As consumers reacted In March 2020 to the spread of the COVID-19 coronavirus, Beverage Digest provided live updates on the impact to the US non-alcoholic beverage industry. Here is that coverage in its entirety.
Newest Case Counts Per Country: https://www.worldometers.info/coronavirus/
Also, click here for more live dashboards and resources related to the spread of the virus and its impact.
Posted March 31, 2020 at 6:00 p.m.
View from New York. Big Geyser COO Expects COVID-19 to Cut Sales in Half.
New York is one of the hardest hit COVID-19 regions in the world. It’s also the home to Big Geyser, one of the largest and most important independent beverage distributors (and incubators) in the US. The company serves almost 13 million consumers in New York City’s five boroughs and the counties of Nassau, Suffolk and Westchester. BD spoke this week to Big Geyser COO Jerry Reda to find out how the company is responding to the crisis. He estimated that only about 10% of Big Geyser’s 25,000 accounts are open. The volume represented is higher, however, because many of the open locations are large-format and wholesale club stores, he said. Sales for Big Geyser more than doubled in early March before peaking during the week of March 16, Reda said. Sales had leveled out by March 23 before ending that week “down substantially,” he said, citing extreme consumer stock up for the boom-splat sales pattern. “Sales have slowed dramatically, because all of that pantry loading has subsided,” Reda said. “People were freezing milk.” (Reda noted that a major appliance retailer in New York even sold out of freezers amid the grocery hoarding.)
Looking Ahead. Reda estimates Big Geyser’s sales during the COVID-19 pandemic will be down 50% to 60% by the time the crisis subsides. He also expects a margin shift as volume moves to big box stores and groceries. Reda further noted that major grocery retailers and convenience chains in the NY area have stopped promotions. “They are focusing their efforts on trying to fill up the shelves,” he said. On Monday, 7-Eleven sent Big Geyser an email saying the chain was temporarily closing a number of stores in the New York area. “I don’t remember that ever happening,” Reda said.
Early Signs. Reda said Big Geyser began ramping up inventory as soon as the first cases of COVID-19 hit New York in early March. Inventory was up by about 400% by the time consumers panicked and flocked to stores. Storage space wasn’t an issue because February is usually a slow season compared to summer. Reda said his accounts suffered minimal out-of-stocks during the rush. “Overall, the DSD system far outperformed the warehouse model.” Premium brands posting significant sales increases included Essentia water, Bodyarmor sports drink and Talking Rain’s Sparkling Ice. A sleeper hit during the crisis has been Owyn protein shakes, Reda said. Lower-margin multi-pack water such as Crystal Geyser posted heavy gains as well.
Posted March 27, 2020 at 5:00 p.m.
New Data: Latest Retail Scan Results Detail Major Beverage Category Spikes Last Week.
BD just received the latest Nielsen data for key beverage categories covering the week ending March 21. When compared to the latest four-week period, sales accelerated for all of the categories depicted in the table below. When compared to the previous week ending March 14, all but water showed accelerated growth amid the building COVID-19 crisis. The deceleration of water was likely due to out-of-stocks rather than slowing demand, BD notes based on recent conversations with brands and distributors. Water out-of-stocks may have benefited other categories such as sports drinks. Still, water grew at a rate that was more than 20 percentage points higher than the four-week period. Fruit juice and orange juice sales also spiked significantly last week, presumably as nervous consumers looked for fortification.
Posted March 27, 2020 at 12:00 p.m.
Report: Gasoline Sales Fall -2.4%. Decline Accelerating Fast.
More Evidence of Challenges for C-Store Beverage Distributors.
Same-store gasoline sales in the US fell -2.4% during the week ending March 14, according to data released this morning by the Oil Price Information Service. Initial data for the week ending March 21 indicates the decline could be 10 times worse during that period. The lower demand for gasoline has translated to beverage distributors. They have reported widespread sales declines for higher-margin immediate consumption drinks in the convenience/gas channels (including 20-oz PET sodas) as lock downs keep commuters and vacationers off the roads.
The US West was hardest hit during the week ending March 14, with gasoline sales there declining -8.4%. The Northeast was next worse at -3.7%. The Southwest fell -1.9% while the Mid-Continent regional fell -0.6%. The Southeast region increased by a modest +0.1% (BD notes this is likely to shift meaningfully negative with the loss of the high school and college spring break travel season amid beach closings).
For more: https://bit.ly/2JnB5U0
Posted March 26, 2020 at 5:30 p.m.
For Beverage Bottlers, Concern Mounts as Panic-Buying Subsides. Immediate Consumption Margins Pressured.
Priority Remains Employee Safety, Job Preservation and Customer Service.
After last week's sales surge for beverages in the grocery channel, Coke, Pepsi and independent bottling executives in the US are reporting more "normalized" operations this week. Stock-up buying has subsided. As the economic shutdown wears on, many expect a difficult or at least uncertain April/May sales period. “If we are not back to some level of normalcy by Memorial Day then the impacts and implications will become considerably more severe,” one bottler told BD. Meanwhile, impacts from the virtual standstill in the on-premise channel are becoming more pronounced, and a severe slowdown in immediate consumption (such as 20-oz PET bottles) is beginning to weigh on margins.
Sales Boom. In discussions with BD by email and telephone, numerous bottlers reported above average sales last week as panicked consumers stocked up on essentials including beverages (see table below with recent Nielsen multi-channel sales data). One major bottler said March volume will surpass peak summer sales from July 2019. Another major bottler said total beverage sales last week were up +50% year-over-year. It was also noted how well the direct-store-delivery model "shined" compared to warehouse delivery systems.
