Despite the woeful economy, the spirits, beer and wine categories continue to thrive
The economy is struggling, but that hasn't deterred shoppers from splurging on alcohol.
Major trends that were driving sales before the downturn are still alive and well. Ultra-premium wine, beer and liquor continue to be highly popular. So do spirits with splashes of fruits like citrus, pomegranate and berry.
Greg VanOverloop, category manager for Spartan Stores, Grand Rapids, Mich., has seen an uptick in sales of ready-to-drink cocktails, a category that boasts blends like Captain Morgan Gold, Smirnoff Ice, Bacardi Silver and a slew of party-size liquor-based libations such as margaritas, martinis and Bloody Marys.
“The convenience of ready-to-drink has tremendous growth at our banners,” VanOverloop told SN. “The economy seems to be influencing some consumers to save a little on their liquor purchases, but there are quite a few products that fly in the face of this shift, including vodka, brandy and cognac.”
Growth leaders in the wine category at Spartan's stores include chardonnay, pinot noir, red blends, white blends and Riesling. Sales of wines from Australia and most Old World varieties are flat or declining, with the exception of Spanish-made wines, he added.
“The dollar value has made European wines less competitive than domestic, so 2008 could be a great year for domestic wine sales,” said VanOverloop. “In the beer category, it is all about craft, micros and imports. Local brews and large microbrews from the U.S. are getting much attention at the shelf from a merchandising standpoint.”
Vodka takes top billing in the liquor category at Orchard Market, the two-store chain based in Spring Lake, Mich.
Unflavored varieties are most frequently purchased, but there are four or five flavors each of brands like Absolut, Smirnoff and Stolichnaya to choose from, among others.
“People like the flavored vodkas because they have a little extra zest,” said Tim McGovern, grocery manager for Orchard Market. “We also sell a lot of premixed drinks like mojitos made by Parrot Bay and Bacardi.”
Demand for alcohol add-ins has also prompted beverage makers to blend them into beer.
Orchard Market carries Bud Light Lime.
“There's even a Bud Light with Clamato juice in it called ‘Chelada,’” said McGovern. “We don't carry it, though. I can't imagine that most people around here would like a shellfish- and tomato-flavored beer.”
The retailer does stock Mad Hatter and Full Circle, both local brews. The micro amalgamations are made just 20 miles south of the retailer's stores and sell remarkably well, said McGovern. Another beer favored by locals is Bell's Oberon Ale, which is made by Bell's Brewery in Kalamazoo, Mich.
Most beers, including Bud Light, Coors, Michelob, Heineken, Foster's and Samuel Adams, are kept in coolers there. A small selection of white zinfandels, chardonnays and a few bottles of champagne are also chilled, but the majority of the space is dedicated to brews.
“We couldn't give away warm beer here, and because cooler space is sparse, we are very particular about what we choose to stock,” he said. “The few beer displays we have out in the aisles are just there to draw people into the coolers.”
THE BIG PICTURE
Earlier this month, the Nielsen Co., Schaumburg, Ill., released the results of its “Through the Eyes of the Bev Al Shopper” consumer survey. Results were based on a May 2008 Nielsen Homescan survey with responses from approximately 3,500 consumers who had purchased alcoholic beverages from a store during the previous three months.
Nearly half of the consumers polled reported that the economic downturn has had no influence on the amount of money they are spending on beer, wine or spirits in stores. Less than 20% indicated a significant impact.
Most people consider alcohol an affordable luxury regardless of economic conditions, said Richard Hurst, senior vice president of beverage alcohol for Nielsen.
“The higher end of the market is still driving overall growth, including craft beers, wines over $15, and spirits over $20,” he said. “Even things like cognac and top-shelf brands like Grey Goose and Patrón aren't seeing much of a softening. Patrón just claimed that its vodka is growing at 20% this year, an impressive feat for a $45-per-bottle product.”
Matt Carroll, chief marketing officer of the Patrón Spirits Co., has a similar perspective. Ultra-premium spirits, he said, have not only become the drinks of choice when the economy is booming; people still buy them when the country is in the midst of a recession.
