Beer sales are booming and supermarket operators are striving to position themselves as the best beer booster in town to capture consumer dollars and the additional sales beer-buyers bring.
"Last year was a great year for beer sales," said Mark Endres, liquor, beer and wine buyer, Save-Mart Supermarkets, Modesto, Calif. "Premium was up and we saw a transition to larger packs with a larger ring." The chain's sales of premium beer rose 9.8% in dollars and 6.8% in cases. "There is a definite shift to the light offerings. Customers are purchasing more alcohol at retail. People are going out less; restaurants are suffering."
The beer category is one of the Top 10 most profitable, according to market research firm ACNielsen, Schaumburg, Ill., with data provided by Miller Brewing Co., Milwaukee. Lucrative in the direct store-delivered categories, beer represents between 2% and 6% of U.S. supermarket sales.
"The beer industry has been experiencing level sales, with some segment growth, during the past several years," said M. Eileen Wright, marketing communications, Miller Brewing Co. "The premium light segment has remained the most popular, representing nearly one-third of all beer sold in the USA."
ACNielsen reports that the light beer category has posted large and consistent growth in volume and profit over the past five years. Volume grew by more than 30 million cases and revenue grew $26.6 billion, or, on average, $5.3 billion annually. The latest ACNielsen category analysis, for the 52 weeks ended in mid-January, shows supermarkets selling 136 million cases of premium light brands. Leading the segment with sales of slightly more than $2 billion in revenue, this represents 30% of all beer being sold in supermarkets.
"Fortunately, beer manufacturers generally appear to be focused on long-term profit generation vs. inefficient short-term gains," said Bob Watson, beverage category manager, Schnucks Markets, St. Louis. "With cold box space at a premium, an additional facing of a faddish item usually comes at the expense of one of the 'bill payers.' This usually results in increased out-of-stocks and missed sales.
"While statistically a retailer's space management plan can instill a feeling of comfort with three to four days of supply in a cooler, beer sales on a weekend or holiday can exhaust this allocation in several hours. If there is no opportunity to pre-chill beer prior to cold-box replenishment, the end result is a less-than-satisfied consumer."
Premium light beers are driving sales in the category at Schnucks, with growth outpacing the decline of "regular" beers, according to Watson.
"There's no trick to moving mass quantities of beer. Doing it profitably is another story," said Watson. He said that by setting the promotional calendar annually, retailers are better able to focus on in-store execution and coordinate efforts around selling themes, such as outdoor activities, barbecue and sporting events. "This drives a significant amount of sales activity. Traditionally, beer offers relatively low gross margins, and the opportunity to build well-planned displays incorporating related high-profit items maximizes sales and gross-dollar generation."
The upstart imports are posting case gains of more than 10% in volume over a year ago, to challenge premium light's 5.3% percent. However, it is in dollar volume that imports shine. Imports posted $1.24 billion in dollar volume, with 53.4 million cases moving. This closely challenges the backbone of the category, premium brands including "ice" versions, with $1.23 billion being earned on 81.6 million cases sold.
"In the Northwest, craft breweries have cornered the market as to what we make available," said Joseph Miglino, wine and beer director for the six-unit Larry's Markets, Bellevue, Wash. "Our sales numbers put the craft breweries in the Top 3 with Corona at fourth. It's these numbers that set us apart. We have taken on a real microbrew view on the world of beer. We don't expect that direction to change real soon. Our customers are always looking for new flavors."
At Save-Mart, imports and microbrews are posting double-digit sales gains.
Imports are up 23.9% in dollars and 25.3% in cases, while microbrews are up 21.4% in dollars and 25.7% in cases. "The benefit with these groups is that the ring is higher per case," said Endres, who noted that the case set at Save-Mart has expanded with new offerings recently. "A few years ago we had a 4-foot set of imports and micros. Now that is expanded to 20 feet.
"The economy segment of the category tanked over the last three years. The national economy has been good, so that is part of the factor that explains why imports are faring better. People have had more money to spend. With pricing increases we can expect to see a shift back toward premiums and those in the $10 per 12-pack range."
At Giant Eagle's Cleveland Heights, Ohio, unit, the locally produced premium micro beers sell best. "Great Lakes Beer is our best-seller," said Ron Harding, beer and wine category manager. "At $9 a six-pack it does quite well. Heineken and Labatt are the leaders in the imports. We don't sell near the number of domestics as we do these two categories. Even Sapporo, at $2.69 for a single can, flies off the shelf."
Beer cooler space allocation is a key element in business considerations made by supermarkets. Customers want beer available cold, yet cooler space represents a finite element. As a result, this issue is under constant scrutiny.
Despite the size of Larry's Markets' newest Redmond unit's 40-foot refrigerated multideck, the space crush impacts daily decisions. "We look at sales and make a decision of the number of facings brands have and the number of various pack sizes we carry. We make space for who is selling," said Miglino.
Space is at a premium at Schnucks. "Tying up valuable cold space with low-velocity SKUs makes little sense," said Watson. Additionally, consumers have a variety of size choices, many available in both bottles and cans. "While the current distribution might seem excessive, no one is holding a gun to the retailer's head with demands of full distribution," said Watson. "The ability for 'picking and choosing' packages for promotional support on a week-to-week basis makes for an interesting -- and competitive retail landscape."
All this works to create a crunch in the cold box. "Cold space continues to grow -- but we're talking about some expensive real estate," explained Watson. "Controlling operating expenses is a continual challenge. In the final analysis, if package proliferation is not held in check, the end result might well be higher prices for the consumer. However, much remains in the hands of the supply chain, from manufacturer to retailer, to manage assortment efficiently."
Giant Eagle pulls case movements one time per month and re-adjusts cooler space accordingly. "Our cooler space is limited," explained Harding. "We often have customers calling ahead to ask us to put their order in the cooler." The unit has added an endcap cooler to offer more chilled product.
The stand-up holds 12-packs and six-packs. "Space is tight, plus we are going through a remodel, so when sales reps come in to see us about promotions, we have to get floor approval. Having that endcap cooler has helped take some of the promotional items."
"The challenge is the cold boxes are just not big enough," said Endres. To ease the crunch, Save-Mart shrunk the economy category to re-allocate space. Additionally, as the operator builds new units or remodels stores, new beer departments with open-air cases are added.
Adding to the space issue, more large-pack options are becoming available to meet customers' needs. While 12-pack bottles and cans, along with 6-pack bottles, account for 60% of sales, inroads are being made with 20-plus packs.
"I see a definite transition toward the 20s and 30s," said Endres. "Customers are paying attention to the per-bottle and can costs."
And packaging matters to beer-drinking consumers. Long-neck sales grew 23% from 2000 to 2001, according to a Miller Brewing Co. report. "We have had long necks for two years at Save-Mart," said Endres. "It is a trend and we are making moves to accommodate our customers' preferences. But in some door sets we have restricted heights."
Along with packaging, displays are key to beer sales, said retailers. "With the imports and microbrews, the more we promote, the more we sell," said Endres. Otherwise, he sets his promotional plan in cooperation with vendors on a monthly basis.
"I have to believe marketing and promotion programs are paying dividends for the brewers, because massive marketing and merchandising campaigns continue to be launched," said Watson. "It appears to be a simple formula: Create a desirable image in the target consumer's mind, build support with on-premise distribution to create excitement, and then focus on the retail package with cooler placement and display. At that point, it's 'if you build it, they will come."'