A Beverage Attitude adjustment

Retailers and manufacturers need to adjust their beverage offerings to keep up with changing tastes—and times.

Fewer shoppers today are high on Coke—and Pepsi, Budweiser and Miller for that matter—and that is posing a quandary in the nation’s beverage aisles. For while sales of the big flagship soft drink and beer brands stagnate, shelf space has not been proportionately realigned to accommodate all the new entries in the booming craft beer, energy drink, juice and flavored water sectors.

As a result, say industry observers, retailers have to work extra hard to maximize their shelf space. If not done correctly, the result can be lost sales and market share as consumers seek out other competitors and formats.

“The challenge for every retailer becomes, how much shelf space do you allocate toward these new brands?” says Kevin Klock, CEO of Talking Rain Beverage Co., the Preston, Wash.-based manufacturer of the Sparkling ICE flavored water line.

The sparkling zero-calorie beverage has helped create yet another “must-have” beverage category that is deserving of space on supermarket shelves in lieu of other categories.      

“Diet soda is declining in the U.S. because of zero-calorie sparkling water and zero-calorie energy drinks,” says Klock. “We’re part of that equation.”

Yet for retailers the answer to the equation just keeps getting more and more complicated.

“Keeping up with the dynamics of the beverage market is a challenge for retailers and requires a bit of a balancing act,” says Gary A. Hemphill, managing director of research, at Beverage Marketing Corp., a New York-based managing consulting firm and research company to the beverage industry. “There is no doubt that many big brands are struggling but they still account for the greatest dollars, so it’s important to give them the shelf space that they warrant.

“However, it’s an issue if not addressed,” he says. “Retailers that are stagnant and don’t change will lose sales and consumers. It’s also an opportunity because many of the newer products and categories that have emerged have greater profitability. The question is whether they have staying power or not.”   

According to Bump Williams, president of Bump Williams Consulting, a Stratford, Conn.-based firm specializing in the beer industry, “The more mature brands—Budweiser, Miller, Coors—are losing volume, but they are not losing space.”

He says the big brewers have done an outstanding job of protecting shelf space and facings on brands that have had six or seven years of declines. “There are a lot of out-of-stocks on fast-selling craft beers because too much shelf space is dedicated to the premium and below premium brands that aren’t turning the way they used to,” he adds.

That has prompted some retailers to cut back on premium beers or to drop them altogether. At Orchard Fresh, an upscale store operated by Tops Markets in the Buffalo, N.Y. suburb of Orchard Park, the most “mainstream” beers stocked are Sam Adams, Sierra Nevada, Corona and Heineken. The bulk of the beer case is devoted to some 300 different craft beers, including local brews from F.X. Matt, Southern Tier and Ithaca, which allows the store to carve out a niche and set itself apart from Walmart, Wegmans and its own sister Tops units.

Down South, a remodel at Western Market in the Birmingham, Ala. suburb of Vestavia has shaken up the beer set by devoting the first doors in the beer aisle to new craft beers and relegating the big national brands to the last set of doors in the back.

“We took one door and dedicated it to what is new,” says Darwin Metcalf, president & COO. “We leave it here for 30 days and then make the decision on if it is going to permanently make the set or not. Someone who is interested in new arrivals can come to this door and see what has come out in the last 30 days.”

That “someone” is usually a “hop head”—an of-age Gen Y’er who is really into craft beers. “The hop heads come in, check out our products, take pictures of our cases and post them on the Free the Hops website,” says Steve Shelton, Western’s general manager. “It has really been good for business.”    

Retailers like Orchard Fresh and Western get kudos from Joe Thompson, president of Independent Beverage Group, based in Knoxville, Tenn.

“The retail grocery industry has done a very good job of increasing their selection and making all the local stuff available,” Thompson says. “They have been very creative about it, but they’ve done it primarily at the expense of ABI (Anheuser-Busch InBev) and MillerCoors to a large degree.”

Supermarkets, Thompson says, “have been more than fair to the craft category. Quite frankly, the dollar volume is there and the margins are there from a craft standpoint.” 

Hemphill notes, “Many niche categories and brands are showing much greater growth so retailers must be open to taking on new products and categories. It’s a continuous process. Today’s beverage set isn’t necessarily tomorrow’s. In fact, I can pretty much guarantee that tomorrow will be different than today. The market is in flux.”