Back to Reality. On-premise was another story, with one bottler reporting a roughly -90% decline in bag-in-box syrup sales to fountain customers such as restaurants. “Fountain sales are dead!” another said. Bottlers suffering bag-in-box declines were able to make up some volume and margin ground as restaurants shifted from fountain to 20-oz single-serve PET as part of the shift to takeout. Generally, finished products in 20-oz PET are sold by bottlers at a higher margin than bag-in-box syrup.
Immediate Consumption. Meanwhile, bottlers said the loss of immediate consumption was negatively impacting margins. Lockdowns and work-at-home policies have reduced commuting and vacation traveling. “Single-serve PET is really declining with the decrease in traffic at convenience retail outlets, hurting margins,” one bottler said. “Single serve immediate consumption PET has slowed in recent days,” another said, “but it is only very recent, and we expect it will continue to slow and it does put pressure on margins.”
Customers. Retail and fountain customers are asking for longer terms to pay their bill, a couple of bottlers said. One bottler said they expect calls to pick up equipment at some point as customers begin to go out of business. Another bottler said they have lost at least 30% of their account base.
Supply. While Coke and Pepsi system bottlers seemed comfortable with raw materials supply so far, one independent bottler expressed concern about getting enough cans and PET bottles to keep plants running at full capacity.
Employees. A significant priority for bottlers, they said, was keeping employees safe and employed. “We cannot say enough about how incredibly well our teams have performed and handled this situation,” a bottler said. “We appreciate them and cannot put into adequate words how well they have served our customers, our consumers, and our communities.”
Posted March 26, 2020 at 3:15 p.m.
1. Senate Stimulus Bill -- Food Programs
2. Consumers After COVID-19
3. OJ Futures Spike
Senate Stimulus Bill Sets Aside $25 Billion for Emergency Food Programs.
Breakdown of funds set aside for domestic food programs in the COVID-19-related stimulus bill passed by the US Senate yesterday evening:
-- Funds available through Sept. 30, 2021
-- $8.8 billion for Child Nutrition Programs such as school lunches and breakfasts, and meals for those in adult day care.
-- $15.8 billion for the Supplemental Nutrition Assistance Program (SNAP), with $100 million of that for Indian reservations and $200 million for Puerto Rico, American Samoa and the Northern Mariana Islands.
-- $450 million for the Commodity Assistance Program, which provided commodity donations for food banks, soup kitchens and other emergency food programs.
COVID-19 Won’t Define the Future. It Will Accelerate the Future.
That was the message from a conference call yesterday with Thriveplan Founder and President Hunter Thurman. RBC Capital Markets Analyst Nik Modi hosted the call yesterday. Cincinnati-based Thriveplan consults brands on innovation approaches based on behavioral science. BD’s takeaways from the call:
-- “Human behavior, consumer behavior is actually still pretty durable, and pretty predictable. Our reactions to stressors and our reactions to life in general is actually something of a known commodity.”
-- People constantly pursue a balance between rebelling, discovering and belonging. Consumers in the 2000s are headed into a discovery phase, following a rebel stage driven by Millennials. This was already happening. The COVID-19 crisis will speed up the process.
-- In the coming years, consumers will trade up to “premium” brands that prove they are better by providing facts and multisensory immersion. Consumers are moving into an era of “MeComm.” Today, consumers buy from either a retail store or an e-commerce platform based on a desire to complete the mission efficiently. In the future, consumers will be open to exploration and they will make buying decisions based on a search for personal truth by way of comparative data and an ability to "feel" the product experience. Consumers will shift from the pursuit of an efficient solution to a desire for the “best solution.” They will shift from what a product or brand “is” to what it “does.” Brands that deliver a way to discover the best solution will command a premium price.
Orange Juice Futures on the Rise.
OJ futures are up more than 20% this month on higher demand for vitamin C. The current spike also is due to supply concerns as workers get sick or stay away, and tanker capacity is more scarce. Prices are still below 2018 highs.
For more: https://www.bbc.com/news/technology-52030133
Posted March 25, 2020 at 9:45 a.m.
Coca-Cola CEO Sees ‘Profound Economic Shock’ for Q2.
Supply chain ‘Creaking.’
Smaller SKUs Sidelined.
Here are the key takeaways from a CNBC interview yesterday with Coca-Cola CEO James Quincey:
Crisis DNA. "The Coca-Cola Company in its entire history has emerged from every global crisis, whether military, economic or disease pandemic. And when it's finished we have been better and we've grown versus the starting point."
“We have crisis adjustments in our DNA.”
Jobs . “We absolutely have not launched any job restructurings and nor do we have any plans to do so.”
On-Premise Shift. “We’ve seen what happens when lock-downs occur. You see a big falloff in footfall, and therefore demand, in the away-from-home channels. You see a huge rise in the demand in the at-home channel.”
“Yesterday, half the people were eating at home half their meals and the other half of their meals somewhere else away from the home. Tomorrow in a lockdown they are having all of those meals at home and all of those drinks at home.”
Second Quarter. “Q2 will see a profound economic shock around the world.”
“There is going to be an impact, particularly I think in Q2 which is going to be the largest number of countries in lockdown. If there is a full hard lockdown rather than sort of a softer lockdown, the at-home is not going to compensate in the short term from the away-from-home.”
“There will be some hit in Q2, and we’ve got a lot of levers to rebalance the business. And we’ve used those in crisis gone by, whether it’s adjusting the way we spend -- the marketing and investments in the marketplace, the non-salary operating expenses -- and the use of capital, there are levers in the business.”
Recovery. “We’re hoping there will be a V-shaped recovery. We’re preparing for a U-shaped recovery.”
Morgan Stanley Downgrade. “Anyone can draw up a list of all the things that can go wrong in a crisis, and there are plenty. But there are also opportunities and we have an incredible workforce that can drive adaptability.”
Supply Chain. “The supply chain is creaking around the world. There are flashpoints where it’s getting a little harder to get ingredients through, whether it’s delays at the borders, or the big changes in channel mix using different materials. Our teams are doing a great job in adapting.”
