buying a lot of energy drinks as an alternative to coffee, especially in the afternoon," he said. "And Mountain Dew does surprisingly well, despite the falloff in soda sales. It's high in caffeine and sugar, and now it comes in diet and different varieties. It seems to be a big Gen Y beverage as a less expensive alternative to energy drinks."
Many of Tomdra's customers also increasingly are turning to ready-to-drink coffee beverages like PepsiCo's Frappuccino Double Shot for a refreshing pick-me-up, and are willing to pay a premium for them, Elliott reported."A large percentage of our machines are cashless, which has removed an obstacle that kept people from buying higher-priced items," the operator said. "They will pay more for a premium item if they can use a credit card, which has allowed us to provide a broader range of drinks at different price points."
Increasingly, Elliott has found that consumers' belief in the functional benefits associated with beverages are just as important as the refreshment they provide in driving choice. While more than ever of his customers turn to energy drinks, others favor drinks like Coca-Cola's Vitamin Water and PepsiCo's SoBe teas, fruit blends and enhanced water beverages, not only for refreshment, but also for the added bonus of an energy, mood or overall perceived health boost.
Likewise, iced tea's "health halo" and the appeal of the growing variety of less-sweet choices has put the category on the upswing in Tomdra's machines.
"People in our market drink a lot of brewed and sun tea with no sugar, which had been unobtainable in vending; most options were sugary as with sodas," Elliott told Vending Times. "But now with green teas and lightly sweetened varieties, the selection of bottled teas is getting better and better, and the category is up in our machines."
Tomdra carries hundreds of beverage SKUs, taking full advantage of the expanded variety it can offer in its glassfront venders and micromarkets. "We have planograms for different demographics, and we're pretty flexible," said Elliott. "Some of the menuing depends on manufacturers, and pricing from bottlers plays in. But it's mostly based on what customers ask for. It's always balance between what's profitable and giving customers the latest and greatest."
Bottles vs. Cans, Again
Another trend both Tomdra's Elliott and Bee's Vending's Beaudoin say they're watching is the long-term pendulum oscillation from bottles to cans and back, and the direction in which it will swing next, as price becomes a growing concern to both consumers and operators.
"Bottles were the big push eight to 10 years ago," said Elliott. "Now, with costs pushing prices higher, I can see a movement back toward cans by consumers who don't want to pay $1.75 for a bottle. Cashless is still helping as prices increase, and a shift back to cans would be a long turnaround, but I foresee some movement. It all depends on what consumers want, and on price points and margins. I think some operators will be trying cans more for some brands, to protect margins."
Beaudoin agreed that higher prices have made cost-conscious consumers more inclined to opt for a can over a 20-fl.oz. soda, and he expects to see more movement in that direction.
"I just secured a 70-person factory as a location and it chose cans over bottles, based on price," he reported. "People don't have as much disposable income to throw around. They think $1.50 is too much, even if they pay more in a c-store, because they're used to bundling their drinks with other items and so they're not as focused on the price."
The shifts in consumer preferences that the operators are seeing in the bellwether states of Connecticut and Arizona largely mirror sales figures in the overall U.S. beverage market, as presented in recent reports. While patterns can vary by region and demographic, taking a close look at the categories that have spiked and those falling out of favor over the past year can serve as a valuable gauge to operators in their continued quest to merchandise machines to please their very diverse away-from-home clientele.
Not surprisingly, consumers cut back on drinking carbonated soft drinks again in 2013, with soda sales reaching their lowest levels in nearly two decades. Sales volume of all carbonated soft drinks fell 3% last year, more than twice 2012's 1.2% decline, bringing total CSD volume to the lowest level since 1995, according to a report by Beverage Digest.
Interestingly, consumers are turning away from diet sodas at an even faster pace, which industry experts attribute to consumer concerns about the healthfulness of artificial sweeteners.
Sales of zero- and low-calorie soft drinks plunged 6.8% in the past year, while sales of regular sodas dropped 2.2%, according to a report by Wells Fargo researchers. As a category, diet soda has contracted more than regular soda for three straight years.
Carbonated soft drinks still remained by far the biggest liquid refreshment beverage category last year, but they continued to lose both volume and market share, according to the latest research from New York City-based Beverage Marketing Corp. Volume slipped by 3.2% from 13.3 billion gallons in 2012 to 12.9 billion gallons in 2013, which lowered CSD market share from 44% to less than 43%.
Niche categories continued to outperform traditional mass-market segments in 2013, according to BMC. Premium beverages such as energy drinks, especially, ready-to-drink coffee, advanced particularly forcefully during 2013, while larger, more established segments such as carbonated soft drinks and fruit beverages failed to grow once again, BMC reported.
Ready-to-drink coffee grew faster than any other segment with a 6.2% volume increase in 2013, but still accounted for the smallest share of total liquid refreshment beverage volume. Energy drinks advanced by 5.5%, but also remained fairly modest in share.
Flavored and enhanced water registered the largest decline of any liquid refreshment beverage type, according to BMC. No energy drink, RTD coffee or value-added water brand ranked among the leading beverage brands by volume.
With another year of forceful growth in 2013, small-package bottled water further solidified its already prominent position in the U.S. beverage marketplace, BMC reported. Growing by 4.7%, bottled water reached an historical high of more than 10 billion gallons in 2013.The single-serve PET-bottle segment increased by more than 6% to almost 6.7 billion gallons, which represented two-thirds of the overall market.
Sports beverages grew, even as the overall liquid refreshment beverage market did not. In 2013, Gatorade ranked as the nation's fifth-largest beverage trademark.
Overall, BMC reported that the U.S. liquid refreshment beverage market stayed essentially unchanged in size in 2013. This plateau followed three years of growth, and a particularly harsh and prolonged winter played a role in impairing the sector's performance.
Certain soft drink trademarks, such as Canada Dry and some Mountain Dew varieties, did achieve growth. Carbonated soft drinks accounted for five of the 10 biggest beverage trademarks during 2013, with Coca-Cola and Pepsi-Cola retaining their usual first and second positions.
Bottled water had three entries among the leading trademarks in 2013. Four companies accounted for all of them. The Coca-Cola Co. had four brands in that leaders' list, including the only fruit beverage brand represented, Minute Maid. Pepsi-Cola had three, while Nestlé Waters North America had two and Dr Pepper Snapple Group, one.
KING OF CANS: New for vending from Coca-Cola are 16-fl.oz. cans of its popular sodas recommended at value-oriented $1 price point. The new eye-catching, chill-activated Coke can, which made its debut in c-stores, uses thermochromic ink that allows the can's ice cube graphics to change color from silver when room temperature to light blue when cold. Coke and PepsiCo continue to adapt to the changing market by diversifying their portfolios, including making smaller packages with a wider range of calorie options. On the smallest end of the spectrum are the 7.5-fl.oz. "mini" cans, offered by both beverage giants.
"Beverages endured a transitional year in 2013," said Michael C. Bellas, chairman and chief executive officer of Beverage Marketing Corp. "Even in the face of economic challenges, 'healthier' products thrived and even formerly floundering segments like RTD coffee demonstrated their potential.
"Certainly the state of the economy is crucial for overall beverage category success," Bellas observed, "but so are products that connect with the evolving American consumer."