The Pacesetters

Trends Behind the Fastest-Moving New C-store Products

When rubber-band bracelets began garnering buzz among c-store retailers, Diane McCarty, a “pretty low-risk person,” was uncertain of the promised riches. But she dove in anyway.

“I thought, ‘Well, I guess these are hot, and what do I know about being an 8-year-old girl?’

“They were flying off the shelves for everyone else—everyone but Texans, apparently,” says McCarty, who, as CEO of Douglass Distributing in Sherman, Texas, acts as buyer, vendor negotiator and more for Douglass’ 16 company-operated c-stores.

Where are those bands today? “I’ve still got them,” McCarty says with dismay.

Staying abreast of the next big thing is a task that requires patience, especially if you’re coming off a year when a particular category—bottled water, energy drinks, e-cigs—went gangbusters. Boxes of a dud product collecting dust in your back room may make you think twice about jumping on the next new-product bandwagon and have you singing the praises of keeping to your core. And while the core is crucial, new-product innovation is important for generating consumer traffic, buzz and, yes, sales.

“Even in these tough times, is innovation driving growth?” says Susan Viamari, editor of Times & Trends for Chicago-based research firm IRI. “In our analysis we’ve found that yes, it absolutely is.”

Look at new-product sales trends from a macro viewpoint—not individual products but rather the categories or trends they fill—and you will indeed find sustained growth that outpaces even total industry growth.

So how do you avoid the bombs and find the gems? In reality, the next big thing is rare, especially as the segmentation of consumers has manufacturers targeting niches vs. larger populations. Don’t wait and watch for the next equivalent of energy drinks or e-cigs; instead, look to smaller innovations within growth categories that fulfill top consumer needs.

To help identify where innovation is happening based on true sales figures, Convenience Store Products worked with IRI to dive into the trends reflected in its annual New Products Pacesetters report. What we found: While health, indulgence and convenience are table stakes in the new-products gamble, strong, sustained growth is coming from a few key categories: coffee and tea, light meals and snacks, and breakfast.

Health, Indulgence and Convenience Reign
Nearly 1,900 new products hit U.S. retail shelves last year, and only 11% met IRI’s benchmarks for exceptional first-year sales success. The 200 top-selling CPG launches of the year each captured more than $13 million in year-one sales across the multi-outlet geography, with an individual average of $39.5 million in first-year revenues.

Among the c-store New Product Pacesetters, a number of notable trends surfaced:

  • No single product blew dollar sales out of the water compared to last year’s ranking, but the number of products over the $100 million mark was notable.
  • While indulgence is certainly still a priority for c-store shoppers—case in point: Reese’s Minis and Magnum ice cream—many items in the top 10 touted better-for-you attributes. Fourth-ranked TruMoo has lower sugar than traditional flavored milk; Monster Rehab features electrolytes, coconut water and superfruits; Dr Pepper Ten touts only 10 calories; RockStar2x has lowered carbs; and Lipton has all-powerful “natural” on the label of its ready-to-drink tea.
  • The blurring of eating occasions—and with it, the growth of snacking—appeared between the lines in this year’s ranking. IRI placed all new products together by consumption groups, and it found that while the breakfast grouping accounts for just 13% of overall CPG dollars, breakfast solutions account for one-third of total Pacesetter dollars. And of course, these “breakfast” items—such as Dannon Oikos yogurt, which ranked No. 1 for all other retail outlets, and Nature Valley Protein Bars at No. 8—aren’t necessarily consumed in the morning.
  • While they didn’t make it on the c-store ranking be it for distribution reasons or otherwise, a number of products that placed in the total retail top 10 have a rightful place in the convenience channel. Yogurt, protein bars, frozen alcohol-beverage pouches, water enhancers and flavored waters are all hot c-store subcategories. It is in the c-store retailer’s best interest, says Viamari, to look at the multi-outlet top 10 for opportunities that have yet to be fully realized by the convenience industry.
  • This year’s New Product Pacesetters also saw an increase in the number of small companies. “That’s very telling of changes that are going on in the industry,” says Viamari. “The playing field is more level now. Social media are enabling these smaller guys to get their word out there a little better.”

The Cycle of Innovation
Anyone who’s been burned by a new-product flop may question the true value of the next big thing. It’s important to understand and appreciate the ebbs and flows of the innovation cycle.

“A lot of innovation is intentionally a flash in the pan, just trying to keep the category exciting. So it’s going to be a new bell and whistle this year, and then there will be another bell and whistle the next year,” says Viamari.

“But then there are the breakthrough, blockbuster innovations—Greek yogurt or K-cups (single-portion brewing cups manufactured by Keurig and other companies)—that are really changing the way we view the category,” she continues. K-cups revolutionized coffee, and now manufacturers are building on its success with a bevy of flavors and even tea options.

“It used to be about innovating outside of the box; now, how can you innovate not only outside the box, but moreso within?” says Derek Gaskins, chief customer officer for 58-unit Rutter’s Farm Stores, York, Pa. For example, as energy products are established as a crucial category, “how do I target women, or millennials, or some other demographic with a niche vs. a whole new product category?”

