BONUS CONTENT: Managing Changing Consumer Tastes vs. Space
JERSEY CITY, N.J. — Consumers' tastes are ever-changing and that affects every category inside a convenience store, including the beer category. But how is a convenience store retailer supposed to navigate the changing tides when they have limited space in their cooler or beer cave?
For answers, Convenience Store News checked in with Josh Halpern, vice president of small format at Anheuser-Busch InBev (A-B), and Nuno Teles, chief marketing officer at Heineken USA, for a question-and-answer session on what's happening with consumers and beer, and how the convenience channel can best manage the business.
CSNews: What consumer trends are impacting your development of new alcoholic beverage products for the coming year?
Halpern: The trends we are seeing are consistent with last year — those that are driving the categories on the other side of the vault. Consumers are changing what they drink every day with an expansive consideration set; however, following their non-alcoholic purchase habits has delivered some of the largest alcohol beverage trends. Consider the sweet trend, which brought a slightly sweeter alternative to light beer in Bud Light Platinum, the Lime-A-Rita Family, and Daily's Pouches. Not to mention the resurgence of ginger ale, which brought us the Moscow Mule trend, as well as ginger beer hard sodas. Not only are flavors a key driver, but shoppers are craving items that have greater functionality, like aluminum bottles, to best satisfy their occasion/need state.
Teles: 1. Well-being: Consumers are looking to enjoy their beer as a part of a healthy, balanced lifestyle. 2. Innovation on-premise: Brands are discovered and built on-premise where consumers often get their first exposure to innovative new products; this forum is trending. 3. Premiumization: Premium beer continues to grow. Import beers, like Heineken, Heineken Light, Dos Equis, Tecate and Tecate Light are driving much of this growth. 4. The "Mexification" of America: The prevalence of Latino-Hispanic culture continues to grow and is influencing areas such as music, sports, film, fashion, and drink choices. 5. Flavor Promiscuity: More flavors create more trial, leading to greater loyalty from consumers.
CSNews: Is there a right product mix for convenience store retailers to carry so they do not alienate one buying group in favor of another (i.e., millennials vs. boomers)?
Halpern: Understanding the differences in consumers will help retailers know where to focus their time and energy in appealing to their core consumer. However, regardless of the format, the key is to have a balanced portfolio approach, which A-B has preached for almost five years. If you have the right mix of value, core, high-end, and near-beer brands, based on your customer base, you can please everyone. Considering loyalty, exclusivity and the shopper's decision tree within the convenience channel will help properly allocate space across all segments, without SKU proliferation causing confusion for the consumer.
Teles: The key issue is how to deal with the proliferation of SKUs. It’s all about efficient assortment —putting the right products in the right stores to meet the needs of shoppers. Millennials are more experimental (with craft, imports, flavors) so there may not be space to satisfy their promiscuity. Boomers tend to be more brand loyal to either an import or a domestic, and they tend to skew to light beer. Both have similar reasons for shopping a c-store: convenience and availability.
CSNews: Is there a one-size-fits-all way to manage the beer category?
Halpern: There's not. There are different regional trends when it comes to consumer preferences, segment/brand performance, and craft penetration. There are also dramatic differences in how the c-store shopper utilizes the channel between urban and non-urban, but also even between neighborhood stores and highway stores.
Teles: The short answer is, no. Heineken USA has spent the past year redefining our channel strategy because we know retailers do not want a one-size-fits-all approach. By segmenting our channels down to the regional level, we can offer a more targeted approach to assortment, pricing, shelving, programming, and more. Continuing to follow this customer centricity model in 2017 will be critical given the fragmentation of the category and the regional differences in consumer preference. For c-store retailers, the absolute first step is aligning on a joint business plan.
CSNews: Do you have any advice for retailers who are limited to a physically smaller space but want to refresh their product mix while still offering longtime brand stalwarts?
Halpern: Living by the balanced portfolio approach is critical to success, especially in smaller stores. Data shows that at all store sizes within convenience, SKU density decreases by 13 percent on average in top-performing stores. My advice would be figure out what "stalwarts," as you put it, account for 80 percent to 90 percent of total sales, and planogram them first with the right days of supply. Once the base is covered, you can take risks with the remainder of the planogram. Most beer sets have a fairly long tail.
Teles: Retailers are investing in ways to reinvent many of their categories, particularly the look and feel in regards to space, lighting, assortment, signage, education in-aisle, and more. Doing so can greatly enhance the shopping experience. Space limitation reinforces the rationale for supporting better-known imports and domestics. These should be positioned in the highest traffic area of the beer section. Shelf inventory maintenance, data-driven schematics, and impactful merchandising — including pricing — can optimize even the smallest space.
CSNews: How willing should c-stores be to try new things like create-your-own six packs or growler stations?
Halpern: We are big believers in piloting, and there's no reason why these shouldn't be trialed. However, these two are tough. There is something to be said about new promotional approaches in pricing and programming. We have seen significant success in testing new promotional pricing techniques based on behavior economics studies that consumers find value in "deals." The effectiveness of a price or promotion is more about the perceived value.
Teles: Satisfy consumer demand. Stock what area consumers are buying. To us, this means supporting imports for their consistent growth and profit story, stocking domestics for mainstream demand and perhaps experimenting cautiously with local craft. Create-your-own six-packs and growlers appear to be more suitable for local craft and flavored beer.
Editor's note: Look in the February issue of Convenience Store News for more on managing the beverage business, including additional insights from Halpern and Teles on the beer category. A digital edition can be accessed by clicking here.