SKU Shift. “If you look at the US, which is kind of in the period just as the lockdown is starting, you actually see huge volumes starting to go through the grocery trade. So what we’re having to do, because it helps everyone, is focus in on the most important brand and packages. So some of the smallest SKUs will have to be left out as we focus our supply chain and help the customers simplify their logistics so that we can get the maximum amount of supply into the stores to support the big shift.”
Posted March 24, 2020 at 12:15 p.m.
Frontline Hiring Spree.
Here is a list of anticipated crisis hiring by US consumer product companies, retailers and quick-serve restaurant chains amid increased consumer demand:
PepsiCo – 6,000 merchandisers, delivery drivers and warehouse workers.
Pizza Hut -- 30,000 permanent delivery drivers, cooks, call center agents, managers and others.
Papa John’s – 20,000 pizza makers and delivery drivers.
Dominos – 10,000 full-time and part-time workers for delivery, pizza baking, customer service, management and truck drivers.
Instacart – 300,000 workers for its grocery delivery business.
Walmart – 150,000 temporary hourly workers through the end of May for stores, clubs (Sam’s), distribution centers and fulfillment centers. Many of the positions will convert to fulltime.
Amazon – 100,000 full-time and part-time fulfillment center and delivery workers.
Dollar General – 50,000 store workers, mostly temporary.
CVS – 50,000 full-time, part-time and temporary workers for stores, home delivery, distribution and customer service. Many of the jobs to be filled by CVS Health clients, including Hilton and Marriott, who have been forced to furlough workers.
Albertsons -- 30,000 part-time positions, with many coming through partnerships with companies such as BJ’s Restaurants, Hilton, Marriott and Regal Cinemas that have had to furlough workers. (Albertsons CEO Vivek Sankaran is the former CEO of PepsiCo’s Frito-Lay North America division.
Dollar Tree/Family Dollar – 25,000 full-time and part-time store and distribution workers.
7-Eleven – 20,000 workers at its corporate and franchise locations for stocking, cleaning and home delivery fulfillment.
Kroger – 10,000 positions ranging from retail clerks to night crew stockers.
Posted March 24, 2020 at 12:15 p.m.
View from the Beer Aisle.
In a note today, Credit Suisse beverage analyst Kaumil Gajrawala outlined 10 takeaways from a beer expert video roundtable he participated in with Beer Business Daily Editor Harry Schuhmacher, BWC Consulting President Bump Williams and Arlington Capital Advisors Director JB Shireman. The takeaways are reprinted here with permission:
Off Premise (Food, Grocers, Mass, C-Stores)
1. Trends Wk of 3/15/20 Exploded: From BWC Consulting, beer trends spiked up high-teens (3x the prior week); more impressively Wine/Spirits grew double that rate.
2. Consumers Returning to Tried & Trusted Brands: Turn around in negative trends of mature, well-known brands (Bud Light, Coors Light) possibly also helped by consumers considering value and looking for large packages (24-can and 30-can pack sizes doing extremely well). Legacy brands are more reliably available in these quantities. This could this be the event that stabilizes mainstream lights.
3. Seltzer Not Slowing Down: No change in best-in-class category pace of sales, but expect fewer small-scale entrants. Capacity will remain a problem.
4. De-emphasizing Smaller Brands & Innovation: Spring re-sets delayed. Craft brands that require more off-premise focus to grow de-prioritized. Similarly, most innovations unlikely to be supported in the near-term. Exceptions are Bud Light Seltzer and Corona Seltzer which launched earlier-than-planned, a boon in hindsight.
5. Convenience Taking a Hit: The reduction in mobility and commuting will weigh on c-stores. An essential service but still down substantially as “no one is stopping for gas.”
6. Shelves in Disarray: Product is going from the truck straight to shelves. Anecdotally, seeing beer pallets stacked in empty paper and tissue product aisles. Beer direct-store distribution (DSD) a competitive advantage as retailers give leeway to distributors.
On Premise (Bars, Restaurants)
1. Devastating to Craft: More exposed to taprooms/ direct selling than large peers. 1/3 business in draught, higher on-premise skew. Cancelled occasions (Spring Break, festivals, conferences) will never be recouped. Highly likely craft “tail” cannot sustain operations –seeing major lay-offs. Large craft (Boston Beer, Sierra Nevada) more protected.
2. Regulations Loosened for Creativity…: Several states now allowing “drinks to go.” Some employees shifted to help retailers. Dogfish Head & AB InBev brewing sanitizers.
3.…But Tension Remains: TTB now allows returns to brewers or distributors, but not compelled. Wine & Spirits producers accepting inventory for cash refunds, but beer distributors/brewers offering credit. This may change as ~1mn kegs likely to go out-of-date.
4. Debate on the industry post-COVID: Agreement that some aspects have permanently changed (small craft expansion, M&A); disagreement on what signals a return to normalcy.
View the video discussion here: https://www.youtube.com/watch?v=4PMcBn1U56Y
Posted March 23, 2020 at 7:30 p.m.
RBC Capital Markets Upgrades PepsiCo; Offers COVID-19 Stocks Assessment.
Here are beverage takeaways from a report released today by analysts including Nik Modi from RBC Capital Markets.
PepsiCo Upgrade – Moved to “outperform” from “sector perform,” a rating the analysts had held for six years. Said 1) current selloff is overdone, 2) CEO Ramon Laguarta’s vision and strategy “is much more focused on sustainable top line than his predecessor’s, and 3) Company has made “critical investments in its capabilities and infrastructure that will enable it to deliver sustainable top line.”
