Plugging the leak: is it time for the six-pack's comeback? This and other merchandising options might be key to reviving soft drink profits.
According to ACNielsen data, CSDs generated $12.5 billion for the 52-week period ending Dec. 3, 2005 in supermarkets with $2 million or more in annual sales (excluding supercenters). That represented a 2.1 percent increase from the year before. While that sounds impressive, in terms of equivalent volume--considered the best indicator of actual consumption--the news isn't quite as rosy. ACNielsen data shows that over 2.11 billion equivalent cases (288-ounce basis) were sold in that same reporting period, down 3.3 percent from the previous year.
At first glance, increased dollars on decreased equivalent unit volume would still seem to indicate a positive trend in the carbonated soft drink market, that CSDs finally seem to be moving away from the deep-discount game of the 1990s that rendered the category a virtual loss leader.
"While they continue to lose share to bottled water and energy drinks, CSDs still represent the largest share of the nonalcoholic beverage business, whether it's based on unit volume, dollar sales, or gross profit dollars," says David Bishop, director of Barrington, Ill.based Willard Bishop Consulting.
According to ACNielsen data cited by Citigroup, while overall CSD volume declined 4.2 percent for the fourweek period ending Oct. 8, 2005, in the food-drug-mass channels (excluding Wal-Mart data), pricing was positively robust, showing a 7.1 percent gain over that same period. Market leaders CocaCola and Pepsi saw respective 7.5 percent and 5.9 percent increases in pricing, while experiencing 4.8 percent and 5.7 percent declines in respective volume.
A similar trend can be seen in the private label segment, with pricing up 4.7 percent and volume down 7.0 percent.
With the market finally holding price, margins would seem to be a huge benefactor. But at least one industry insider thinks supermarket operators are missing the boat, because prevailing merchandising practices are controlled by suppliers to fuel a volume-driven business.
"Supermarkets need to focus on how they merchandise and promote CSDs, the No. 1 merchandisable category in the store," says Chris Hoyt, president and founder of Hoyt & Co., LLC, a Scottsdale, Ariz.-based consumer packaged goods industry consultant. "Faced with declining profits, declining trip frequencies, flat transaction sizes, and a massive migration of heavy-user households to alternative channels for just about everything but perishables, everyone is struggling to excavate core insights that will help supermarkets turn this picture around."
CSDs represent the third most powerful category (behind bread and milk) that supermarkets can use to recapture heavy users that may have defected to other channels--big-box club storm and supercenters in particular. But it doesn't make much sense to do so without maximizing profitability in the CSD category at the same time.
The key, says Hoyt, is the resuscitation of the six-pack as a major factor in supermarkets. Many of the grocers PROGRESSIVE GROCER, surveyed, however, seemed to believe they could get along just fine without, thank you.
Rise of the flavors
Whatever might lay behind that complacency, there's no denying that the CSD retailing business ain't what it used to be. The market dynamic has transformed radically over the past decade, directly proportionate to the graying of the baby boomer generation. Colas, which boomers were practically weaned on, have been in steady decline. According to ACNielsen, equivalent volume in supermarkets has sprung leaks in the regular full-calorie cola segment in each of the past four years--representing a precipitous 23.9 percent drop in consumption since December 2001.
With public consciousness of the obesity epidemic, diet colas have fared far better than their full-calorie counterparts, but nonetheless they're also flat at best. According to ACNielsen, consumption of lowcalorie cola is down 0.4 percent over that same four-year period.
Flavors, meanwhile, have seen solid growth. While full-calorie lemon-lime consumption is down in each of the four years, diet lemon-lime has seen growth in three out of the four years--including double-digit growth (10.4 percent) between 2002 and 2004.
Without question, the star of the category has been the low-calorie "all remaining" segment (grape, orange, and other, more exotic flavors often favored by young consumers and ethnic adults), which has seen double-digit equivalent volume gains in three of the past four years, and 33.9 percent growth overall.
But herein lies the rub: Flavors represent the smallest segment in terms of overall volume. That runs in direct conflict with a category that lives and dies by the 12-pack.
Hoyt suggests that if six-packs were more available to consumers, the sales would be much higher, simply because of the variety of options.
"CSD profit margins have been in steady decline since 1994," he says. "In addition, it's obvious that supermarkets' continued use of 12- and 24-packs as loss leaders has done little to increase trip frequencies or slow the migration of heavy users to alternative channels."
