Demand for craft beers signals a change in beer consumption to which supermarkets are responding
The season for special brews has begun.
For many supermarket chains, the fall season ushers in displays of bright orange 6- and 12-packs of seasonal craft brews that range from Oktoberfest lagers, pumpkin ales and Halloween brews — tagged with such names as Nosferatu, HopDevil, Monster and Dead Guy — all celebrating the nuances of the season.
This burst of bolder, flavorful varieties is just a prelude to the Winterfest and Christmas beers produced by some of the 1,600 craft brewers around the country.
Seasonal craft brews, including all four seasons, represent 17.5% in dollars of the craft segment sold in supermarkets, according to recent statistics from SymphonyIRI Group, Chicago. Stores carry an average of 7.2 SKUs in seasonal craft beers, an increase of 1.1% over the prior year.
“Seasonal has surpassed pale ales to become the top share-based style. They have been a growth engine for the craft segment along with variety packs and India Pale Ales,” said Dan Wandel, SymphonyIRI's senior vice president of beverage alcohol client solutions.
Lubbock, Texas-based United Supermarkets lets its customers know through its website that “wine and beer is not a job, but a passion” for the retailer. It has a section that promotes craft beers and educates shoppers about the segment.
“Craft beer sales are being driven by customers looking for variety. Craft beers' livelihood is dependent on new and seasonal products,” Roger Scott, business manager for United, told SN.
United promotes a local Fort Worth craft brewer — Rahr & Sons — that produces seasonals such as an Oktoberfest in the German Marzen style, Iron Thistle, a Scottish stout ale, and Winter Warmer, an English dark ale.
At Dorothy Lane Market's Oakwood store in Dayton, Ohio, Stephany Madliger, beer and wine manager, said she is challenged to keep her fall beers in stock. “We have to order our fall seasonal beers in the middle or end of August and by the time October rolls around many of them are out of stock.”
Dorothy Lane is now promoting Halloween beers — Great Lakes Brewing Co.'s Nosferatu, Victory's HopDevil and Rogue's Dead Guy.
“As Oktoberfest and pumpkin beers start to run out, we transition to Halloween,” Madliger explained. She just received a shipment of Samuel Adams Winter Lager, which replaces the brand's sold-out Oktoberfest beer.
Madliger said shoppers anticipate the release of seasonal beers each year and the retailer doesn't have to do anything special to promote them on the shelf.
“People know they are in short supply so they pick them up right away,” she noted.
Among Dorothy Lane's top-selling craft beers last week were the seasonals — Great Lakes' Oktoberfest at No. 1, Sam Adams Oktoberfest at No. 4 and Dogfish Head Pumpkin at No. 6. “Seasonals are doing quite well for us,” Madliger confirmed.
With about 40% of its beer sales coming from American microbreweries, Dorothy Lane promotes craft with beer tastings combined with food. The retailer recently hosted a four-course dinner that featured Great Lakes beers. About 40 people attended the event that cost $35. The dinner featured several styles of beer paired with food.
While the craft segment represents 4.3% of total beers shipped in 2009, it has posted consistent high single- and double-digit growth over the last six years. This came despite several years of recession.
A healthy portion of that growth is being generated by supermarkets. For the first half of this year, SymphonyIRI reports supermarket sales of craft beer was up 12% in cases and 13.2% in dollars. Meanwhile, total beer case sales in supermarkets dropped 2.1% and remained flat at 0.1% in dollars.
“If you look at the craft segment, it is the only beer segment growing in cases and dollars across all channels we track. That is remarkable,” said Wandel.
What may be even more remarkable to some in the food industry is that these are brands that are sold with little or no promotional funding.
“We never run any discounts,” said Arlan Arnsten, vice president of sales, Stone Brewing Co., Escondido, Calif.
The craft brewer, known for its big, bold beers, distributes products in 35 states and produces 13-18 brands per year, including eight year-round brands like Bastard Ale. The brewer focuses on one-off specialities like Double Bastard Ale, which is not a seasonal beer but a special release produced in the fourth-quarter season.
Stone Brewing is the ninth-largest supplier of craft beer to the supermarket channel. Food channel sales round out to $6 million and growing. The company posted a 22% increase in dollar sales at supermarkets for the year ending July 11, 2010, according to SymphonyIRI.
While the brewer doesn't discount product, it will stack it and add signage in supermarket aisles. “We have displays in stores with no reduction in price, and sales are through the roof. Retailers are making more margins with displays of our beer with no discounts than with beers on discount,” Arnsten stated.
Besides attractive margins that some say run as high as 40% to 50% compared with 12% to 14% for domestic beers not on promotion, the upper price point range of $3 or $4 per case above imports is attractive.
“Typically, our craft brews start at $8.99 a 6-pack. Some of them are as high as $21.99. The Kentucky Bourbon Barrel is $15.99 for a 4-pack. The nice thing is that our average ring is higher and we certainly appreciate that,” said Madliger.
The segment naturally fits in with cross-promotional opportunities with other food categories and departments, further raising average rings.
“The craft segment has a wonderful market basket ring at retail. Retailers can use that to propel not only sales of craft beers but other categories that go well with it,” said Wandel.
The segment also plays into retailers' localization efforts. “More than 50% of Americans live within 10 miles of a craft brewer,” noted Paul Gatza, director of the Brewers Association, Boulder, Colo. “Grocery stores that stock local craft beer tell customers their store is part of the community and they are supporting a local business. Customers make the connection when they see [locally or regionally made] beer being sold locally. They know that money is staying in the community.”
Madliger outlined challenges facing retailers who are committed to growing the segment.
Convince shoppers that the product with the higher price point is “substantially better than products from some of the macro-breweries.”
Finding the space for the variety of craft beers available.
Finding the right mix of craft beers and styles for an individual store's market area.
Customers at Madliger's Oakwood store, including women, enjoy big, hoppy, double IPAs. Customers at the other two Dorothy Lane stores in Washington Square in Dayton and in Springboro, Ohio, may prefer altogether different styles of craft beers, Madliger said.
Bump Williams, a beer industry consultant based in Stratford, Conn., said smart food retailers like H.E. Butt Grocery Co., Publix, Harris Teeter, Hannaford Bros., Wegmans, Meijer, Hy-Vee, Safeway, Kroger, Sam's Club, Giant Eagle and Roundy's are all doing well in craft beer sales because they have broken the mold on how the beer category is managed.
These retailers are focused on capitalizing on seasonal products; taking advantage of variety packs; setting aside additional space for the 750-milliliter cork and basket products and special releases sold once a year at higher price points; and promoting the local brewer's brand.
“In secondary and tertiary locations throughout the store there is a lot of impulse purchases and cross-category assimilations and food pairings,” Williams said. “Those are the things smart retailers are doing to capitalize on the changing beer consumer.”
The mega-brewers have taken notice and have entered the segment with degrees of success.
Anheuser-Busch has brands such as Shock Top Belgian White and Jack's Pumpkin Spice Ale. MillerCoor's Tenth and Blake crafts and imports division saw double-digit growth, with Blue Moon and Leinenkugel showing good sales, according to reports. Guinness is testing Guinness Black Lager.
Mega-brewers have a great opportunity to step up as industry leaders in the segment, Williams said.
Even Starbucks recognizes the opportunity associated with the bolder, flavorful brews. This month it opened its first store in Seattle that features wine and local craft beers to complement its coffee selections and pair with limited food items. Starbucks patrons may in fact be fueling craft beers' popularity because these coffee drinkers appreciate big, bolder flavors.