Duration – Past recessions and “extraordinary events” such as the 9/11 terrorist attacks led to sell-offs that lasted between 97 days and 511 days. This suggests that “we have more time until stock prices begin to normalize (at best),” the RBC analysts wrote. The analysts also said they expect the situation to “get worse before they get better” as testing increases the US case count and investor anxiety. The analyst went on to add that China’s recent reports of no new “locally transmitted” cases is a “promising turning point,” assuming the reports are true and that there is no coming reinfection period. The lack of new cases would mean strict measures such as mandatory lockdowns and quarantining can work, the analysts concluded.
Comparison to 2008-09 Recession -- The RBC analysts don’t expect the COVID-19 market downturn to “be as bad for consumer staples” as the Great Recession. “The financial crisis was driven by a solvency issue, which led to a sharp spike in the cost of debt and economic pressure (that resulted in slower sales/trade down to private label),” the analysts wrote. “The current market slowdown is pandemic-driven, which has influenced pantry stocking across most staple categories, with some categories actually benefitting from the pandemic such as at-home foods, disinfecting wipes, soaps, and OTC medicines—just to name a few.”
Measuring the Impact to Key Beverage Staples Stocks -- The RBC analysts estimated the near-term, medium-term and long-term impacts of the COVID-19 crisis, including for the following beverage companies:
Posted March 23, 2020 at 10:00 a.m.
Coca-Cola European Partners Withdraws Guidance, Suspends Buyback.
“As the situation is unprecedented and rapidly evolving, it is not possible today to accurately predict the impact on our business. We have, however, started to see an increasing impact on the AFH channel with some volume moving to the Home channel. We are modelling, incorporating learnings from other Coca-Cola bottlers, the effects of differing revenue and volume impacts in these channels, but it is too early to draw conclusions.”
Full release: https://bit.ly/39j4lWU
KDP’s Gamgort, Vita Coco’s Kirban Working from Home Like Many Office Workers.
The Wall Street Journal Covers the CEO Response to COVID-19:
“CEO Bob Gamgort hasn’t visited the company’s Massachusetts or Texas headquarters in a week. He is leading the troops from home in suburban New Jersey, where he drove after his two adult sons decamped there from New York City. He is now trying to rally his workforce and minimize their risks.”
“Working from home in the Hamptons, CEO Michael Kirban of coconut-water maker Vita Coco on Thursday hosted the company’s first virtual happy hour—something of an instant coronavirus-age fixture, in which colleagues pour their own drinks and log on to chat. “It’s my job to keep it as light as possible,” he said. “These are really tough times. People are scared.”
Coca-Cola Uses Times Square Electronic Billboard to Send Social Distancing Message.
Coke separates the famous Spencerian script letters of its logo to encourage safety.
Posted March 20, 2020 at 4:45 p.m.
PepsiCo to Provide More Money, More Jobs to Frontline Distribution and Production Workers.
The company announced the US program this afternoon. It includes at least $100 extra pay per week, and the hiring of 6,000 new full-time workers with full benefits.
"There's hardly a pantry in America that does not have a Frito-Lay and Quaker product, and in recent weeks, providing those products has become increasingly challenging," said Steven Williams, chief executive officer of PepsiCo Foods North America. "Our frontline employees – the people you see stocking your favorite bags of chips or canisters of oats, the people driving those products there and the ones originally making them in plants across the country – are the backbone of PepsiCo Foods and we appreciate their heroic efforts."
Read the full release here:
Posted March 20, 2020 at 4:15 p.m.
New Data: From Water and Soda to Oat Milk, Consumer FOMO Leads to Category Spikes.
Nielsen just released US dollar sales data for a number of beverage categories that posted growth spikes last week as activity related to COVID-19 ramped up. Consumers, fearing shortages and reacting to restaurant closures, have stocked up on groceries including beverages.
In the table below, data for the week ending March 14 shows accelerated sales growth when compared to the related four-week period. A comparison to the week ending March 7 further reveals the impact of actions related to COVID-19 last week.
Posted March 20, 2020 at 12:40 p.m.
Coca-Cola Withdraws Previous Earnings Guidance on COVID-19 Fallout. Says Concentrate Supply Fine in Near Term.
In a regulatory filing this morning, Coca-Cola said it does "not expect to achieve our previously provided full year guidance." Measures to reduce the spread of COVID-19 -- including calls for people not to dine at restaurants or attend sporting events and concerts -- plus currency fluctuation will have a "negative impact" on 2020 financial and operating results, Coca-Cola disclosed. While the impact of the viral outbreak "could be material," the negative consequences to Coke's financials "cannot be reasonably estimated" given the rapidly changing situation, Coke also wrote.
For now, Coke said it is working with its bottling network to ensure "continuous supply" and that the company doesn't foresee any near-term disruptions in production of concentrates and fountain syrups sold to its bottlers to produce packaged beverages.
Stock Slide. Coca-Cola had declined -3.7% by just after noon today. The shares have fallen 30% since Feb. 21, when the company first forecast a potential negative earnings impact from COVID-19, limited to the first quarter. The company retained its full-year guidance. Three days later, Coke warned of potential sweetener supply issues in China.
With all of the uncertainty, Morgan Stanley downgraded Coca-Cola's stock from "overweight" to "equal-weight" on March 18 and lowered the firm's one-year price target to $52 from $65. The firm's analysts also downgraded Coca-Cola's global energy drink partner, Monster Beverage. The analysts said "government-mandated closures for businesses and restrictions on public gatherings" from COVID-19 are creating "short-term risk for away-from-home beverage consumption for Coke and Monster." In addition, the Morgan Stanley analysts downgraded the "beverage industry" as a whole to "in-line from attractive."
Analysts See Short-Term On-Premise Pain; Lower Demand for Non-Alcoholic Beverages Later. According to Consumer Edge Research, about a quarter of global non-alcoholic beverage volume is sold in restaurants and other on-premise consumption outlets. As of March 19, 29 states and DC had called for the closing of on-premise establishments, the analysts wrote in a report. Sales gains for non-alcoholic beverages purchased at groceries and other take-home channels won't be enough to offset the lost on-premise sales, they estimated.
