While many trends impact the beer category, the one that will most directly influence how marketers do business is the continued demand for more choices by the consumer.
By Joe Bush, Contributing Editor.
It’s been two years since Walgreens jumped back into the beer and wine business, and at least three convenience store operators in different parts of the country seem to have adjusted quite well.
According to SymphonyIRI data for the 52 weeks ended June 12, drug store beer sales rose 6.9%, but it seems a little creativity and focused category management can keep convenience stores from cutting prices or losing customers in order to compete. But make no mistake: the drug channel is a serious threat anytime it pushes a core convenience store item because of its strong locations, hours of operation and the channel’s appeal to women and older customers.
“They’ve got hard corners, there’s no doubt that’s their focus, that’s where they’re at, so we’re already competing with them from a traffic standpoint,” said Tim Heuback, director of store operations for QuikTrip, Tulsa, Okla. “There’s no doubt it’s affected us in our industry, and there’s also no doubt that we pay attention to it.”
Still, convenience stores remain a much stronger off-premise channel of choice than drug stores, according to a survey done in July and August of 2010 by Chicago-based market research firm Mintel.
Overall, convenience stores were the fourth-most popular channel for those surveyed who bought beer in the past 30 days, behind supermarkets, liquor stores and Walmart. Drug stores were sixth behind club stores, 14 percentage points behind convenience stores.
In the key 25-34-year-old demographic, however, convenience stores moved ahead of Walmart and jumped to 20 points better than drug stores. Convenience stores are still easier to get in and out of quickly, and successful operators maximize other convenience store advantages, like additional cooler space and colder temperatures.
In Hawaii, of MidPac Petroleum’s 15 stores, two have direct competition from drug stores a block away.
“In these two locations the drug store is our toughest competition on beer,” said Tom Huber, retail general manager and general buyer for the Honolulu-based chain. “We recently did resets with space to sales where we looked at our sales data to determine which packages we should take out and replace with new items. This has improved our overall sales. The drug stores do impact our take-home packages so we do compete with them at lower margins. They typically don’t carry singles and we make higher margin on our single sales. We also offer a single door, which the drug stores do not.”
Huber said he also pays special attention to pricing when competing.
“We try to offer a better everyday price on top 12-, 18- and 24-packs by bridge-buying or buying extra cases while they are on discount to us so we can beat the drug store price every day,” Huber said. “We buy enough between sales to offer a very good everyday price.”
Pleasant Prairie, Wis.-based Open Pantry Food Marts of Wisconsin Inc. has altered its beer strategy in the past year in two ways, both of which have helped with competition from all channels. When it opened its 26th store last spring, it debuted a larger craft beer presence. Sales were so “remarkable,” said Chief Operating Officer Jim Fiene, that Open Pantry expanded the craft beer space in six stores and wants to spread it to all 20 of their liquor-licensed locations by the end of 2011.
Sales of Bud Light and Miller Lite have suffered from cool weather, especially on Memorial Day weekend, and an increase in liquor licenses in Open Pantry’s markets. The lift from the craft beer popularity has been valuable for more than just combating the drug, supermarket or big box channels.
“We’ve seen significant, literally 40-45% growth in craft beer,” said Fiene. “Now those are small categories to start with, 15-20% of our total beer sales, but it’s quickly grown to 40% of our beer sales, and they’re typically very high-margin products, 35-40% plus.”
The craft side of the beer category is showing 15% growth nationwide. “We are certainly trying to ride that wave,” Fiene said. “The sets that we’ve added to our stores include 16 linear feet of shelving of warm beer offerings for high-end beers. It’s not an instant-drinking consumer, it’s a consumer that’s taking that product home, chilling it and drinking it later on that day.”
As such, Open Pantry is seeing more customers add a six pack of craft beer to their 24-pack and 30-pack buys. “Customers are viewing it as a special occasion purchase,” Fiene said. “We’ve been successful at communicating that pitch to our consumers.”
Specific to the threat from other channels, Fiene said all his stores with liquor licenses have either a Target or drug store within three miles. Even Walmart has to be watched, as Fiene has seen stores display beer in front aisles.
“Walmart is still a difficult shopping experience for customers in a hurry,” said Fiene. “They are peeling off the take-home beer customer, not necessarily the instant satisfaction customer. We are price-competitive with Walgreens, we are price-competitive with grocery stores and we are price-competitive with the Target, and we’ll maintain that strategy.”
Promotions Drive Sales
Fiene is also excited about another craft-related promotion, one that he’s not sure the other channels can match. Open Pantry is offering mix and match six packs, for a $1 charge.
“We’ve got great relationships that allow us to do the same promotions as the local grocery store. The beer companies have been very supportive of us trying to maintain that offering at a competitive price,” Fiene said. “We’ve done a lot more awareness promotions, but not market-loss promotions. We’ve been able to maintain our margin.”
The bottom line, said Fiene, is that drug stores may have what c-stores don’t—cosmetics, pharmacies, clinics—but the flip side is a pretty big advantage for the c-store industry.
“They don’t have gasoline,” Fiene said. “And they never will have gasoline, and while we might lose in one spot we might gain in something else. As long as we do fuel and customer service great, we will always have an advantage. Ultimately, what we sell is customer service. If we can maintain our margins and maintain a pricing value to the consumer, we think we’re a win.”