EASY SUMMERTIME SIPPIN'

CHRISTINA VEIDERS

Summertime and the livin' appears much better for food retailers selling alcohol beverages this summer compared with the last few post recession summers.

Consumption is up among all three categories at food stores — beer, wine and spirits.

Beer sales, which generally have been losing share, grew by nearly 1% to $8.4 billion; spirits/liquors were up 2.6% to $2.3 billion; and wine grew 4% to $5.9 billion, according to the latest figures from Chicago-based SymphonyIRI Group for the 52-week period ending June 12.

It's worthwhile to note that beer sales in the drug channel increased by 6.9% and wine sales jumped by 21.9% during the period, an indication that major drug chains such as Walgreens and CVS are being aggressive and making headway in offering alcohol beverages as a convenience. Spirits, meanwhile, grew by 1.2% in the drug channel.

A recent consumer poll conducted by New York-based AlixPartners, to gauge anticipated consumer buying behavior and drivers of beverage choices, found that 87% of consumers said they planned to spend the same or more on alcoholic beverages over the coming 12 months. This is significantly up from last year's poll when 70% said they would spend the same or more on alcohol.

“Though consumers indicated that they're likely to spend more on alcohol in the coming 12 months, a weighted-average analysis to total spending shows that beer sales may stagnate,” said Darren Morrison, vice president in AlixPartners' Consumer Products Practice, in a press release. “Despite the overall uptick in demand, our analysis found that one in three consumers would look to reduce their spending on beer by lowering consumption, looking for sales and promotions or trying less-expensive brands.”

Given an estimated market size of $101 billion in the U.S., AlixPartners said this could result in a $1 billion hit to beer sales this year, though the firm noted that craft brews continue to be a bright spot — seeing an increase in sales of 11% in 2010.

As in other consumer packaged goods categories, skyrocketing commodity costs have plagued the alcohol beverage category. Wheat and barley costs alone in 2010 jumped 47% and 24%, respectively, reports AlixPartners.

As a result, suppliers, also suffering from internal cost pressures, invested in deep-discounting deals in an effort to keep demand up as price increases were being passed through.

Going into the summer, however, supplier and distributor deals are said to be not as deep as in the recent past, according to industry observers, due to suppliers trying to recoup their margins, the absorption of increased pass-through costs and the leveling out of trading down that occurred after the recession.

Tom Pirko, president of BevMark, Buellton, Calif., food and beverage industry consultants, said the balancing out of deep discounting to rising prices started changing this spring. “The industry last year and going into the spring really had to compensate with some deep deals and offset some of the price increases.”

He noted that retailers, including Wal-Mart, passed those price increases on to the consumer. Now suppliers are dialing back on those discounts and addressing their bottom lines, said Pirko.

“We are looking at an industry happily stabilizing itself and pulling back on the promotions,” he said.

But he said that the pressure from retailers for better deals is constant. “Going into late fall you may see the pendulum swing back on very big discounting on particular items,” Pirko said.

NATURAL FOOD PAIRINGS

SN spoke with several food retailers about the summer selling season and how they were promoting beer and wine. The emphasis wasn't so much on the big deals, but on selection, service and education.

Food and beverage pairings are a big deal and make a lot of sense to stimulate beverage sales for various summer occasions.

Kroger Co., for example, asks, “What's for dinner tonight? Red or White?” Website visitors can quickly match the food category with Kroger's recommendations of specific wine brands. Kroger also lists all summer events and reminds shoppers to stock up. A similar approach is taken with beer in “Two of a Kind” that pairs beer with a food guide. Kroger also promotes its “Summer of Beer” signs in-store to guide shoppers to the beer aisle.

Whole Foods Market is promoting its “Top Ten” direct import wine picks for summer for $20 or less by conveying the notion that the consumer can be transported to the wine’s country of origin — southern France, Argentina, Greece — where the wine was made.

Among the wines being featured are a Pinot Grigio and Malbec (Argentina), a Sauvignon Blanc (New Zealand), a Cabernet Sauvignon Sangiovese (Italy) and Bordeaux (France).