Consumer Edge also predicted lower demand for non-alcoholic beverages past the near-term, based on impacts seen during the late 2000s following the US recession. "Net, we believe that budgeting for 2H20 and 2021 for many beverage companies has to include a lower demand outlook v original baseline," the analysts wrote. "That likely needs to get communicated with 1Q earnings."
Fountain Exposure Greater for Coke. In the US, fountain sales of carbonated soft drinks (CSDs) in 2018 reached 27% of total volume as bottle-can fell to 73%, according to Beverage Digest's Fact Book, 24th Edition (PRE-ORDER FACT BOOK 25TH EDITION). That was fountain's highest share since at least 1989, when BD began tracking the measure. Fountain has added +5.3 share points since 1989. Fountain CSDs out-performed the total category, with volume up an estimated +0.3% compared to a -0.1% decline in total CSDs.
Coca-Cola, which has a roughly 70.0 share of the US fountain channel for CSDs, is more exposed than PepsiCo when it comes to on-premise disruption from the COVID-19 virus. One of Coca-Cola's largest customers is McDonald's, which has closed dining rooms at all corporate-owned stores (less than 10% of locations) and has asked franchisees to do the same. The chain, which has more than 13,000 units in the US, according to BD's Fact Book, pours Dr Pepper as well. Subway, Burger King and Wendy's all serve Coca-Cola and Dr Pepper.
On the negative side for PepsiCo, the company’s long-term beverage contract with Regal movie theaters in the US started in the midst of the COVID-19 crisis. The theater chain announced this week it was shutting down “until further notice.” Regal was previously served by Coca-Cola.
Gatorade Benefit for PepsiCo. Meanwhile, PepsiCo will benefit from its roughly 70.0 share of the US sports drink category, as consumers stock up on the drinks while shut in at home. At least one Pepsi system bottler said they are producing additional 20-oz single-serve bottles for Walmart to help keep up with demand for Gatorade as larger pack sizes produced by PepsiCo become scarce.
Posted March 18, 2020
1. Updated Beverage Bottler Reaction.
2. ABA Requests to President Trump.
What's Changed With COVID-19? "Everything."
Early last week, BD informally polled beverage bottlers from Coca-Cola, PepsiCo and independent distributors about market fallout from the COVID-19 outbreak (March 10 below). At the time, the bottlers reported limited consequences, while expressing measured concern for what might come next. A week later, when asked what had changed, another bottler summed up the situation: “How about everything!”
Bottlers and their customers now are managing fallout from mounting work and social closings. They are working overtime to keep store shelves filled amid a siege of retail shoppers stocking up on supplies in anticipation of a full-scale public shutdown. In limited pockets, bottlers are managing shortages of some raw materials such as PET bottle caps. Here’s a look at what bottlers are saying this week about the crisis. The following comments have been edited for clarity and space. BD agreed not to identify the bottlers so they could provide more candid responses.
BOTTLER 1. “Channels of business are showing impact. We see that continuing. Stress is hitting restaurants, hotels, healthcare, and education, with foot traffic slowing and closures. Convenience and gas, and dollar store shelves are getting hit hard and are difficult to service due to the heavy foot traffic. Large format is dynamic with people panic buying. Scans in some accounts are up between +30% and +75% for the month versus last year. It’s not just water, carbonated soft drinks are up the same amount. We are actively shifting resources between and across channels of trade to handle needs. The federal government has waived hours of service for truck drivers, and some states are allowing heavier truck weights to help prepare for driver shortages. We are preparing for a mandatory two-week shutdown nationally. I can foresee a mandatory two-week quarantine for hot spot cities or states first, then nationally only as a last step. We hope if enacted that it leaves deliveries open to all grocery, C&G and dollar, since the communities use those for main sources.”
BOTTLER 2. “On premise accounts being shut down -- bars, restaurants, concert halls. Grocery stores and retailers are able to opt out of taking back cans and bottles for deposit for an interim period. Looks like some issues with [bottled] water supply chain later this week due to heavy sales and low forecast. Some concerns from our [drivers] wondering if it’s safe to go into outlets. Schools shutting down. What does that do for childcare and does this affect our employees’ ability to work?”
BOTTLER 3. “Volatility continues to dominate each day. We are continuing to operate and will continue to evaluate any adverse circumstances at each sales center and with each individual team member. We are working with impacted customers and venues who are adjusting or suspending operations or services. Our message continues to be to stay calm, do not panic, use common sense and be prudent in decision making while focusing on safety and security of the teams. Consumers trust and believe in packaged beverages and we must continue to earn that trust in these uncertain times.”
BOTTLER 4. “Volume is through the roof; maybe temporary. Everyone possible is working out of their homes. All who enter our facilities will have their temperature checked. Conference call with team members multiple times per day.”
BOTTLER 5. “Still absolutely flat out producing and delivering. The good news is the federal government has extended our trucking time limits. Bad news is, getting enough raw materials and cans to produce.”
BOTTLER 6. “It’s changing pretty rapidly. Stores are stripped of everything as panic sets in. I don’t think anyone knows how soon it will slow down. Crazy!”
DATA. Nielsen results published by Morgan Stanley for the four-week period ending March 7 show early signs of the pantry loading bottlers have been telling BD about since early this month. Bottled water dollar sales were up almost +15%, compared to a two-year average of +8.3%. Sports drinks grew +3.3%, compared to a two-year average of +1.1%. Carbonated soft drinks, which grew by +1.3% in the 12 weeks ending March 7, accelerated to +2.5% in the four-week period to nearly match the two year average.
ABA Asks President Trump for Trucking Waiver, 'Essential Services' Exemption to Keep Goods Flowing.
