PLASTIC'S ELEVATED STATURE

BOB STERNER

One word: Plastics.

Somebody may have already whispered that into your ear at a New Year's Eve cocktail party. The buzz in soft drink circles is that plastic containers will be getting more attention in the immediate future, thanks to a 2-cent-a-can increase in the price of aluminum that hit the industry Jan. 1.

The can has been king for a long time, and stands at about 75% of the soft drink market. Cans have been helped most recently by the prominence, week in and week out, of 12-pack and 24-pack cases in manufacturer promotions, retail advertisements and store endcap displays.

But now that can prices have increased by about 50 cents a case, many in the industry expect a substantial shift in emphasis to more plastic containers, particularly polyethylene terephthalate, or PET, bottles. Sources at the retail and manufacturer level told SN that packages incorporating plastic rather than aluminum are likely to be featured more than ever this year.

While consumers still love cans, preferences for packages such as 20-ounce plastic or glass containers have been rising, and multiliter bottles are still a strong factor in larger volume purchases.

What's more, beverage company promotions will continue to be the key to the popularity of any packaging -- and if the emphasis moves over to plastic, consumers will follow, retailers said.

"Our customers will shift to any package that is being promoted," said Tom Roesner, direct-store-delivery buyer at Seaway Food Town, Maumee, Ohio.

The price of the popular metal rose 80% in the wake of an agreement among aluminum-consuming countries, including the United States, to stem the flow of cheap aluminum being dumped on the market by Russia.

The 50-cent-per-case rise already has boosted the cost of the nation's soft drink production by $1.2 billion, according to the National Soft Drink Association, a Washington trade group.

NSDA filed a protest with U.S. Trade Representative Mickey Kantor late last year objecting to the agreement to stem aluminum imports.

In an interview with SN, Craig Weatherup, president and chief executive officer of Pepsi-Cola Co., Somers, N.Y., said aluminum prices will be one of the hottest issues in 1995.

"The industry has not seen that kind of cost-price pressure since the middle 1970s. I see [50 cents a case] as a huge number. Remember, we have not taken pricing [up] since 1982. It has not moved a penny in 12 years. You'll see all kinds of responses to that."

Indeed, the industry is looking to alternatives to aluminum cans.

"Pepsico is prepared to do what it takes to offer lower prices to the consumer," said Chris Romoser, a spokesman for Pepsico, Purchase, N.Y. "We'll use our marketing strategies to market soft drinks in the packages that offer the most value to the consumer."

A similar stance is being taken at Coca-Cola Co., Atlanta, according to Rob Baskin, director of public relations.

"The aluminum industry is effecting a shift in the market. Might higher prices cause consumers to shift to buying soft drinks in other containers? Yes. Consumers have been looking at larger packing of multiliter bottles. Sometimes they offer a better price value," Baskin said.

Coca-Cola already is promoting a 20-ounce plastic bottle molded into the company's trademark shape. The beverage is being marketed in fast-lane merchandiser units at checkout lines. "Customers can grab a cold one to cool off while they wait in line, or take it to go," Baskin said.

Pepsi is steering consumers toward its Big Slam, a one-liter plastic bottle with a wide mouth that's made for slugging down, Romoser said. The bottle is resealable so customers can sip it on the road, too. The new product generated $500 million in business last year, he added.

"Pepsi is committed to the most cost-effective package available," a spokeswoman said. "PET is growing anyway." The aluminum price "just accelerates the move to an extremely popular, widely available package."

The company expects to sell about 2.5 billion to 3 billion more plastic bottles in 1995 than it did last year.

The packaging shift could affect all bottlers, but in different ways, according to Michael Bellas, president of Beverage Marketing Corp., a New York consulting firm. Big companies such as Coke and Pepsi have hedged their packaging costs well between PET bottles and aluminum, he said. However, second-tier bottlers, with the least leverage, may be stuck with increasing their product prices by 30 cents to 40 cents per case to make up for rising aluminum prices.

At least one retailer, however, questioned how much of a shift to PET is possible.

Fires and other disasters in plastics plants have cut production of PET resins used to make bottles by 10% to 12%, said Ned Meara, grocery merchandising manager for Grand Union Co., Wayne, N.J. PET also is used to make containers for detergents and numerous other household products, which is further tightening supplies of plastic.

Retailers said they would have no choice but to pass on any price increases to customers.

Roesner said he fully expects the aluminum price rise to be 50 cents to 60 cents per case by the time the beverages get to Seaway Food Town's shelves. "That will have to be largely passed on, depending on where the market finally levels out."

Ralphs Grocery Co., Compton, Calif., already is seeing price increases due to higher packaging costs, according to spokesman Ron Virta.

"We have elected to pass the cost on to the consumer at this time," Virta said. "This could dramatically affect the future promotional package selection. It is too early to give an accurate evaluation of the effects of this raw-material cost pass-through -- my feeling is an immediate negative impact on sales. However, in the long run, the consumers will adjust and all promotional retails and consumer value perception will be relative to the new everyday retail prices."

Bob Stawinski, director of purchasing at Wholesale Grocers, Chicago, said his company also is seeing prices on canned beverages rise, currently by 40 cents per case. Stawinski said he expects them to go up even further.

