Slurping Toward an Economic RecoveryDuane Stanford
Here's a little sugar buzz for the American economy: Impulse purchases of sodas and Hershey (HSY) bars have finally started to swing upward at U.S. convenience stores after a dismal performance in 2009.
PepsiCo (PEP) and Coca-Cola (KO) say the decline in sales at convenience stores slowed last quarter for the first time in at least a year. Hershey's (HSY) first-quarter chocolate, mint, and gum sales in those stores grew about 6 percent. "We're definitely seeing improving trends," says Dennis Phelps, senior director of beverages for 7-Eleven, the world's largest convenience retailer. Sales (excluding cigarettes) at U.S. convenience stores rose 0.5 percent in March after a 1.3 percent decline during the previous 52 weeks, according to Consumer Edge Research.
The uptick in junk food consumption may not thrill nutritionists, but it's further confirmation of a rebound in consumer spending. U.S. retail sales increased 1.6 percent in March, more than anticipated by economists and the biggest gain in four months, according to Commerce Dept. figures. Meanwhile, the Conference Board's consumer confidence index jumped to 57.9 in April, the highest level since September 2008.
All this is lifting the outlook for food companies. "We really saw volume in convenience return in a big way," Hershey Chief Executive Officer David J. West said on an Apr. 22 conference call. Half of convenience store purchases are on impulse, he said. Convenience stores accounted for 13 percent, or about $590 million, of the $4.5 billion in U.S. sales Hershey raked in last year. "Encouraging" sales of beverages at U.S. convenience stores continued into the second quarter, Eric J. Foss, head of PepsiCo's bottling unit, said on Apr. 22. Coca-Cola also saw slight improvement at convenience stores, says Dana Bolden, a spokesman for the Atlanta-based company.
In April, packaged beverages "will probably have one of the best months we've had in over a year," says 7-Eleven's Phelps. "There's no question about it, we're seeing better sales," adds Mike Thornbrugh, a spokesman for closely held QuikTrip, the Tulsa-based operator of 548 convenience stores. "It's not as much as we'd like, but they're still spending."
Snacks, too, showed signs of recovery in the first quarter, says John Compton, CEO of PepsiCo Americas Foods (PAF) , an arm of Purchase (N.Y.)-based PepsiCo, the world's biggest snack maker. "I would characterize it as improving," he said during the call. "It has a ways to go as the unemployment numbers need to improve."
The bottom line: It will take more than a spike in Snicker sales to pull off a consumer recovery. Still, this is encouraging data.