The Business of Beverages, Part 2

SCHAUMBURG, Ill. -- When it comes to winning in the beer category, retailers often take one of two approaches: focus on craft or focus on the core. And neither one is the right approach.

A balanced strategy is the most successful, Dean Zurliene, senior director of category management for small format at Anheuser-Busch, told attendees of the Convenience Store News 2014 Beverage & Beer Retailing Summit, held June 5-6 at the Renaissance Schaumburg Hotel and Convention Center.

"A good beer store is typically a good beer store across all segments: craft, import, premium, value and [flavored malt beverages]," he explained. "If you don't have the right assortment in one segment, you can affect another."

To drive this point home, Zurliene noted that a customer who buys a six-pack of craft beer also buys a 30-pack of value beer.

"Assortment is key because people like variety," he said. "But there is a tipping point and the key is finding that tipping point."

The premium segment still holds reign over the beer category and more often than not, if a store does well in premium, it probably does well with craft beer and imports.

While beer delivers lower margins than other products -- only cigarettes have a lower margin inside the store -- the category is up almost 5 percent in the convenience channel nationally, Zurliene stated. Beer, on average, typically represents 10 percent of inside space and 14 percent of in-store revenue.

In addition to assortment, cold beer is the rule of thumb for convenience stores. Ninety-two percent of all beer in a convenience store is sold cold, according to the Anheuser-Busch executive.

"Convenience and cold are two of the things you have to do right," he stressed.

COMPETITION HEATS UP

With other retail channels moving into the "convenience" territory, c-store retailers have to up their game to stay a step ahead.

According to The NPD Group's Warren Solochek, vice president of business development, foodservice, approximately 50 percent of the population hasn't visited a c-store in the last year. On the upside, this leaves retailers with a lot of potential to get new people into their stores.

"You as operators have to tap into new sources of growth," he said.

There are currently two types of c-stores: the "haves," which offer a diverse, sophisticated merchandise mix and engage in multiple foodservice occasions; and the "have nots," which are gasoline dependent and have minimal foodservice capability and willingness.  The "haves" are going to survive, said Solochek.

Beverages make up the most important part of the foodservice menu mix, with NPD data showing they are included in approximately three-quarters of all quick-service restaurant (QSR) meal/snack occasions.

Notably, c-stores have increased beverage servings over the long term, while beverage incidence and servings have declined at traditional QSRs. Beverage variety is also generally better developed at c-stores.

Convenience stores can effectively compete with QSRs by capitalizing on the convenience they offer and focusing on the top-growing foods in the c-store market, which are different from the top-growing foods for QSRs. These include salty snacks, breakfast sandwiches and pizza. Combos or bundled offers are other key c-store tools for boosting order size and the average check.

THE WEATHER FACTOR

Weather conditions are a primary driver of consumer needs and buying decisions, but they also create risks, opportunities and disruptions, said Eric Symon, senior vice president of Planalytics Inc.

It's important for c-store operators to "weatherize" themselves and understand the impact weather can have on a store's performance, while leveraging weather opportunities to increase sales and customer engagement, he noted.

Because favorable weather in some markets can balance unfavorable weather in others, its impact can go unnoticed at the headquarters level, according to Symon. On a store level, operators should be aware that individual serving sizes are more sensitive to weather changes than bulk sizes. Water, soft drinks and sports drinks are the most sensitive segments; juices and energy drinks are least sensitive.

Although temperature does make a difference in beverage sales, very high or very low temperatures don't necessarily mean a sharp change in sales will result. "Extreme" temperatures are based on what a region is accustomed to.

Still, at a market/week level, demand swings due to weather can range from plus or minus 40 percent to 60 percent or more, and swings in demand pre-, during and post-major weather events can reach into the positive or negative triple digits.

For more insights from the Convenience Store News 2014 Beverage & Beer Retailing Summit, click here for Part 1 of our event coverage.

The Beverage & Beer Retailing Summit was sponsored by Anheuser-Busch, Red Bull North America, WhiteWave Foods, Grindmaster-Cecilware, Nestle Waters North America and Sparkling ICE.