Millennials are the No. 1 consumers of craft beers, much to the delight of convenience stores that are growing their adult beverage business through specialty ale sales.
By David Bennett, Senior Editor
North Carolina’s capital city of Raleigh might have remained a beer backwater had it not been for the grassroots lobbying group Pop the Cap. Pop the Cap in 2005 helped repeal an old North Carolina law setting a limit of 6% on the alcohol content of beer, opening the door to a fledgling craft beer market.
Fast forward nine years to Richard Shortt, retail sales operation manager at Durham, N.C.-based Erwin Oil Co. Inc., who has put great stock into the Belgian ales, hoppy IPAs and malty dopplebocks that adorn the company’s newest convenience store in Raleigh. Called the Bull Market, the 3,000-square-foot-prototype that opened May 2013 has been a showplace for the company’s expanding craft beer program.
Inspired by demand from Millennials, the Durham, N.C.-based c-store company has seen craft beer sales increase significantly in its eight stores, including three target locations in Raleigh and Durham where craft beer has taken center stage. To date, craft beer accounts for 24% of overall adult beverage sales at the Bull Market, and the percentage continues to grow.
“We have some craft offerings in all of the stores, but we have gone very aggressively into those three and have between 120-160 SKUs,” Shortt said.
Erwin Oil, which has another Bull Market opening this fall, is expanding the number of c-stores bolstering their adult beverage segments with craft beer and good wine. In the U.S., craft beer has experienced a surge in demand in the past four years—and despite the higher pricing—growth rates for craft beers like Kona, Redhook and Samuel Adams are much greater than domestics or imports.
At the head of the buying line are white male Millennials. In fact, a sweet spot for craft beer consumers is the 25-34-year-old demographic, according to a 2013 research study conducted by research firm Mintel. Overall, 36% of U.S. consumers reported to have consumed craft beer, while the figure grew to 50% for Millennials.
Craft beers now enjoy solid distribution in grocery stores and liquor stores; they’re less available in convenience stores and gas stations, which lack the space to accommodate a large variety. Shortt said while floor space is always at a premium, the Bull Market was designed to accommodate its impressive array of craft brews, including a variety requiring no refrigeration.
“One of the things we had to get out of our mind in this industry, is that beer needs to be cold,” Shortt said. “As we were walking around bottle shops and looking at other craft ventures, we realized most of them are room temperature, so why couldn’t we do that as we do with wine. We couldn’t afford to get into this and change all of our cooler doors, so we started building 12-16 feet of linear gondola sections. Then we put in the popular craft—what I call the gateway crafts: Samuel Adams, Blue Moon and Sierra Nevada—and everything else would be on the sales floor at room temperature.”
The mid-year report released by the Brewers Association reported that American craft-beer-production volume has increased by 18% for the first half of 2014. Approximately 10.6 million barrels of craft beer were sold during the past six months, up from approximately nine million barrels from the first half of 2013. A big driver is Millennial consumers.
A new study from Mintel suggests that while craft beer drinkers may indeed love the big, bold flavors of their favorite artisanal brew, they also place a premium on what the beer says about them. Amongst the 25-34 age group, representing the segment’s heaviest users, 70% say that the brand of beer says a lot about the individual.
This strong consumer preference has spurred record sales for the craft beer industry, as Mintel estimated sales of craft beer will reach $20 billion in 2014, doubling sales of five years ago.
The sustained growth of the craft subcategory reflects Millennials’ demand for fuller-flavored beer in a variety of styles, said Jonny Forsyth, Mintel’s global drinks analyst.
“They’re very much an experimental generation,” Forsyth said. “They constantly want the surprise, to have new types of beer styles, new types of beer flavors.”
Forsyth said younger customers are breaking away from conventional brands and will sometimes shun larger brands so they can express their individuality. Not surprising, this consumer sect is using social media to communicate their preferences.
“Social media allows a fragmented industry like craft beer to do well,” Forsyth said. “With the current Millennial generation, it’s all about standing out, being a little bit cooler, a little bit more authentic and actually drinking something that not everyone is drinking, or not everyone has heard of. That’s actually much cooler for this generation than it would have been before, so I think social media is helping propel that trend.”
Forsyth suggested that retailers should be experimental and reserve some space for craft product that is “going to surprise” and thus resonate with Millennial-age customers.
Just as craft beer has piqued the interest among younger consumers, so has wine.“In terms of penetration, Millennials are drinking more wine than older consumers,” Forsyth said, especially sweeter red blends and whites like Moscato.
Retailers investing in the craft beer trend are ensuring that stores are stocked adequately and with variety. They are also using these selling opportunities to cross promote beer with other in-store merchandise, such as salty snacks.
To entice newer customers, Erwin Oil’s Bull Market store has been sponsoring regular tasting events, highlighting such local breweries as Lonerider Brewing Co., Big Boss Brewing Co. and Aviator Brewing Co. in the nearby city of Fuquay Varina, Shortt said.
Such events have enabled Shortt to determine what beer brands best resonate with patrons.
In terms of craft beer offerings, other c-stores are going more with their gut.
Speedee Mart Inc., based in Henderson, Nev., operates 20 stores in the metropolitan area known as Las Vegas Valley. After examining various sites where customers were likely to be receptive to craft beer offerings, Paul Orluske, vice president of store operations, four years ago chose 10 locations as likely sites to launch a craft beer program with measured success.
Currently, craft beer accounts for 15% of overall adult beverage sales at Speedee Mart, and “by the end of the year, I would like to get to 20%,” Orluske said. The c-store is working with Nevada-based breweries to stock local favorites, but is seeing strong sales from San Diego brewed beers. The result is a wider selection that competing stores don’t come close to offering, Orluske said.
“I look at trends and I stay up on it,” Orluske said. “I look at my scan data, and almost daily, you see trends on what people are drinking. I would say 60% of my mix is West Coast IPAs. That’s what customers prefer now.”
Whether it’s a beer brewed in Reno, or a specialty from Seattle, the amount of trial and error to determine what customers will purchase is lessened to a degree through wholesale vendors that work with Orluske. By monitoring customer purchasing habits, the c-store can ensure that unpopular brands don’t languish on the shelf for long.
However, Speedee Mart has found that popular craft brews bring a premium price, adding to overall profit margins.
“There are not a lot of segments that are growing in our business and this is one, and it happens to be one that I’m pretty passionate about,” Orluske said.