The American Beverage Association sent a letter to President Trump today asking the federal government to "help our industry make sure that food, beverages and common grocery items are getting to our communities as timely and efficiently as possible." The ABA represents Coca-Cola, PepsiCo, Keurig Dr Pepper and a host of other non-alcoholic beverage manufacturers and distributors. The requests:
1. Essential Services Exemptions: Food and beverage manufacturing and distribution is an “essential service.” As such, companies and employees involved in the manufacture, distribution, delivery and stocking of food and beverage items must be exempted from any federal, state or local declaration of emergency, imposition of curfew or shelter in place restrictions.
2. Federal Action on Truck Weight Restrictions: Truck weight limits are historically governed by state law and lifted during emergencies on a state-by-state basis, but the current crisis demands nationwide action. Therefore, we ask for an Executive Order to temporarily waive state truck weight restrictions – or increase allowable truck weight to at least 90,000 pounds – for delivery of essential goods in response to COVID-19. There is an urgent need to deliver food, beverages, medical supplies and other goods to communities across America. A temporary federal emergency declaration lifting truck weight restrictions nationwide will help facilitate meeting this critical need.
3. Hours of Service Clarification: Earlier this week, the Federal Motor Carrier Safety Administration provided relief from Hours of Service regulations for commercial motor vehicle operations providing direct assistance supporting emergency relief efforts intended to meet immediate needs. The regulatory notice, however, created some ambiguity in referencing that it did not apply to “routine commercial deliveries.” We request that FMCSA clarify in writing that the restocking of grocery store shelves by delivery drivers is included in what constitutes direct assistance for supporting emergency relief efforts.
The full letter can be found here: https://aba-bigtree.s3.amazonaws.com/files/resources/aba-letter-to-the-president.pdf
Posted March 17, 2020
Walmart Grocery Pickup and Delivery Service Moves to "No-Contact" Service and Social Distancing.
Late today, the retail chain sent an email to registered users of its pick-up and delivery grocery services about new policies to keep consumers and employees safe. The email read in part:
"No-contact pickup & delivery
To help protect you and our associates during pickup, you may ask the associate to sign for the order on your behalf. This means you do not have to touch the associate’s keypad to accept your order. For delivery orders, drivers will practice social distancing when picking up your order at the store. The driver will stay in the car while the pickup associate loads the order into the driver’s vehicle. In addition, no-contact delivery to your home will be available next week. Through this option, you can authorize the driver to leave the order at your door, and you won’t need to sign on the driver’s phone to accept your order.
We’ve seen a significant increase in demand for products such as paper goods and cleaning supplies. As we work to replenish these items as fast as possible, we’ll limit the quantity that can be ordered to ensure as many customers as possible have access to these items. When we see items run out at the store, we’ll temporarily remove them from the website to ensure we’re accurately reflecting what is available.
To help ensure we can get you the items you ordered, we’ve shortened the time frame you can order ahead to two days (i.e., today and tomorrow). If your nearby Walmart does not have available times to place an order, please continue to check back with us—new time slots open up every morning.
Order delays & cancellations
Due to high demand, our pickup & delivery service may experience order delays, cancellations, or higher wait times during pickup. We’ll stay in contact with you over email, text message, website, and mobile app to alert you of any potential delays or increased wait times at your store. We ask that you provide your phone number during checkout to ensure that you receive important updates about your order. In addition, we recommend that you use the mobile app to check-in on your way to the store and enter your parking spot number once you arrive. This will help reduce wait times for everyone."
Posted March 16, 2020
Key headlines related to food and beverage:
McDonald's is closing its dining rooms.
Amazon was having trouble this weekend keeping up surging demand for grocery delivery.
President Trump on grocery hoarding.
Open Table sees "sharp decline" in restaurant dining.
"As of Saturday, diners in the United States were down more than 40 percent year-over-year. Locations where diners were hit hardest, including Seattle, New York and Boston, were down more than 60 percent, followed by 58 percent in San Francisco, 49 percent in Chicago and 47 percent in Los Angeles."
Bloomberg notes that single-use plastics activists will suffer a setback with the virus, which "plays right into the industry's strong suits: disposability and hyiene."
Starbucks closing some cafes, others will be drive-thru and carry out only for two weeks at least.
Solid analysis illustrating why decisions related to shut downs are critical.
Buffett joked about drinking more Coke to stave off the virus.
Unfortunately, his daughter is now in quarantine.
Posted March 13, 2020
Coke Sends Most Atlanta HQ Employees Home "Out of an Abundance of Caution."
Coke employees were told late Thursday that they would be asked to stay home. Below is a statement from Coke:
"The Coca-Cola Company has asked the vast majority of employees at the company’s Atlanta Office Campus (AOC) to work remotely, beginning March 16 and continuing through April 13. The change is being made out of an abundance of caution and is in line with recommendations to reduce large gatherings and increase social distancing. A very small number of employees are likely to continue working at the AOC during this time. Those who hold roles that require them to be onsite will be able to work in an environment with fewer people and in a way that keeps the campus healthy and safe. The company intends to return to normal operations on April 13 but will continue to reevaluate its plans. There are no confirmed cases of COVID-19 at the AOC."
Report: Coke Canada Plant Stopped Some Production After Officer Worker Diagnosed
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-- Some manufacturing at Brampton plant was halted Wednesday after office worker tested positive for COVID-19.
-- Portions of plant disinfected.
-- Was to reopen Thursday.
-- A $20 million investment in the plant was announced last year to produce 250-ml (8.45-oz) PET mini bottles for Coca-Cola, Coke Zero Sugar, Diet Coke and Sprite.
Report: PepsiCo Closed and Reopened Downtown Chicago Office to Investigate Possible Threat.
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-- Office in Chicago Loop closed Wednesday after employee may have been exposed to virus outside office.
-- The concern was later resolved and the worker showed no sign of illness.