Williams cautions against retailers taking too much space away from the big national brands. “There are a lot of craft brands out there, new ones and regionals that are expanding into markets and states that probably don’t deserve spots on the shelf either,” he says. “A craft beer isn’t going to be selling in the same number of stores as a Budweiser, Miller or Coors. They attract different drinking occasions, different segmentation models.”

Premium domestic beer is also getting squeezed by trendier alcoholic beverages fighting for their share of the cooler space.

“It is always a battle for shelf space, particularly in our segment where the number of products has doubled over the last couple of years,” says Kevin Brady, director of brand commercialization, at Mike’s Hard Lemonade Co., a Chicago-based brewer that plays in the flavored malt beverage category. “How fast your product moves is going to dictate how much shelf space you get.”

Sometimes established brands can have trouble getting a slot on a supermarket shelf, so imagine the struggles facing a new start-up. That is what Nick Shields is finding out. He is the brewer/founder of Boathouse Beverages, the Norwalk, Conn.-based brewer of Spiked Seltzer, a low-carb, gluten-free, non-malt beer brewed from fermented sugars, that is sold in seven states and available in Indian River Grapefruit, Valencia Orange, West Indies Lime and Cape Cod Cranberry flavors.

Spiked Seltzer has been picked up by Wegmans and is doing well there, Shields says. Fresh Market has expressed interest and he is trying to get it into Hannaford and Market Basket too. One way for a small beverage brand to get a toehold into the supermarket is to align itself with a major distributor, he adds.

In most states, once a brand signs to a distributor, the distributor has it for a territory that is put into the distribution agreement. “It is next to impossible to break that agreement if you have problems with them down the road, so you have to be careful from the beginning which one you choose,” Shields says.

According to Shields, depending on the store, it is the distributor/category leader or the retailer that determines what items are stocked and where they are placed.

“Some stores allow the [distributor] to wheel the product in, place it on the shelf and manage it. So they maybe have less work to do in the grocery store restocking and allow the distributors to take hold, reset and manage the reset,” Shields says. “Then you get a Whole Foods that doesn’t want the distributor or salesman beyond the loading dock. They want to have complete control of what they do within the market. You are relying on Whole Foods to hopefully promote your product.”

Observers say a lot of retailers will give their local store managers the flexibility, authority and responsibility to find something that corporate missed that is local, organic or gluten-free that has not hit their radar yet. “However, since it is big in the store’s neighborhood they give it the go ahead and put it in the set,” says Williams, adding that the majority of sets are dictated to the two big brewers.   

Small brand non-alcoholic niche products sometimes have an even tougher road to hoe, says Laura Sauls, marketing manager – North America, for Little Miracles, a Los Angeles-based manufacturer of energy drinks made with organic tea, super fruit juice, ginseng and açai.

“It’s important for small brands to establish their target retailers prior to launching or they end up wasting a lot of time and money,” Sauls says. “Our strategy with Little Miracles has been to work our way into both chains and small stores simultaneously, and really focus by region and channel. We’re focusing on key markets like New York and Los Angeles, targeting upscale grocery and independent retailers where we think Little Miracles will resonate best. Once we’ve primed those areas for a year we’ll target larger grocery chains in an attempt to grow some critical mass.”

The brand also employs a hands-on “outside the shelf” approach. “When it comes to marketing, going grassroots with consumer samplings directly connects people to our brand and creates buzz and pull off the shelves. On the sales side, we cultivate relationships with retailers who allow us to get creative with our displays so we don’t get lost on the shelf but instead can really shine,” Sauls says.        

Klock says Talking Rain uses facts and good old-fashioned sales data to get Sparkling ICE into new doors.

“We are putting in category management teams and buying the data so we can go to the retailer and really provide them an objective view as to what we think is going on in the market and how the shelf space should be allocated,” he says. “It is still ultimately their decision, but we see that as a real core part of our being able to compete going forward. People are always asking, ‘why does that brand have so much shelf space and other brands don’t?’ We think part of it is just being able to educate ourselves as well as educating the market as to why we should have the shelf space that we do.”