“Even in challenging economic times, people still like to reward themselves with high-quality cocktails,” Carroll told SN. “In the ultra-premium category, vodka remains the top-selling white spirit in the country, but tequilas and rums are doing quite well also.”
Of the consumers in the Nielsen study who reported that the economy had significantly impacted their alcoholic beverage purchases in stores, more than 60% said they are now shopping at places where they can get a better price. Nearly half claimed they are choosing stores that are closer in order to save on gas.
Indeed, people stay nearer to home during tough times, said Hurst. They do this to save on gas, but they also tend to dine in more often, and therefore to drink at home more frequently.
“Drinking is less expensive at home than at a restaurant or club,” he said. “People can buy an entire bottle at the supermarket for what they might pay for several drinks at an establishment.”
Ross Nixon, executive vice president and chief operations officer of Dahl's Food Markets, Des Moines, Iowa, has witnessed some shoppers trading up from beer to wine over the past few years. Others are passing on pints in lieu of liquor. He calls consumers like this “yuppies” and does not expect them to lower their newly established drinking standards just because the economy is bad.
According to Nielsen, shoppers between the ages of 21 and 30 are increasingly buying premium spirits and wine. They are also buying better beer. Ten years ago, beer accounted for 59% of the alcoholic beverages bought by this age group. Now this number has declined to 47%.
Consumers are actually buying less, but they are paying more for it, so sales are up, said John Clevenger, managing director, Meridian Consulting Group, Wilton, Conn.
“The trend for several years has been for people to consume less alcohol, but better alcohol,” said Clevenger. “Top-shelf vodka, tequila and rum have sold well, thanks to the cocktail craze. Scotch and other brown spirits have also become a little more popular recently.”
Although the category is sound, there are things retailers can do to help boost sales further.
Meijer, Grand Rapids, Mich., recently featured two high-end dark liquors in its weekly ad. Crown Royal in 750-ml bottles was on sale for $23.96, and 750-ml bottles of Maker's Mark bourbon were priced at $24.95.
D&W, one of Spartan Stores' upscale banners, found a way to help its shoppers have their upscale wine and afford it too. During the second week of June, the retailer ran a sale on Louis Martini Sonoma County Cabernet Sauvignon, dropping the price from $17.99 to $9.99.
Price Chopper, Schenectady, N.Y., promoted a wide variety of beer brands then, too. The same week, 14 different types of beer — including many upscale varieties — were highlighted in the chain's All American Summer of Savings promotion.
On the chain's website, Heineken 24-packs were priced at $24.99, 12-packs of Saranac Pale Ale were $12.99 and 30-packs of Bud Light and Budweiser were on special for $16.99. The price drop on Bud products is good through July 4th.
One retailer-run strategy that has caught Carroll's eye is the pairing of Patrón Silver Tequila with Patrón Citronge orange liqueur.
“This is one of the most successful promotions we've seen done by retailers,” he said. “The combination of these two ultra-premium spirits makes the perfect margarita.”
According to McGovern, Orchard Market has run similar promotions, but instead of two types of spirits, the retailer tied in center-plate items. Shoppers have been offered everything from $2.00 off select beef products upon purchase of a bottle of merlot to $2.00 off a rotisserie chicken when they bought a 12-pack of Foster's beer.
Retailers need to keep a few things in mind when putting together spirits strategies, said Spartan's VanOverloop.
“Location, variety and a fair price will be the story moving forward,” he said.
If the recession continues, more shoppers will be dining and drinking in, a trend that will bode well for supermarkets, he added.
Milk sales have sharply risen in all channels, with dollar sales surpassing those of the longtime supermarket beverage leader, CSDs.
|SALES*||% CHANGE VS. YEAR AGO||SALES||% CHANGE VS. YEAR AGO||SALES||% CHANGE VS. YEAR AGO|
|*Sales in food, drug and FDMx (excluding Wal-Mart) for the 52 weeks that ended May 18, 2008. |
** Sales in total food, drug and FDMx (in addition to excluding Wal-Mart, the data also does not include sales at club stores and c-stores.)
SOURCE: Information Resources Inc., a Chicago-based market research firm.