Dealing With Dud Suds

C-store industry beer sales are expected to be flat this year -- bad news for a category that saw sales increase just 0.3 percent (while unit sales fell 2.3 percent) last year, following a sales drop of 2.2 percent the year before, according to Convenience Store News and Nielsen Co. figures.

A modest increase in volume sales of 1.8 percent and a barely registering 0.03-percent bump in dollar sales is forecast for the c-store industry, which has retailers looking for ways to rejuvenate the iconic c-store category.

Though last year wasn't a "banner year, it wasn't a disaster" for a small Midwestern chain, according to its category manager, who didn't wish to be identified. Marketing at the state minimum price, the chain's beer sales outpaced industry trends, thanks in large part to the installation of beer caves in most of its stores in the last few years, he said. The beer caves contributed to better in-stock positions, as employees handle each item just once; inventory is available to the customer as it comes in; and space allocation to top brands and packages is less of an issue.

The category manager said several domestic brands, including Miller and Coors, are selling well. "Even with the slump in the economy, we concentrate on premium brands -- we haven't changed our strategy," he noted. "We thought last year would be a tough year, but the category performed better than we thought it would. I haven't seen the trade down to budget beers, as I have in other recessions."

He also noted new products buoyed the chain's beer sales. "We get those into the planogram as quickly as possible, instead of waiting to re-planogram on a set schedule. As national advertising hits, we try to have those in the stores."

Although late 2008 and most of 2009 saw few new product introductions, Budweiser's Select 55 and, before that, Budweiser's American Ale, sold well, he explained, adding the Select 55 and MillerCoors' MGD Light 64 played into his consumers' desire for lower-calorie brews. Some of the new Mike's Hard Lemonade Co. products also hit big for this retailer.

Industrywide, the c-store channel saw unit sales of super-premium brands fall 10.6 percent last year. Malt liquor dropped 4.3 percent; imports fell 6.5 percent; premium beer was off 4.7 percent; and popular brands showed a 1-percent loss, according to Nielsen figures. Bright spots were budget brands (unit sales were up 4.3 percent); flavored malt beverages (up 14.2 percent); and microbrews (up 10 percent).

"Consumers of premium domestics are trading down to lower-end value brands," noted Jeff Cioletti, editor-in-chief of Beverage World, who closely follows the beer industry. "Imports have always had pretty reliable growth, but they had a not-so-great year. Sales are off and there is trading down because of the recession. But the craft segment has been growing by high single-digits in volume and low double-digits in dollars."

Cioletti recommends re-allotting a bit of shelf space from imports to craft brands and, on the other end of the price spectrum, to value brands.

"There are consumers who are not out to experiment and want to trade down, but the trading down may be more of a band-aid for the recession, whereas the consumer trend toward craft beer is not going away and will ramp up as the recession eases," he said. "These beers have branched out from specialty stores and are found in supermarkets now, and these regional craft beers can help an operator put themselves out as 'the local guy,' not a cookie cutter."

The craft beers also have higher margins. "By trading out a six-pack of an import selling for $6.99 for a six-pack of Dogfish Head selling for $8.99 or $9.99, a retailer could put his toe in the water. I wouldn't throw the baby out with the bathwater, but when you see once-robust imports starting to lag, replacing one SKU with a higher-end craft beer is not a huge risk," Cioletti said.

He also recommended retailers try offering mix-and-match six-packs of craft beers. "That goes to another consumer trend -- customization," he said. "The customer can pick what he wants to try. This works best when you have a theme, such as 'the best of local brews' or seasonal brews, which also allow people to experiment, but are in-and-out and don't take much of a retailer's investment."

Across channels, the average off-premise retailer added 11 beer items last year, most of which have been on the higher end -- crafts and domestic super premiums -- and rationalized the flavored malt beverage segment, according to Nielsen figures.

Seasonal and limited edition top the list of prevalent new beer claims in the United States, according to a Mintel study of the country's beer business published late last year. Flavored beers were among the most common new items introduced, with fruit flavors leading the trend, including cherry, orange, strawberry and blueberry. Beer drinkers aged 21 to 34 are most likely to experiment with new flavored beers, the research firm found.

Looking at pack size, growth is being seen in 30-packs, which satisfy consumers' desire for more value per serving, and four-packs, which let consumers experiment with craft offerings, according to Nielsen analysis of the segment.

The small-chain category manager said brewers' introduction of 15-packs offered a value buy, and promotions on 18-can packs (rather than 24), ran most of last summer. "A retailer may decide to display certain packages, but the promotions are driven by the bottlers and we expect them to be the experts of the category, so we follow their lead," he said. "We're waiting for them to bring us new packages, so that we can get them into the planogram and create some excitement."

Some retailers and analysts are blaming the stifling effect of price increases by the nation's biggest brewers, as well as less-effective marketing and advertising plans.

"We need cost decreases or we think there will be declines in domestic purchases in total," Margaret Chabris, a spokeswoman for 7-Eleven Inc., told The Wall Street Journal in January. The chain is "exploring alternative strategies to better satisfy our customers," she said, including the addition of more craft and regional beers.
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