-- The building, which also houses Gatorade and Tropicana offices, was reopened yesterday.
Posted March 12, 2020
Fanless Games and the Impact on Brand Sponsorships
(Update: The NCAA has since cancelled all men's and women's basketball tournament games.)
The NCAA will host March Madness college basketball games without fans in attendance. So what does that mean for event sponsorships by consumer product brands?
According to USA Today, the men's Division I Tournament attracts hundreds of thousands of fans and generates almost $900 million in television and marketing rights from companies including Coca-Cola (and its Powerade sports drink brand). Coke sponsors the tournament's Final Four crescendo, which is scheduled this year in Atlanta (Coke headquarters) from April 3-6. Coke renewed its long-term deal with the NCAA in 2013.
While a Coke spokeswoman declined to discuss specifics of the rapidly evolving situation, she provided a statement:
"As a sponsor of the NCAA, we fully respect the NCAA President’s decision to conduct the upcoming tournament events with only essential staff and limited family attendance. We know this will be disappointing to fans, but we also know the decision was made with basketball fans’ best interests at heart, and it is what they feel is best for the host communities. We will all continue to cheer for the teams, their families and their schools throughout the tournament."
Looking outside of Coca-Cola for insight, here's a synopsis of what one knowledgeable beverage executive told BD about the effects of a fanless March Madness tournament when it comes to sponsorships by consumer brands:
Activation -- Without crowds, sampling programs in and around the 14 participating tournament arenas will be hurt. (Here's an example of how Coke activates around a Final Four weekend.) At groceries and other retail outlets, increased foot traffic could be a plus as people stock up on provisions for the outbreak. This means more eyeballs for in-store displays and other brand activation tied to March Madness.
Television -- The curiosity of a college basketball game in an empty arena with almost no spectators could boost television viewership, which means more eyeballs on brand messages. Also, sponsor signage in March Madness arenas may stand out more on television in an empty arena. Flipping the coin, losing the thrill and energy of a rabid fan-filled arena will be a downer for players and attending sponsors.
Local Economy -- Hardest hit will be the venues, which won't reap the usual food, beverage and souvenir sales. Local hotels, transportation providers and restaurants will be hurt as well.
Of course, the situation for sponsors may get worse. The NBA has suspended games after a player was diagnosed with COVID-19. That increases pressure for the NCAA to postpone its marquis basketball tournament.
Posted March 11, 2020
Relief for Quarantined Workers from McDoanld's, Walmart
Both McDonald's and Walmart will pay quarantined workers for up to 14 days to encourage them to stay home without suffering financial hardship. The companies are two of the largest customers of Coke, PepsiCo and Keurig Dr Pepper.
See more here from Nation's Restaurant News.
Survey Finds Evidence of Consumer Stock-Up on Beverages
This morning, analysts at Consumer Edge Research released the results of a household consumer study assessing "US impacts from the tragic COVID-19 outbreak." The survey of about 500 consumers was conducted March 6-9. The findings, according to the analysts:
"1) The majority of consumers are concerned about their personal health due to the coronavirus.
2) There’s more significant impacts on leisure travel sentiment than that of business travel & there’s a correlation between them.
3) Consumers are spending less time attending events and more time consuming media indoors.
4) There’s intent to stockpile cleaning supplies, frozen foods, canned goods, and beverages with underperformance for protein supplements.
5) Overall, consumers are planning to spend more on everyday items due to COVID-19."
The analysts said the survey backs up their view that consumers will stock up on items including beverages, with roughly half of respondents saying they will purchase more drinks such as soda and bottled water due to the coronavirus.
Posted March 10, 2020
Bottler Reaction -- "Let’s pray the world calms down and solves it smartly.”
In an informal survey by BD, Coca-Cola, PepsiCo and independent bottlers in the US reported few negative impacts to their businesses so far from the reaction to the coronavirus. Comments ranged from “minor impacts” to “no major disruptions.” Looking ahead, there was rising concern about a potential slowdown in consumer traffic at restaurants, events and tourist destinations, which generate important and often higher-margin beverage consumption.
By and large, bottlers reported paying close attention to employee safety while monitoring the situation. Concern was low so far related to supply chain disruption for manufacturing operations. BD has agreed not to identify the bottlers to allow them to provide more candid responses.
“Let’s pray the world calms down and solves it smartly.”
“No major change at this time. It will be a trickle-down effect. Once airlines and cruise ships start slowing down, then we will feel the effect. Same goes for movie theaters, sporting events and restaurants.”
“It’s too early to grasp the impact of COVID-19 on our business.”
“A lot of concerns.”
“Thankfully as of now, we’ve seen little impact.”
“These days we all wake up in a new world every day, so not sure what tomorrow will hold. But as for now it’s business as usual.”
Bottled Water Surge. Out-of-Stocks to Come?
Several bottlers from the US Coca-Cola and PepsiCo systems told BD that consumers are now stocking up on water, sports drinks and other hydration beverages as reaction to COVID-19 intensified in the US. One Pepsi system bottler said they were “struggling to keep up with demand” and expected out of stocks within their organization for Aquafina by mid-March. Another bottler noted that Walmart is buying up as much case pack water (generally 24-packs) as possible. The same bottler predicted that the market “will get close” to retail out-of-stocks at the current rate. An independent distributor noted “panic buying.”
One bottler is wading through a web of insurance related questions after a driver reported he may have been exposed to the coronavirus by his wife, a medical worker. If the worker has to be quarantined for 14 days, does he get paid? When other workers find out the driver was exposed, will they ask to stay home or be forced to go into quarantine because they spent time near the driver? Will business disruption insurance cover the quarantined workers’ wages? Will the company’s health insurance plan cover testing and treatment costs for any diagnosed workers, many of whom live paycheck to paycheck? Aside from all the troublesome questions, the bottler said it’s still too early to know what impact COVID-19 will have on the business, adding, “There’s nothing like jumping into the unknown.”