According to Hoyt, the first step in changing dais picture is to develop a better understanding of just who buys the CSD category and how they buy it. Specifically; heavy CSD consumers come from relatively large, affluent households. In 2002, for example, the "typical" heavy-user CSD household comprised four-plus people and had a combined annual income of $50,000 plus.
CSD shoppers now buy CSDs in as many as four channels, with 76 percent purchasing most or all of their CSD requirements in two of these channels.
The heavy CSD shopper buys an average of 12 unique brands per year, compared with 6.6 brands for light category shoppers--ideal for supermarkets, which are generally perceived as the channel of choice for offering incomparable variety in core categories.
Furthermore, notes Hoyt, six-packs are a more viable substitute for 12-packs than 20-ounce single-serve bottles, from a consumer-usage point of view. Plus they can give supermarkets a stronger point of differentiation.
"Six-pack cans are not broadly available in supercenters and clubs," he says. "Six-pack cans will build more trip frequency than 12-packs. And independent research confirms that all of those large, heavy-user CSD families who buy 12 unique CSD brands per year would welcome the option of buying these brands on promotion in six-packs, providing the price differential makes sense."
If the CSD suppliers would throw the six-pack a little support, category profits could increase dramatically for the supermarket retailer. Indeed, says Hoyt, if the percentage of six-pack vs. 12-pack cans sold on promotion were reversed, retailers could increase total CSD category profits by as much as 53 percent.
"That may be, but we currently don't offer six-pack cans--other than eight-ounce--and haven't offered them since 1999," counters Dave Taylor, director of merchandising for Richmond, Va.-based Ukrop's Super Markets, a 28-store regional chain. Taylor agrees with Hoyt's assertion--that suppliers simply don't support the six-pack--as the primary reason for their exclusion in his chain. "The soft drink companies don't offer any price reduction incentives to promote these brands, so we discontinued them in place of 12-packs, which are a greater value to help reduce out-of-stocks on 12-packs," he explains.
Indeed, most retailers interviewed by PROGRESSIVE GROCER sound relatively content with the current 12-pack strategy.
"Twelve-packs continue to be popular," says Jeff-Lowrance, spokesman for Salisbury, N.C.-based Food Lion, a 1,220-store chain with units located in 11 Southeast and Mid-Atlantic states. "The packaging makes 12-packs a convenient size and quantity."
"The 12-pack can continues to be the horse of the category, accounting for over 46 percent of our category sales," explains Joe Hanson, v.p. of operations for Yoke's Fresh Markets, a 12-store chain based in Spokane, Wash. A 13th store is scheduled to open this spring. "The six-pack 12-ounce can has become a nonfactor, moving very little."
As Hanson sees it, in today's soft drink marketplace, whatever six-packs are moving are doing so on a volume-driven basis.
"The SKU we've used as a promotional option to the 12-pack can with exceptional results has been the six-pack 24-ounce bottle. This has become a viable alternative to the 12-pack can, and we've been successful in driving the kinds of traffic and sales increases we look for when pushing CSDs while controlling margin impact within the category. This package accounted for about 18 percent of our Pepsi volume last year."
Remember that six 24-ounce bottles are the equivalent, at 144 ounces, of a traditional case of 12 12-ounce cans.
Equivalent unit volume (288-ounce case basis) ACNielsen data shows that in most segments, equivalent unit volume has been shrinking. 52 weeks ending: Segment 12/8/01 12/7/02 12/6/03 Diet cola 422,765,190 421,809,625 430,383,074 Reg. cola 776,717,777 756,138,076 721,779,531 Diet lemon/lime 47,607,804 50,210,451 55,456,182 Reg. Lemom/lime 196,082,821 187,614,054 182,226,729 Low-cal. all rem. (flavors) 151,931,637 180,692,062 203,071,588 Reg. all remaining (flavors) 627,444,343 665,222,364 663,667,634 Total carb. beverages 2,222,549,572 2,261,686,632 2,256,584,738 Segment 12/4/04 12/3/05 Diet cola 432,249,328 424,499,771 Reg. cola 671,206,312 626,889,866 Diet lemon/lime 55,522,955 54,725,066 Reg. Lemom/lime 165,185,338 157,278,995 Low-cal. all rem. (flavors) 213,229,014 241,972,754 Reg. all remaining (flavors) 620,714,063 604,007,155 Total carb. beverages 2,176,107,010 2,109,373,607 Supermarkets with $2M+ in annual sales, excluding supercenters Source: ACNIELSEN STRATEGIC PLANNER
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|Date:||Feb 1, 2006|
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