POP CULTURE 2001-07-16 (2)

SARAH MULHOLLAND

Several factors have contributed to relatively flat soft-drink sales for the past couple of years. However, supermarket insiders are hopeful that additional promotional dollars from the manufacturing side and a concerted effort on the part of retailers to make the most of the category in today's retail environment will provide some new vigor.

According to Gary Hemphill, senior vice president of the Beverage Marketing Corp., New York, volume for the soft-drink category had been growing at roughly 4% throughout most of the 1990s. However, sales have softened, with numbers for 1999 and 2000 showing a growth rate of just under 1%.

While Hemphill acknowledged the dent in sales was partially due to an industrywide price hike in 1999, he doesn't believe that to be the primary factor.

"I think consumers have become acclimated to the higher prices," he said. "There is a lot of competition from other categories and the noncarbonated products are growing faster, taking some of the volume growth from carbonated."

Hemphill pointed to the boom in bottled water sales, saying a growing concern for health and hydration plays a significant role in the category's success.

"These products are perceived to be healthier," he explained. "That may or may not actually be the case, but that perception is definitely a driving factor."

Yet, soft drinks remain by far the largest beverage category in the United States, with sales surpassing $15 billion for the 52-week period ended May 19, 2001, according to ACNielsen, Schaumburg, Ill. But, as the statistics represent a 5% increase in dollars, the volume numbers are not as promising. While the cola segment exhibited a 3.1% increase in dollar sales for the period, volume growth was a meager 0.6%

The experience of Larry Goetsch, director of direct-store delivery for Ingles Markets, Black Mountain, N.C., supports the numbers.

"We are struggling this year from a case-movement standpoint," Goetsch told SN. "Retails are up, so dollar volume is up over last year, but case sales are down."

Goetsch believes sluggish sales in his area are due largely to the climbing costs -- originating at the bottling plants -- noting that his stores have been subject to a 10% to 15% increase in case costs over the past year. Yet the price of a 2-liter at retail does not necessarily reflect the increase as the competition remains fierce and retailers struggle to offer consumers the deals they've come to expect.

"I try to go up on the off-ad retails and make up for that cost difference," said Goetsch. "You can't go out of sight, but you've got to try to make it up somehow."

Goetsch stressed the importance of keeping the soft-drink category moving. His stores will have a soft drink on ad every week, while most stores have five permanent endcaps in addition to a lobby display and secondary displays throughout the store.

"It's a very important category when it comes to drawing customers into the store. From a volume standpoint, you've got to sell your share."

Goetsch was not overly impressed with the impact alternative beverage categories are having on soft-drink sales, maintaining that the percentage of noncarbonated beverage sales in relation to the beverage category at large is too small to have a serious effect.

"That is not the answer," maintains Goetsch. "The slowing economy may have more to do with it. If people have less money to work with, they don't have the extra money to buy two or three 12-packs on sale; they've only got the money to buy one.

"It's not only carbonated beverages. The business is soft overall because we're not getting a lot of the incremental sales that we used to."

Bob Fitzpatrick, a store manager for a Graul's in Cape St. Clair, Md., expressed similar sentiments, while showing greater concern over the defection to noncarbonated beverages.

"The soft-drink category as a whole is pretty soft," Fitzpatrick said. "We see more and more soda vendors getting into other items -- water, juice, iced teas -- to increase sales."

Fitzpatrick also mentioned pricing pressures as a key component to soft-drink sales. "We've seen an increase in price over the past several years. More and more consumers shop the sale prices. You still have some loyal Pepsi or Coke drinkers, but people tend to buy the one on sale. If we have a 2-liter on sale for 99 cents, we will sell twice as much as when we offer the same thing at $1.09."

Bottling costs show no signs of falling, yet some within the industry are predicting a comeback as manufacturers rally behind their carbonated products as the true spine of their brand portfolios.

"The large companies are putting a lot behind the category this year and the potential exists for a rebound," said Beverage Marketing's Hemphill.

Hemphill noted Pepsi's bid for the lemon-lime consumer -- Sierra Mist -- and Coca-Cola's intention to increase promotional dollars while initiating its new "Life Tastes Good" branding campaign.

Steve Hyland, director of supermarkets for Coca-Cola North America, was confident.

"Carbonated soft drinks have huge upside potential," he said. "They are an expandable consumption category. Our research reveals the more consumers stock up, the more they drink. Heavy carbonated-soft-drink users go to their supermarket weekly to buy in the category, regardless of their last purchase."

While Hyland recognized the promise of Coca-Cola's noncarbonated offerings -- particularly the introduction of a 12-ounce Dasani bottled water and continued innovations along the Powerade sports-drink line -- he was sure to note soft drinks' enduring potential.

"Carbonated soft drinks still represent the lion's share of the business, so even minor growth would represent significant increases in case volume," he said.

Retailers SN spoke with offered tenuous reviews for Pepsi's Sierra Mist.

"We carry 2-liters and 20-ounce six-packs of Sierra Mist and they're couponing it at 25 cents off a bottle, so sales are probably not as good as they had anticipated, for the moment," said Graul's Fitzpatrick.

Only one Ingles store carries the product, as it is not in the market to compete with 7-Up, said Goetsch.

According to Bart Casabona, a spokesman for Pepsi, the product is available in roughly 60% of the country, and is doing very well in those markets. Casabona has high hopes for the restorative powers of Pepsi's new entries.

"Introducing new products like Sierra Mist, or the Code Red line extension for Mountain Dew, brings some excitement back to the carbonated soft-drink category, hopefully translating into growth," he said.

Both Fitzpatrick and Goetsch reported strong sales for Mountain Dew Code Red in their stores. Yet Jay Mattern, director of dairy, frozen and grocery for Plumb's supermarkets, Muskegon, Mich., was skeptical of the true value of Code Red's success, doubting that the product had actually attracted new customers.

"It's a teenager's drink. I don't think they're going to convert any Diet Coke drinkers," he said.

However, Mattern was optimistic about the category overall. Although soft-drink sales had been flat for the past 18 months, he said, things were beginning to pick up in his stores due to increased promotional activity, including better ad pricing, contests and secondary displays offering televisions or trips.

"The manufacturers know that carbonated is the core part of their business, and they know that a lot of their sales have been transferring to alternative beverages," he said. "For a while, they had all been gearing up to gain additional sales in other beverage categories, but now they're steering some of that promotional money back to soft drinks."

According to Hemphill, supermarkets must concentrate more effort on demand in the realm of immediate consumption. The 2-liter, the grocery channel's soft-drink staple, seems to have stalled, and most of the growth can be found in multipacks of smaller sizes. Having a variety of different package types is critical, he said.

"The single-serve market is thriving," said Graul's Fitzpatrick.

He attributes the growing popularity of single servings to consumers' harried, on-the-go lifestyles, and said the checkout coolers in his stores do very well, particularly during lunch.

"We are definitely selling more single-serves than we have in the past," said Ingles' Goetsch. Goetsch tries to have cold soft drinks available whenever possible, either in the dairy case or in fast lanes near the checkout. Due to spatial constraints this is not always possible, but the larger format stores always offer conveniently chilled soft drinks.

"The water market has definitely gone that way," said Plumb's Mattern, speaking about smaller sizes and multipacks. "People really like 11-ounce multipacks."

However, when it comes to multipacks and soda, Mattern does not see that much growth outside of the standard 6- and 12-packs, although he did note Coca-Cola's 18-pack offering.

"They were never really successful with the 24-pack because the price point was too high," he said. "So they came out with an 18-pack as a way to steer people up without scaring them off on the price."