As first reported by the Atlanta Journal-Constitution, Coca-Cola today is conducting what a spokeswoman called a “large-scale preparedness drill” at the company’s downtown Atlanta headquarters. All HQ employees were asked to work remotely on Tuesday only to test the company’s business continuity plans. “We do not have any cases of COVID-19 (coronavirus) at our headquarters,” the spokeswoman said. “This is simply an exercise to assess our preparedness” (emphasis added by Coke).
PepsiCo – “The direct risk to our supply chain is very low.”
That’s the word from PepsiCo Beverages North America Chief Strategy & Transformation Officer Jim Lee late last week in a note to bottlers in the US and Canada. Lee said the assessment is based on the “poor survivability” of the virus on surfaces or dry environments. He added that “the risk of transmission via ingredients is also very low” because transmission outside of person-to-person “is not typical.” At the time of his note, Lee said PBNA had “ample inventory” of goods needed for franchise bottler manufacturing. He also noted that PepsiCo had activated a “cross-functional task force to address the outbreak globally,” drawing on resources including the World Health Organization and the Centers for Disease control.
Analyst View – Beverage Stocks Exposed
“Beverage stocks are generally more vulnerable than food stocks to the potential negative impacts from coronavirus around the world,” wrote Guggenheim Securities analysts, led by Laurent Grandet, in a research report this morning entitled, “ Coronavirus (Part 2) – The World Upside Down.”
1) US Beverage stocks have a greater exposure to on-premise channels including restaurants, which consumers are increasingly likely to avoid or be barred from as fear of contagion deepens;
2) Beverages are more driven by impulse buying, which will suffer as people choose to spend less time out of the home, and;
3) Public beverage companies, more so than food companies, have larger global footprints, so they “will generally be negatively impacted for longer” as the virus ripples across the globe with peaks that vary by market, the analysts wrote.
“Embedded in our estimates is the assumption that China has passed its peak, the rest of Asia, Europe, and the Middle East will peak in mid-March, with the US and Canada roughly two weeks behind Europe,” the analysts wrote.
The on-premise risk is more pronounced for Coca-Cola than for PepsiCo, the analysts estimated. According to Beverage Digest estimates (Fact Book, 24th Edition), Coke’s share of the US fountain market for carbonated soft drinks (CSDs) is about 70%. US fountain accounts for more than a quarter of CSD volume in the US. Since 1989, the fountain channel has grown faster than the total category.
According to a consumer survey taken on March 2 by Technomic:
-- 66% of consumers are “closely following” news of the coronavirus. For comparison, 45% are closely following the Democratic primary for US president.
-- 42% of Americans believe COVID-19 is a threat to themselves or their families. 58% say it is not a threat or that they are unsure.
-- 32% of consumers say they will leave the house less often. Separately, 32% say they won’t eat at restaurants as often. And 31% in yet another question said they will not order food away from home as frequently.
-- Of the 32% of consumers who will eat at restaurants less frequently, 31% believe this will last for 1-3 months.
-- The shift away from restaurants could benefit groceries as consumers stock up on the food they need during the crisis.
Analyst View – Potential Winners and Losers
In a note published on March 5, analysts at Credit Suisse led by Kaumil Gajrawala offered “six factors to watch as COVID-19 spreads.” Put another way, this is a list of potential winners and losers for industries including beverages:
1. Domestic Exposure: CS expects US economy to be less impacted than other markets. Int’l sales [as a % of total revenue]: Colgate (70-75%); Coke (60-65%); Procter (~60%); PepsiCo (40-45%).
2. Localized Supply Chain: Monster, Coke first to call out strained China suppliers. Most Staples cos. use local manufacturing providing a relative benefit vs. other sectors.
3. Health & Hygiene Exposure: Clorox (wipes 9% of business), Colgate (soaps ~HSD%), Procter & Gamble (tissue, cleaning, OTC medication ~HSD%) all beneficiaries.
4. Travel/ Travel Retail Risk: P&G’s prestige beauty risk (SK-II $2bn revenue, Olay 80% of sales in US & China) as travel/travel retail slows.
5. “At-Home” Consumption: If consumers limit going out/eating out: Reynolds foil, Snacks, Soda benefit; On-premise risk for Boston Beer, MillerCoors and Constellation.
6. Pantry Loading: Warehouse clubs expecting pantry-loading– BellRing’s Premier Protein (60% sold through club channel), PepsiCo’s Frito-Lay beneficiaries.
Tracking the Outbreaks
BD is using several websites to track the spread of the COVID-19 virus and keep the crisis in context. We link to them here for your reference:
Global COVID-19 case tracker with running totals and a heat map of all known outbreaks.
As of March 10 at 12:30p eastern time, there had been 116,335 confirmed cases. Of those, 4,090 people had died and 64,391 people had recovered.(Produced by the Center for Science and Engineering at Johns Hopkins University.)
Coronavirus case tracker presented in charts and tables, revealing interesting differences from country to country. For example, as of March 10 Italy and South Korea had a similar number of cases – almost 9,200 and about 7,500 respectively. However, the death rate in Italy has exceeded 460 while the death rate in South Korea is 58. The reason isn’t what one might expect. According to Bloomberg News, South Korea has tested far more aggressively than has Italy. And those tests may be far more sensitive in picking up infections than tests used in other countries, according to Dr. Roger Seheult on the website MedCram.com (see below).
(Produced by the website Worldometer, whose developers say they are a team of international developers, researchers and volunteers.)
List of conferences cancelled as of March 4, as compiled by AdAge.
At this website called MedCram, pulmonary specialist and University of California Associate Clinical Professor Dr Roger Seheult gives the clearest explanation we’ve seen of how COVID-19 and coronaviruses in general work to attack the lungs.
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