Arecent report by a.C. Nielsen shows beer sales are least affected by the current poor economy. The Brewers Association concurred, finding in the first half of this year that craft beer sales rose 11% over 2007.
Neither statistic surprised Tim Cote, vice president of marketing for Beaverton, Ore.-based Plaid Pantries Inc.
“Beer generally performs well in a slowing economy, in part because of the trade-out between restaurants and taverns to c-stores, as customers look to spend less,” Cote said. “But while there’s definitely some trending to lower-end products marketed at lower prices in our market, it’s mostly coming at the expense of the premium category.”
Hard-core craft drinkers in Plaid’s marketplace haven’t traded down yet, but many are definitely looking to save a buck here and there. “Our customers are still looking for a craft beer, but they want to buy it on sale,” Cote said. “Now, if it’s on promotion they buy it, and if it’s not on promotion they’re tending to ignore it.”
Economizing on mainstream beer purchases appears to be fast becoming a national pastime, but sales of more expensive brews are rising anyway.
“As a whole, I would say that beer sales are flat because of the economy, and there’s a definite movement away from premium to less expensive beer,” said Tom LeFevers, director of merchandising for Speedway SuperAmerica, the Enon, Ohio operator of more than 1,600 stores. “However, we’re also seeing much more interest in craft than we used to.”
LeFevers thinks craft is a great niche opportunity for c-stores going forward. “I see two types of beer drinkers on a daily basis,” he said. “One is buying as much beer as they used to but buying cheaper beer. The other may be buying less beer, but they’re buying better beers like crafts.”
Craft’s Share Shifts Regionally
While leading the category in overall growth, craft beers aren’t the biggest sellers everywhere.
“We have some markets in the Carolinas like Charlotte, Raleigh and Charleston where craft does very well, and some in other areas like Columbus or Augusta, Ga., where it doesn’t,” said Dan Roane, category manager of alcoholic beverages for Circle K’s southeastern stores, who expects premium to continue being his highest volume seller. “But if you’re talking about growth, I would have to say that overall it would be the craft beers.”
Like Cote, Roane said customers have less disposable income, which affects all aspects of the cold vault. “We had a little bit of a bump this year in our premium segment, but I think that’s just the reality of what’s happening to the economy,” he said. “Premiums are hanging in there, probably running flat compared to last year, but the segments we’re seeing grow are the crafts and the below-premium niches.”
With the holiday season approaching, retailers are concerned about customer demand. Typically, craft brews and imports peak around the holidays. “I think we will see more upgrading, with people moving from Bud to Michelob or imports like Heineken’s or Corona,” Roane said, attributing upgrading to holiday parties and family gatherings where people want to serve a better product. “It’s not like watching Monday night football with your buddies. You’ve invited some special people over, so folks tend to upgrade for those times.”
Cote and industry experts estimate beer sales will continue to do well for the next six to eight months. “Crafts have really taken pricing this year given high input costs, and yet they’re still driving volume gains faster than the beer category,” said Harry Schumacher, publisher of the online publication Beer Business Daily. “There’s just a lot more taste in a craft brewery item and customers aren’t willing to trade out of what they’re accustomed to drinking.”
Though there’s been some inflation in the category, it’s nowhere near as bad as snacks or candy, both of which are at the mercy of the grain and sugar markets. “There’s a lot of grain involved with making beer, but there’s a lot of water, too,” Cote said. “There was a lot of bottled-up inflation on snacks and candy, during which they didn’t increase in price on a regular basis, whereas beer has pretty much gone up every year for the last 10 or 15 years.”
Craft beers come in a wide variety of taste profiles, everything from India Pale Ales (IPAs) and Hefeweizen to fruity beers like apricot ale or extra sour bitter (ESB.) The IPAs are particularly popular right now, everything from those with high alcohol content and more bitterness to the more mainstream flavors, Cote said.
Beer geeks are after brews with a lot of bittering units while mainstream customers choose something more palatable, Cote said. “They’re willing to pay a fortune for some of these higher bittering unit products. Customers don’t even blink at paying almost $4 for a 22-ounce bottle of Stone Arrogant Bastard.”
Channel Competition Heating Up
Despite their willingness to pay, today’s consumers are increasingly price-sensitive, Cote and Roane said. The increased efficiency of some competitors can also make customer retention more challenging.
“Right now the customer is being a little unforgiving if they think our pricing is out of line,” Cote said. “And we really don’t have a lot of ability to command a premium when compared to a Walgreens or Rite-Aid, as we may have had in the past. And, if they keep getting better at carrying the beer and wine category, they’ll progressively become a bigger threat to our stores.”
Customers don’t have to wait in line much at drugstores, Roane said. If you’re going there for the pharmacy, they don’t seem particularly efficient, but if you’re going there to grab something, you can get in and out quickly because the rest of the store is rather quiet.
Maintaining a gap is one way to combat drug stores encroaching on the category. “Their customers are a little older than mine, so we tweak our beer assortment to serve a younger market,” Cote said. “Even though beer is fair trade in (Oregon), I don’t want to get into a price war with Walgreens, which has a lot more resources than we do.
“I’d rather just take very good care of my customers, and when they go there they won’t have a reason to switch. When they come into our stores I want them to see a better assortment of beers, and to understand that we’re price competitive.” CSD