The Price Is Right

Two large ceiling danglers in the soda aisle at Waldbaum's Deer Park, N.Y., store last month touted a tempting deal: Buy three Coca-Cola multipacks for $11.99. Shoppers at the A&P banner could get the savings on 12 12-ounce cans, six 16.9-ounce bottles or eight 12-ounce bottles. An additional $15 purchase was required. While many consumers are forgoing CSDs in favor of healthier beverages, competitive

Two large ceiling danglers in the soda aisle at Waldbaum's Deer Park, N.Y., store last month touted a tempting deal: Buy three Coca-Cola multipacks for $11.99.

Shoppers at the A&P banner could get the savings on 12 12-ounce cans, six 16.9-ounce bottles or eight 12-ounce bottles. An additional $15 purchase was required.

While many consumers are forgoing CSDs in favor of healthier beverages, competitive pricing like this helps keep the category top of mind, retailers told SN.

CSDs generated $12.1 billion in food stores for the 52 weeks ending Feb. 21, 2010, according to SymphonyIRI Group (formerly Information Resources Inc.). While that's just a 1.9% increase, it beats the category's performance in 2006, 2007 and 2008, when sales declined.

Retailers SN interviewed confirmed that hot pricing is making an impact.

“After a few years of declines, the category has made a rebound, mostly because of retails,” said Bill Eichorn, category manager at Big Y Foods, Springfield, Mass. “Soda is still very cheap for the amount you get.”

CSDs continue to be a high-volume traffic builder, Eichorn said, noting that sales are up slightly. He declined to elaborate.

Eichorn attributes the sales increase to heavy manufacturer promotional activity. At Big Y, 10 for $10 on 2 liters is a big consumer draw.

“Pricing is very important because of the economy,” he said.

Price is such a big factor that it's driving private-label development at Piggly Wiggly Carolina Co., North Charleston, S.C., according to category analyst Rick Seaman.

The retailer is launching root beer, orange and other new diet flavors.

“Until recently, diet cola was all we pushed; now there's more of a trend toward diet in general,” he said.

Private-label CSD sales are up, which Seaman attributes to good retails. The liter sizes are particularly popular. It frequently puts 3-liter bottles on sale for 99 cents; and 2 liters, 75 cents. It focuses on liters because that's what consumers are increasingly buying, according to Seaman.

“There's a movement away from multipacks and back to liters,” he said.

At C&K Market, Brookings, Ore., CSD sales increased 2.8% last year, compared with 2008, according to Matt Olson, direct-store-delivery grocery director. C&K operates stores under the Ray's Food Place, Shop Smart and Price Less Foods banners.

A lot of that growth has to do with increased demand for 24-packs, 2 liters and single-serves.

But pricing is also key. Instead of its usual push — deals on 12 packs — C&K has been frequently running 10/$10 on 2-liters.

Coupon deals are also picking up. The hottest ad it ran recently was for Coke 12-packs over Thanksgiving. The “Buy four 12-packs for $12, get $4 off instantly” offer resulted in a four-for-$8 price.

“That one ad made the year for Coke,” said Olson.

Pricing is such a hot issue that some retailers are taking a tougher-than-nails approach when dealing with manufacturers. Take Costco Wholesale Corp. The retailer temporarily didn't replenish current inventories of Coca-Cola beverages over a recent pricing disagreement. The wholesale club helps keep prices down by averaging a relatively low 8% to 10% profit margin.

Manufacturers are doing their part by focusing on innovation in flavors and packaging. C&K did well with PepsiCo's limited-time “Throwback” soda. Inspired by the '60s and '70s, sweetened with natural sugar in a retro-look package, Pepsi Throwback and Mountain Dew Throwback initially were to be available only in March and April 2009. The launches were so successful that Pepsi brought them back for a second limited time from Dec. 28 through Feb. 22, 2010.

Pepsi is also letting consumers play a role in innovation. For instance, its Mountain Dew “DEWmocracy” program lets consumers shape the direction of the brand.

Coca-Cola North America, meanwhile, is touting a contour 2-liter bottle that's easier to hold.

Another way manufacturers are addressing it is through bottler acquisitions.

Among other deals, Coca Cola agreed to acquire Coca-Cola Enterprises' North American bottling business, and PepsiCo completed the $7.8 billion strategic acquisitions of its two largest bottlers: the Pepsi Bottling Group and PepsiAmericas.

The companies say such agreements can help improve operating efficiencies and speed-to-market.

“The bottler acquisitions are an attempt to get a better command of the market, and perhaps counteract some of the [consumer] trends,” said Tom Pirko, president of Santa Ynez, Calif.-based Bevmark, a beverage consulting firm.

While such innovation is helping, the movement toward healthier beverages is taking its toll on the CSD category, said Pirko.

“There is a dark cloud hanging over the category because people view soda as bad,” Pirko said. “There's a change in consumer preferences away from drinks that can contribute to obesity. The business is shifting.”