BOSTON -- Something's brewing at Boston Beer Co.
The maker of Samuel Adams, the country's most successful craft beer, has its sights set on that bastion of mainstream suds -- the supermarket.
Jim Koch, president, believes that his brand can make the beer category more profitable for grocers. His simple formula: separate craft beers from other brews and use point-of-purchase displays.
"Strong brands build categories," says Koch (pronounced "cook"). "The emergence of Sam Adams as a recognized beer has been one of the key drivers in the growth of this category nationwide."
Indeed, there are now hundreds of brands in the craft segment (confined to brews of less than 2 million barrels a year). The annual volume of Samuel Adams -- roughly 1 million barrels -- exceeds the next five brands combined, Koch said.
The brand's remarkable rise to the top began in 1985 when Koch started the company -- the sixth first-born son in the family to become a brewer. He soon entered the Great American Beer Festival and earned top honors for four years for his signature brew, Boston Lager, based on a secret family recipe.
A cult following developed. There are now 14 styles of beer in the Samuel Adams line. Eight are available year-round, such as Scotch Ale, and six are seasonal, such as Old Fezziwig Ale.
Koch can talk about beer styles all day long. But not today. While sipping a tall, cold one in the tap room of his brewery in the back streets of Boston, Koch quickly warms up to the subject of marketing his brands in grocery stores. What's his ideal scenario?
"An orderly schematic designed to trade people up to the higher-profit beers," he envisions. "Within that high-end category, have Sam Adams at eye-level with a suitable number of facings appropriate to the store." Koch recommends grouping similar beers: domestics (such as Budweiser, Miller, Coors and so on), domestic specialties (like Elk Mountain and Red Dog), imports (Heineken and Molson), and craft beers (Samuel Adams and Sierra Nevada).
"Retailers need to separate the domestic specialties from the craft beers," he stresses. "That recognition is just dawning on people. A $4.99 [domestic specialty] next to a $6.49 Sam Adams is confusing to the consumer. It trades the consumer down. The retailer loses whatever his profit margin is -- say 28% -- on $1.50. He just lost 42 cents."
POP display is another key for brand-building in the supermarket. He says progressive retailers are now displaying craft beers like Sam Adams to generate incremental sales. "Give the consumer an opportunity to buy something that you make money on. Don't just give the beer away," he says.
Also, he urges grocers to display Sam Adams when it's not on "special" because his brand-loyal consumers aren't looking for a deal.
"You'll always need traffic builders, and we'll always be a supplement -- a profitable supplement -- to the mass-market beers. But a retailer needs to think about playing both ends of the product spectrum," he says.
Another in-store strategy that's paying off for the Sam Adams line is cross merchandising with various departments of the supermarket. Tie-ins with the deli and seafood departments have proven to be mutually beneficial.
Jonathan Troy, director of national retail accounts, says, "Cross-merchandising opportunities are very unique to our beer because it can be treated like a varietal wine. We have different beer styles to taste with different products.
"So what we do is offer additional volume. We're not only selling more beer, we're also helping to sell other products in the stores."
This type of activity naturally evolves into other account-specific programs. Troy gives the example of Harris Teeter, a 138-store, high-end chain based in Charlotte, N.C. The retailer has wine stewards in some stores and was receptive to Troy's invitation for a beer-education seminar.
"We gave them a lot of information about high-end beer. They're now in a better position to educate and pass along ideas to customers in their stores," he says.
All this effort is part of the category-consulting role for high-end beer that the brewer is developing. In 1995, Boston Beer began an off-premise department that Troy heads. It is dedicated to working with chains, primarily supermarkets.
"There's clearly a need for this," says Koch, "because this category has grown and now it's beginning to develop some structure."
He senses a shift by retailers from developing the category in general with mass-market beers, to developing specific brands, especially craft beers. He sees strong brands as key to category growth.
"Retailers are beginning to say, 'Wait a minute. This may be a growing category, but I don't need to devote any more space to it. What I need to do is clean up the space that I've got. With proper category management, I could actually generate more sales from the same or less square footage if I get rid of the things that don't turn and/or don't represent real consumer choice.'
"Variety is not choice if there is too much duplication," he says. "In a lot of supermarkets, there are currently weak brands that simply duplicate what's already out there."
Koch gives the example of one of the more successful grocers in California that just evaluated the category. The result was the elimination of weak brands and the addition of facings for craft beers such as Sam Adams and Sierra Nevada. He predicts increased sales because out-of-stocks will decrease. "They're taking space from something that sells a six-pack a week, and giving it to Sam Adams or Sierra Nevada, which are typically out of stock by 3 p.m. on a Saturday. So they are beginning to consolidate the category around strong brands," he says.
The consumer is doing the same thing, according to Koch. He uses the example of beer imports a decade ago. There used to be six or eight German beers in a lot of stores, he says. Now there are more German beers sold than there were back then, but most stores have only two brands.
It'll be a while before grocers have to wrestle with paring down a half-dozen stockkeeping units of craft beers in their assortments. A more immediate concern is establishing identity and adding sizzle to the segment.
"Craft beers got a free ride for a long time on the excitement of the category," Koch says. "To go forward, it's going to be necessary for a successful brand to have not only consistently high-quality beer -- that's the price of admission -- but also brand-building activity, advertising and promotional programs -- frankly, the kinds of things that a supermarket operator expects from everybody who's in his store wanting to do business." Consequently, the brewer has been tying into events with a wide consumer appeal. For example, advertising during Super Bowl and Final Four periods included a picture of a refrigerator full of Sam Adams with the copy, "Game? What game?"
"What we've seen happen as Sam Adams gets universal distribution is that retailers have higher expectations of us than they did five years ago when we were a little company. They want integrated, thought-out, volume-building programs," Koch explains.