99 Beers And Counting

C-store retailers are getting crafty with microbrews

Nearly 80 percent of convenience stores fortify their bottom line by selling suds. Household brands such as Budweiser and Coors dominate market share and shelf space, but craft beers and microbrews are popping up in coolers with greater frequency across the nation, satiating the pallets of aficionados looking to elevate their taste experiences.

"More and more consumers are turning their attention to micro-brews and craft beers; as a result, we are seeing continued growth month to month," said Bob Pulley, senior category manager for Cary, N.C.based The Pantry Inc., which operates 1,650 locations in the Southeast.

According to the Brewer's Association, the retail dollar value for craft brews in 2010 was an estimated $7.6 billion, up from $7 billion in 2009. Sales share was 4.9 percent by volume and 7.6 percent by dollars, while domestic and imported beer showed some weakness.

"In an overall beer category that is flat to slightly down, craft beer is the only category that is growing in volume and dollars," said Jim Koch, founder, brewer and chairman of the Boston Beer Co., which produces Samuel Adams. "It's on everyone's radar screen. Retailers, particularly convenience stores, are saying: 'How can I take advantage of this?"'

Beer Business Daily reported that Coors Light and Budweiser are in an almost dead heat with sales at 8.5 percent and 8.7 percent, respectively. Miller Lite follows at 7.5 percent while Bud Light leads the pack at 19.1 percent. While these numbers are solid, America's big brew houses recognize the value specialty beers offer, explained Craig Morris, director of chain and customer solutions for Tenth & Blake, a subsidiary of MillerCoors Inc.

"Despite some significant economic conditions, the craft segment has actually continued its acceleration. There is currently an exploration mindset with consumers, and more varieties being offered by brewers so by default the numbers will rise," Morris said, adding that the company's flagship craft beer is Blue Moon. "We continue to see very positive trends."

MANAGING GROWTH

Today, more than 1,500 craft breweries are in operation, a significant increase since 1980 when only about 80 were viable. As the craft brewery landscape has evolved, so has the country's convenience store landscape, Koch noted.

"Over the last 27 years, I have traveled all over this country and visited thousands of convenience stores, bars and restaurants. You really can't understand a dynamic market like this unless you're on the road," he said. "I've watched the c-store channel evolve into a place where craft beer can be successful. Fifteen years ago, that wasn't true. Back then, we were only in a handful of c-stores. Now, most c-stores can be successful carrying Sam Adams or multiple craft beers."

As the category continues to grow, the issue of shelf space is becoming problematic for many c-store operators — a Catch-22 of sorts as demand is increasing — yet in-store cooler real estate remains at a premium.

"There is a challenge for c-store operators because [they have] a limited number of SKUs available," said Benjamin Steinman, publisher of Beer Marketer's Insights. "One of the principal characteristics of the emerging craft beer consumer is that they crave variety and want to try something new all the time."

Over the last five years, craft beer has realized a double-digit sales gain in three of those years, and 2011 is expected to be its fourth. Conversely, Beer Marketer's Insights reported that if traditional beer shipments are down again in 2011, it will be the third consecutive year. The last time this happened was in the 1940s. For the craft segment, this could mean increasing its market share to nearly 10 percent in the coming years.

Kent Raphael, director of category management for Road Ranger, noted that customer interest in craft beers is driving this category in the 80-store chain serving the Midwest.

As a result, cooler planograms have changed. "We have expanded what we carry because there is a definite consumer demand for these products and while it is still a small category, it's on the rise" said Raphael. "People are either buying better or they are buying cheap."

Striking the right balance of product and placement in this category is a new skill set. Premium light beers still draw the biggest crowd, but well-placed craft beers and microbrews, which might only occupy two shelves or one cooler door in a bank of four, are becoming more common.

"The role of the convenience store remains the same to the core beer shopper: it is their primary beer destination. For the craft segment, you have to understand which national brands are the strongest and complement that with local craft beers where appropriate," said Morris of Tenth & Blake. "This is absolutely about having the right selection."

He further believes a c-store's merchandising philosophy and in-store execution should match up with the amount of time a beer consumer will spend in front of the cooler. "In this segment, you cannot be everything to everybody," he stressed.

The Pantry has been on an accelerated path to take advantage of this segment and is getting specific in the ways it approaches it. Pulley said sales increases in specialty beer have been across the board with higher rates for those stores located in tourist destinations.

As is the case with all products, there is a learning curve for both the retailer and the consumer. "The bigger companies like Sam Adams have sales forces and marketing [departments] that can help educate retailers and consumers, but the smaller brands do not have the marketing forces in place like these bigger companies," said Pulley. "[However];, consumers are savvier today and can tell the difference between a lager and a pale ale, for example."

MICROBREWS & MARKETING

While slight variances exist, craft beers and microbrews are often interchangeable terms.

Steinman, of Beer Marketer's Insights, said he sees them as the same since a microbrewer is essentially a smaller craft brewer and produces less than 15,000 barrels a year. "These companies will usually have a hard time getting into c-stores," he said. "With that said, a lot of these smaller brewers are growing rapidly and, in some cases, more rapidly then the larger, national craft brands."

The growth rate of smaller brewers is linked to their ability to capitalize on respective regional markets. On the c-store's part, due diligence is required to ascertain which beers should be selected for sale. This includes determining which tap beers are selling in local restaurants and bars, as well as obtaining statistics offered by beer distributors, Road Ranger's Raphael explained.

Each region will have its own local brand and some brands can't ship across state lines, according to Raphael. Touted as Chicago's craft beer, Road Ranger carries the Goose Island brand that includes labels 312 and Honker's Ale. "You can find Sam Adams or Sierra Nevada almost everywhere in the country. But you will not find Goose Island, which is brewed in Chicago," he said.

Pulley echoed this, explaining that The Pantry looks to the most popular brewers in terms of sales and interest before making the decision to carry a product. While most beers are given 30 to 90 days to prove sales performance, it can take longer.

"These products need time and room to grow, so we could wait four or more months to see how it is progressing," he said, adding that The Pantry has successfully partnered with Raleigh, N.C.-based Lone Star Brewing Co. "People are familiar with the brand, know the name and see it in the store. It's been working out pretty well for us."

For those consumers who have questions that can't be answered by reading the label, Road Ranger has in-store craft beer stations offering a wide range of information that is easily accessible. "With the help of the brewers and distributors, we provide brewers' notes [with] some of the details of the flavor, alcohol content, the brewer's name, how the product is made," and companion food suggestions to enhance the beer's flavors, said Raphael.

Looking at the category overall, interested consumers are no longer located in certain pockets such as the Northwest or along the East Coast. There has been a shift across the entire nation with more beer drinkers looking to c-stores to offer a greater variety of brews.

"This category is a national interest that is growing," Morris said. "The depth of the knowledge base may differ a little bit depending on how long a retailer has been involved, but we don't see one area growing and another area not growing. If the growth rate continues as it has the last few years, retailers should look at the craft segment as a great opportunity."