Earlier this year, Dr Pepper Snapple lowered expectations for how well their newly acquired Bai Brands will perform in 2017. The market wasn’t happy. To boost the functional beverage’s performance, the company is pursuing a revised growth strategy focused heavily on the convenience store channel.
In recent interviews, Dr Pepper Snapple CEO Larry Young and CFO Marty Ellen said Bai previously built much of the brand’s business in club stores, where sales focus on steeply discounted bulk packages. Not only is the club channel, “not that profitable,” they said, “Relying on bulk packs is not a good way to get people to try the brand.” Ellen added, “We have to build the brand one bottle at a time and get the trial going so we can get the repeat purchases.”
Many of the nation’s largest food and beverage companies rely heavily on the club channel for volume and revenue. Most megabrands have been able to carve out both of these key metrics in that channel. But, to Young’s point, they dilute profitability that has to be made up in cost-effective channels.
For Dr Pepper Snapple and Bai, that means turning to the convenience store channel, which Young called “the most valuable real estate in the beverage business.” Young told Beverage-Digest that Bai should be “in every convenience store in the U.S.”
Young’s confidence is the c-store channel is well placed. Convenience stores had in-store sales of $233 billion last year. Fuel is the main reason consumers stop there; the second is to buy a beverage. A Convenience Store News Forecast Study said 7 of 10 retailers (70.6 percent) expect c-store packaged beverage sales to increase in 2017.
How will Dr Pepper Snapple put Bai into “every convenience store in the U.S.” when the convenience retailing industry is dominated by single-store operators?
How will Dr Pepper Snapple put Bai into “every convenience store in the U.S.” when the convenience retailing industry is dominated by single-store operators? Independently owned stores account for more than 63 percent of all convenience operators, according to NACS 2017 research. These operators cannot be reached through traditional distribution methods.
Bai, or any other brand wanting to penetrate the convenience channel, needs to be present and deliberate in the independent wholesaler channel.
If Young is referring only to c-stores who are part of traditional distribution, then he will likely find a bit of growth there. But he’ll also be passing up on a tremendous opportunity. Bai, or any other brand wanting to penetrate the convenience channel, needs to be present and deliberate in the independent wholesaler channel.