The Rise of Craft Beer at Retail

beerCraft beer sales have doubled in the past six years and are set to triple by 2017, according to a Mintel report. 

By John Lofstock, Editor.

While the economic downturn has affected consumer spending across many sectors, craft and craft-style beers are defying recessionary trends with an impressive upward trajectory.

Indeed, latest research by Mintel on the craft beer market in the U.S. shows that sales of craft beer nearly doubled between 2007 and 2012, increasing from $5.7 billion in 2007 to $12 billion in 2012.

Moreover, the trend toward craft beer options is set to enjoy robust growth through 2017, with Mintel forecasting the segment to grow to $18 billion by 2017—a result that will see the segment tripling in the decade between 2007 and 2017.

“The growth rates seen by craft beer are impressive, especially during a period when domestic and imported beers have shown a flat to declining performance,” said Jennifer Zegler, a beverage analyst at Mintel. “Unlike its domestic and imported beer counterparts, craft beer has been able to defy overall beer market trends and continue expansion during the economic downturn and subsequent slow recovery.”

While the craft and craft-style beer category remains a small segment of the $78 billion U.S. beer industry, the category has been able to stabilize the overall beer industry, which has experienced volume declines in the domestic and imported beer categories since 2008.

Who’s Drinking Craft Beer?
The rise of craft beer in the U.S. has been supported by increasing consumer demand. Nearly a quarter (24%) of consumers who drink beer indicate that in 2012 they drank more craft beer sold at stores compared to 2011. Meanwhile, more than one in five (22%) report consuming more craft beer in bars or restaurants.
When looking at age, Mintel research shows that craft beer’s sweet spot is with 25-34 year old consumers. While overall, some 36% of U.S. consumers drink craft beer, half (50%) of older Millennials (25-34 year olds) do so, Zegler said. And craft beer also wins on taste. Some 43% of both Millennials and Generation X say that craft beer tastes better than domestic beer, compared to 32% of Baby Boomers.

Although successful, craft beer is not free from challenges. Only 17% of Millennials and 18% of Generation X say that craft beer is a better value. Instead, a majority (56%) of consumers of all ages feel that domestic beer is a better value compared to craft beer. Furthermore, Mintel research found that nearly half (45%) of consumers would try more craft beers if they knew more about them.

“Despite the variety of beer releases created by craft breweries, craft beers are not yet everyday beer choices for most drinkers due to a lack of understanding about their taste profiles,” Zegler said. “To continue growing, craft beer must be its own best advocate and expand appeal beyond Millennials, who are most likely to consume it. Craft brewers need to focus on education through tastings and classes that inform consumers about the differentiation in flavor between craft beer and other alcoholic drinks.”

In addition, Mintel research found that 50% of overall craft beer drinkers express interest in locally-made beer, and 25% are interested in purchasing craft beer where it was brewed. Another 39% say that they are influenced to purchase a craft beer if it has a personality to which they can relate.

“Buying local is not limited to supporting one’s homebase; it also provides consumers with the ability to support towns that they do not currently call home,” Zegler said. “To bring that local feel to consumers regardless of location, craft breweries should consider partnering to create multibrewery variety packs that would offer consumers a taste of one city, state or region. These taste-of-an-area packages would allow consumers to experience smaller breweries from their own or other geographies.”

Take Advantage of Demand
While domestic beer brands account for the bulk of c-stores sales in alcoholic beverages, smart and aggressive convenience store operators who haven’t already done so will begin to put more mental energy and elbow grease behind building their craft beer business.

Many will face the same stigma they had to overcome with food: too many consumers won’t accept they can get high-quality food and beverages in the same place they gas up.
But to overcome this sales stigma, chains must understand what craft brands are available in their markets, learn what their customers want and commit to sharp category management through in-store merchandising and suggestive selling.

Domestic beer sales in U.S. convenience stores for 2012 totaled $16.43 billion, up a healthy 6.93%, according to SymphonyIRI. But the brands experiencing the biggest jump in sales were primarily import and craft brews.

Modelo Especial, for example, saw sales increase a whopping 29.29% to $286.20 million despite being the fourth highest-selling brand tracked by SymphonyIRI at $26.94 per case. Corona sales increased 8.35% to $588.36 million.

Seizing an Opportunity
Beer is one category that convenience stores must hold on to, especially as drug store chains like Walgreens look to encroach on the category, according to Lou Maiellano, president of TAZ Marketing & Consulting Group. “I think what’s interesting is that when you look overall at the market, convenience stores sell 60% of the beer in the country,” he noted. “When you look at the way NACS evaluates this category, grocery sells about 35%, with drug selling 4-5% and mass merchandisers, excluding Walmart, less than half a percent. So we outsell the grocers almost two to one.”

The rub, however, is that for 2011, convenience stores accounted for only 2.1% of the craft beer segment.

“The overall sales in the beer market for craft beer is 9%,” Maiellano  said. “So even though we’re the primary seller for the entire category, we’re not doing a good job in the particular segment.”

How to do better? Certainly employee education and training to make them familiar with a handful of local craft beers—and how to best sell them to customers by talking them up—makes a lot of sense. Making room for craft brews, both in and out of coolers, and devoting some merchandising effort will also help. But it must all begin with identifying local and regional craft beers in the first place.

“You will need a little more focus on some of the regional players,” Maiellano said. “Bring in more local brews and focus on learning how to sell craft beer, which is different than traditional beer. For example, you can sell it warm because it’s a different type of buyer.”

Private label is another way some c-store operators have chosen to go, Maiellano pointed out, both to enhance their brand and offer consumers a lower price point.

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