Craft beer sales are soaring but top quartile retailers are using a balanced approach to grow all segments.
By Erin Rigik, Senior Editor
Convenience store retailers are preparing for another year of fragmentation and changing dynamics in the beer category in 2015.
Beer across all retail channels is projected to end 2014 up 1% in dollars and 0.3% in volume, according to research firm Technomic’s database and industry tracking.
“The major domestic categories—regular domestic and light domestic—both continue to decline. Light beer slid just below the 50% share of total beer volume in 2013, which is notable,” said Donna Hood Crecca, senior director for Technomic Inc. “Growth categories are imported beer, craft, super-premium domestics and flavored malt beverage. Hard cider is also on strong upward trajectory, although remains a fairly small category. The dynamics of the beer industry are changing significantly as consumers gravitate toward more flavorful styles and labels with unique positioning.”
A July 2014 report from Mintel confirmed that craft beer consumption continues to soar. About 23% of respondents polled by Mintel reported drinking craft beer. That’s significant given that 53% of consumers over the age of 22 drink beer, and 30% of the sect consume only non-craft beer, according to Mintel.
As macro beer trends shift, so too does the dynamics of beer in c-stores.
“Some c-stores are tapping into the craft trend, including 7-Eleven, which offers seasonal local brews in some areas, and also Terrible Herbst, which offers a broad selection of crafts; A-Plus even offers growlers,” Hood said.
Tim Cote, vice president of marketing for Plaid Pantry, noted the increase in SKUs and brands within the beer category is not showing any signs of slow-down for 2015. “In fact, it may still be accelerating,” he said. “People say that the category is reaching maximum fragmentation and this will soon stop. They should walk down the wine aisle of a grocery store. The fragmentation of beer is just getting started.”
When it comes to flavor profiles, Cote sees Plaid Pantry customers looking to higher IBU (International Bitterness Unit) beer—a value-added characteristic that customers are willing to pay a premium price to get. Cote predicted that Indian Pale Ales (IPAs) and Imperial IPAs continue to lead the way. When it comes to seasonal beers, Cote is seeing strength in craft brewer produced lagers, kolsch beers and pilsners, “but only if they are priced less than IPAs.”
Plaid Pantry is a 109-store chain located in Beaverton, Ore. Its c-stores feature between 5-8 beer doors per store. Inside the beer doors, the craft beer selection is dominant—over 40% share—in most stores, although Cote noted it varies between neighborhoods.
CRAFT IS KING
“Craft and FMBs (flavored malt beverages) are clearly taking share from mass domestics,” Cote said. “We have been continually expanding single serve over the past couple years and will likely continue to do so. In an assortment-driven market singles allow us to expand assortment and a good margin.”
In addition to a significant consumer shift from premium beer to craft beer, Cote has seen an increased interest in flavored beer from customers.
“Within the craft segment there is definitely a trend toward 6/12 cans from bottles and toward smaller craft brewers and away from some of the longer-term larger craft brewers,” Cote said. “People are attracted to smaller company ownership stories and tend to shy away from craft beer they perceive to be owned by too big of a corporation. They want the beer they drink to be made by the people that have a stake in the company that produced it.”
But Plaid Pantry stores are also in the center of “the craft beer universe,” as Cote calls it. And craft beer doesn’t play as well in every region.
“The challenge for c-store retailers is assessing a craft beer’s appeal and potential velocity when deciding whether to add it to their shelf sets, and also determining if they need to reduce allocations to other brands or categories to allow craft beer placement,” Hood said. It’s also important to consider that the major domestics (regular and light beers) remain the most purchased beer categories, ranking tops with both male and female c-store shoppers, Hood noted.
As always, knowing your demographic is the key to success. While Plaid Pantry finds success in its market by focusing heavily on craft or using a more balanced approach, Cote explained that in other markets, balance is probably more important.
“And in still other markets, craft can play only a very small part in the mix with a strong focus placed on mass market domestics,” Cote said.
With so many more SKUs, Coted said it’s important to increase the frequency of resets to keep the beer offering on trend in a rapidly changing category.
BETTER AND BEST PRACTICES
Some simple best practices can help convenience stores better leverage their beer category.
In a recent event for the trade media, CJ Watson, vice president of small format sales for Anheuser-Busch noted that best practices for driving beer sales in convenience stores involve a balanced approach to beer across all segments and price points.
A key difference between top quartile and bottom quartile performers in the beer category at convenience stores is variety, Watson said.
“Being best in craft beer also means being best in value brands—you can’t succeed by only growing one segment,” Watson said. Top performing stores also have 3.2-feet more space dedicated to beer than bottom performers. And the “best” added three shelves out of five beer doors to premium options.
Watson outlined five areas where retailers can up their game. Basically:
1 Grow your singles offering. Some 46% of single-serve beer shoppers buy beer four plus days a week. To capture this customer, a good practice would be to drive the singles mix at your c-stores to 22%, a better practice would be to up it to 26% and a best practice would be to increase the singles mix to 30%.
2 Use two-fer programs to increase sales. Watson pointed out that top performers used clear and consistent signage.
3 Maximize use of displays. Top performers displayed cold singles in ice bins and implemented a minimum of three displays.
4 Focus on dayparting and ensure you are in stock on key items. For a rating of “best” Watson recommended a minimum of four days of supply in stock combined with a daypart strategy. Also, consider switching those ice bin beer offers over at 4 p.m. to accommodate the needs of the evening shopper.
5 Increase beer doors. More cooler doors devoted to beer equals more sales. The “best” performers had a minimum of five doors with 110 SKUs balanced across all segments and price points.
Craft Beer Sales Soaring
The Brewers Association, based in Bolder, Colo. in December 2014 released some statistics showing the growing reach of craft beer. Findings indicated:
• Craft brewers were the growth point in the overall beer industry. Through June of 2014, craft brewers enjoyed 18% growth by volume. Numerous data channels are showing continuing double-digit growth for craft in the second half of the year.
• India Pale Ales (IPAs) remained the most favored craft beer style. According to retail scan data, IPA is up 47% by volume and 49% by dollar sales, accounting for 21% volume share of craft and 23% dollar share of off-premise beer sales. Additionally, the style was the No. 1 entered category at the Great American Beer Festival.
•Variety packs had a strong year with craft beer lovers. Retail data also indicates that variety packs are up 21% by volume and 24% by dollar sales, equating to 9% volume share of craft and 7% dollar share.
• Craft beer appreciators are becoming as diverse as craft beer itself. Data indicates that 38% of households bought a craft beer in the last year versus 29% in 2010. Additionally, women consume almost 32% of craft beer volume, almost half of which comes from women ages 21-34. Hispanic populations are demonstrating increased craft engagement as well.
Figures are a compilation of data provided by the Brewers Association, Symphony IRI and Nielsen.