To Gaskins’ point, innovation is also growing increasingly targeted toward niche audiences, resulting in successful rollouts with smaller sales outcomes. Take Greek yogurt. Last year, for the first time in a while, yogurt growth was very small, almost flat—not because the trend was dying, but because it was the year between the launches of Chobani and Dannon Oikos.

“There was no big-bang innovation, so it did make a significant difference in how the category performed,” says Viamari.

But just because it’s niche doesn’t mean it can’t affect your business—especially if you’re one of the few retailers catering to the demographic.

“Some of those niche product variations mainstream quickly, and your sales can exponentially grow,” says Gaskins. “So something like gluten-free, it’s very niche, but I know some retailers have experienced profound success with something that is really geared toward a subsegment, a narrow niche that is just a runaway hit. For all of us, we’re challenged to find that.”

This year’s New Product Pacesetters reflect some quite literal variations on a product, such as Reese’s Minis and Dr Pepper 10. “Overall, this may help incrementally increase sales, but often the unknown is whether or not it really is an increase in sales, or if the consumer just purchased a different form of the same product from the same company,” says Steve Jones, president of Johnny Junxions, a single store in Bedford, Ind.

Operating just one store, Jones is also sensitive to such targeted innovation not resonating in his market.

“If the product will only appeal to a small percentage of my customer base, there is no need to carry it when I can use that space in my store for a product that is going to have a lot more inventory turns,” he says.

Distribution also forces the hand of new-product sales in the channel. McCarty and Jones both emphasize the additional time burden of sourcing products that aren’t easily available through existing distribution channels. As consumers continue to shop retail channels differently—hopping from dollar store to drug chain to big box—the environment is changing for how manufacturers and wholesalers go about distributing product. Suppliers, distributors and retailers alike need to understand not just how consumers shop for a given brand, but also sizes, occasions and category importance.

“Distribution isn’t a no-brainer anymore,” says Viamari.

Where the Gains Are
When looking for innovative products, look at not just the products, but also the categories and trends they reflect. What’s notable is how quickly manufacturers are going to market with products that meet current consumer demands.

Nearly half of 2012 food Pacesetter dollars for the total industry came from products that IRI categorizes as either breakfast solutions (which includes burgeoning yogurt and bar categories) or light meals/appetizers.

“Innovation in these areas is contributing disproportionately to overall pacesetter dollars,” says Viamari. Coffee, tea, juices, waters and milk all saw very strong share of sales as well.

The big “a-ha” for Viamari when looking at this year’s New Product Pacesetters is the “drive toward satiation”: Eating occasions are blurred, foodservice and packaged goods are interchangeable during both meal and snack occasions, and breakfast items are eaten throughout the day.

“Whether it’s healthy or indulgent, consumers are looking to fill up without having to slow down, and the CPG companies are so very interested in understanding what that looks like to different consumer segments,” says Viamari.

One segment she believes is ripe for the taking is the shopper seeking better-for-you foods. IRI looked at the nutritional profile for key areas in c-stores and compared it to the total industry, revealing—no surprise—c-stores are lagging behind with respect to health and wellness.

“They tend to have more calories and fat, more things we don’t want if we’re following healthier eating habits,” she says. “But consumers are going to c-stores for healthier products because … even though we see a lot of indulgences, this year TruMoo and Lipton 100% Natural were top launches.”

At Rutter’s, coffee and tea, breakfast items and snacks are all big players. As an example of Viamari’s sentiments, the stores have witnessed niche products such as Greek yogurt and breakfast bars “go mainstream and put more fire in the whole segment,” says Gaskins.

The layout of its foodservice menu has helped Rutter’s find success with the snacking day-parts. Shoppers can customize their meals using an in-store touch-screen ordering system, and many will turn items traditionally seen as appetizers—mozzarella sticks, fried mac and cheese bites—into snacks.

“We’re seeing astronomical results, and the consumer is giving us credit for it,” says Gaskins.

OTP, energy products and packaged snacks, as well as walking tacos (all the components of a taco added to a bag of chips) and cherry pomegranate iced tea, are also hot for Rutter’s. Gaskins points to regional specialties in the snack aisle, such as Utz and Herr’s brands, as hot sellers.

“Local is almost the new ethnic,” he says. “What did central Pennsylvanians grow up on? Those kinds of products do exceptionally well.”

The burgeoning categories as identified by IRI are also doing well for Jones of Johnny Junxions. “We have had significant growth in our breakfast sales. The majority of the increase is ready-to-go breakfast sandwiches, but the breakfast-bar category has also steadily increased over the past few years,” he says.

Better-for-you bars are finally picking up some steam at McCarty’s stores after a few years of tortoise-like sales. But dispensed iced tea—another buzz-worthy category—just isn’t moving the way sweet and non-sweet are.

McCarty illustrates the need to temper the excitement over a new product with the realties of your market.

“It’s almost like you need a 7-Eleven, one of the big boys, to really make it mainstream for the rest of us,” she says.

So as you watch for the next great innovation, certainly keep your eye on outside-the-box paradigm changers, as energy drinks once were. But know that you can find ongoing innovation in the product categories that best fit shoppers’ needs of the day.

Source:  Abbie Westra, Editor-in-Chief, Convenience Store Products, CSP Business Media