"We'll pass that on to the customers," he said without hesitation. "But you're looking at a current price point of $3.99 per case. Even if you go to $5 per case, compared with milk, pop is cheap."

As much of a bargain as they may be, soft drinks' sales may flatten somewhat due to the price rise, some retailers predicted. Higher prices on soft drinks could heighten interest in the "New Age" beverages of flavored ready-to-drink teas and flavored waters. These are generally marketed in glass or plastic single-serve, resealable containers.

"The New Age beverages are winning over some soft drink customers," said Mark Azzolina, grocery supervisor at Food Circus Supermarkets, Middletown, N.J. "They're taking over some soft drink shelf space. About four to eight feet of display space has been switched to New Age drinks in a typical Food Circus."

Schear's Metro Markets, Dayton, Ohio, is another operator that has already reacted to New Age beverages taking some of the fizz out of soft drink sales. "We've had to cut back on traditional soft drink lines to make room for New Age drinks," said Mike Pitman, soft drink buyer. "Soft drinks are still the No. 1 item to advertise to get people into the stores. But with New Age beverages, you don't have to promote them to sell."

Meara said Grand Union has seen a big rise in the New Age category.

Even if some soft drink consumers do shift to New Age drinks, soft drink manufacturers are not worried, according to NSDA.

"Soft drinks will always have their own identity," said Jodi Glou, communications manager at NSDA. "In many cases, the soft drink manufacturers also produce the other bottled beverages, so any market incursions would not affect overall sales." Meanwhile, multipacks are expected to continue to hold the high ground against other soft drink packages in supermarkets, even if the others gain ground.

Multipacks led the expansion in the growing soft drink category last year, according to Romoser of Pepsi. Overall soft drink unit sales rose 6.6% through October last year, compared with the same time in 1993, he said, citing the most recent available industry scan data.

Pepsi's multipack sales were boosted by the Block Party, a 30-can multipack that Pepsi introduced last year in Baltimore and Indianapolis. The company plans to roll out the package in 1995 in as many new markets as production schedules allow, Romoser said.

Retailers have been keeping pace with the multipack trends.

"We've been able to keep up with this change in our customers' demand," said Roesner of Seaway. "Many of them coming in now want the 24-packs, 12-packs or two-liter bottles."

Darrell Dyer, direct store delivery buyer at John C. Groub Co., Seymour, Ind., also finds the 24-pack to be the most popular among the customers of the chain's 25 J.C. Food Stores in southern Indiana.

"The best moving package here is the 24-pack," he said. Soft drink companies started promoting the package heavily about two years ago, "but they didn't start to peak in sales until last year," he said.

Stawinski of Wholesale Grocers attributed some of the continued strong demand for large volume packs to stores taking advantage of the heavily promoted, deeply discounted multipacks. The company supplies independent operators in the states surrounding Chicago.

"There are a lot of smaller independents out there who buy case-sized lots to break them down for resale of individual cans," he said. "When Jewel or Dominick's Finer Foods put pop on sale at $3.99 a pack, a whole lot of little retailers will come in to buy 30 or 40 cases to stock their stores. The larger stores have put a limit on the number of units customers can buy, but the small operators will send in their relatives to stock up."

Still, many retailers also reported substantial business for various single-serve options.

Larger bottles sell well at Grand Union, said Meara. "The one that sells best is the two-liter bottle. It used to be six-packs of cans or glass. but it's been shifting to the two-liter bottle for some time. It's where most of the merchandising dollar is spent."

Single-serve containers are popular at Food Circus, according to Azzolina. However, the store's customers thirst for more soda than the traditional 12-ounce serving. "We're seeing a lot of movement to the 20- or 24-ounce bottles," he said.

The inner-city setting of most of Schear's units contributes to the popularity of smaller sized packages, said soft drink buyer Pitman.

"Our customers don't want to carry 12-packs and cases home from our stores," he said. "They prefer six-packs or two-liter bottles. The smaller the package the better. We sell a lot of single-serve cans and 20-ounce, no-return bottles."

Six-packs continue to lead in overall sales at Hughes Family Markets, Irwindale, Calif., according to Mike Shultz, senior vice president. He said that the chain has seen no shift in preference away from six-packs in recent years, attributing the popularity to the larger selection of beverages available in this package configuration.

Virta of Ralphs said the six-pack of 12-ounce cans remains the top seller at the company's supermarkets. "However, the bottlers are attempting to promote more 12-pack and 24-pack products. The main reason for our emphasis on this package is our ability to advertise 'mix and match' case sales. These types of events allow our customers to get case savings while not being limited to only one brand."

Retailers said their customers are swayed easily by low-price strategies, and that soft drinks frequently are featured as loss leaders to create foot traffic.

"Soft drinks are a tremendous traffic generator and truly create excitement in our stores when we promote them aggressively," Virta said. "We receive substantial promotional help from our soft drink bottlers. Of course, this is relative to our performance in the marketplace. Pricing has a great deal to do with the package that we elect to promote."

"Soda is price-sensitive," Food Town's Roesner said. "The beverage companies give us their pricing schedule, but we often sell them as loss leaders for our stores. We take a loss on the featured item, but make money on other brands. All of our soft drink promotional displays must be tied with a profitable snack item. That's a company rule. The positioning is carried out by the individual managers, who best know the tastes of their customers."