[vendtalk] Vending Times Article on Cold Drinks - An industry state of the nation article worth reading

Tue Jul 8 21:05:06 UTC 2014

As promised, here is the article that I think every vending operator and
maybe food service managers, too, should read.  It is a good overview of
what’s happening in the industry today and may give you some ideas about
your own business.  One of the big questions for us will be – What will Coke
& Pepsi do to help us to vend smaller size, lower priced, fewer calories
drinks that customers are now wanting?  Just saying . . . .

   Mike Vandervoort – Abilene, TX

NOTE: The original source article along with several graphics detailing
industry statistics can be found at –

http://vendingtimes.com/ME2/dirmod.asp?sid=737C17AB0E09499F90660557C93983AD
<http://vendingtimes.com/ME2/dirmod.asp?sid=737C17AB0E09499F90660557C93983AD
&nm=Articles&type=Publishing&mod=Publications%3A%3AArticle&mid=8F3A702742184
1978F18BE895F87F791&tier=4&id=5D5B697BE54B484F9C8E99FAA76CF753>
&nm=Articles&type=Publishing&mod=Publications%3A%3AArticle&mid=8F3A702742184
1978F18BE895F87F791&tier=4&id=5D5B697BE54B484F9C8E99FAA76CF753

Vending Times

Issue Date: Vol. 54, No. 6, June 2014, Posted On: 7/8/2014          

Perceptions Become Reality: Shifts In Cold-Drink Preferences Keep Operators
On Their Toes

By Emily Jed; Emily at vendingtimes.net   

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."

Big Picture

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. Standing Out
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. 

"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." 

Insert Picture of New Coke Cans with following text –

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.

See more at:
http://vendingtimes.com/ME2/dirmod.asp?sid=737C17AB0E09499F90660557C93983AD&
nm=Articles&type=Publishing&mod=Publications%3A%3AArticle&mid=8F3A7027421841
978F18BE895F87F791&tier=4&id=5D5B697BE54B484F9C8E99FAA76CF753#sthash.JOmFCoQ
b.dpuf