The Whole Foods blog pairs these picks with appropriate summer fare of an international flavor.

Some food chains see an opportunity with private-label wine.

United Supermarkets, Lubbock, Texas, added Moscato dessert wine to its locally sourced “Farm to Market” selection from McPherson Cellars Winery, also based in Lubbock. The label carries four SKUs, including a Patio Sangria that retails for $6.99, and a red and white for $9.99, all 750 ml bottles. Roy Mohr, a wine steward at a United Market Street store, told SN the white wine “is a darn good summertime white.” During the summer, Roger Scott, United's business manager for beer and wine, said sales pick up on Chardonnay, Pinot Grigio and Pinot Gris, and New Age White, a fruity, slightly sweet wine from Argentina. For outdoor occasions, Tetra packs and four-packs of wine are moving well.

As for beer, Scott said United tries to reach a promotional balance between premium and sub-premium and craft beer vs. imports. United shoppers tend to prefer 24- or 30-pack premiums and sub-premium beers, depending upon the market. As for imports and craft beers, the 12-pack is the most popular selling size.

Scott reported brisk alcohol beverage sales despite searing temperatures and drought plaguing the state. “Depending on the market, some trading up is beginning to occur in wine, while other areas are still cycling down slightly. Sub-premium and craft beer sales are still strong,” Scott reported.

Retailers are hosting tastings and events to spur summer sales.

Jungle Jim's International Market, Fairfield, Ohio, conducts regular tastings of “user-friendly” summer wines in the front of the store, said wine and beer director David Schmerr. Weekly tastings focus on more complex wines, he said. Summer beers and new brews are sampled as well.

On July 29, Jungle Jim's will sponsor its first brewmaster dinner featuring the Great Lakes Brewing Co., an award-winning brewer of lagers and ales. Tickets for the steak dinner and tasting event are $50 per person.

“I think people are definitely still buying good beer and wines. The big guys, Budweiser and Coors and Miller, their sales are down on the low end, but their craft sales are up. People are actually spending a bit more, but instead of buying a 12-pack of Bud Light, they're buying a six-pack of Samuel Adams,” Schmerr told SN.

Specialty food retailer West Point Market, Akron, Ohio, which now carries a wine selection of 4,000 items, went outdoors July 21 to participate in a charity fund-raiser sponsored by the Akron Recreation Bureau called “Taste of Akron.” West Point sampled six exclusive Italian reds at the event that attracts about 600 people.

West Point, which does about 20% of its business in wine, concentrates on buying exclusive, higher-end wines that shoppers won't find at the large grocery chains, said West Point's Rick Vernon, chief executive officer.

Popular price points on exclusive wines are $8.99 to $29.99. The new economy has put $80 to $100 bottles, which used to sell briskly, out of reach for most customers, said Vernon, who added that a $29 bottle today is as good as the $80 bottle. “It's all relative,” he said.

Vernon said they are selling more wine but at lower price points. “When you buy exclusive you get more margin as volume increases, and that makes a difference. Margin for us depends on exclusivity,” he added.

To celebrate its 75th anniversary this year, West Point has contracted with local brewer Thirsty Dog to produce six-packs of English-style pale ale that sell for $9.99. It is moving at a good pace this summer, Vernon added.

With 250 labels of beer, West Point encourages trial by offering mix/match deals for $3 a bottle on a six-pack. West Point shoppers also like to host their own beer tastings at home, Vernon added.

Specialty food retailer Draeger's Market, South San Francisco, Calif., sells wine and spirits with a strong emphasis on wine. The retailer just came off a 20%-off case sale of domestic wines, offered July 6-19. It will run the same sale on imported wines, Aug. 3-16.

Draeger's is known for its selection of imported wines from around the world. “People are looking for alternatives and aren't spending so much on Bordeaux and Burgundies any more,” said Kevin Forsith, Draeger's wine director.

He said the majority of customers are looking for wine they can drink every day. Wines from Chile, Argentina and Spain are selling well. Popular price points are below $15 and $20 a bottle.

“You need to have wines [at affordable price points] to introduce consumers to those countries and then move them up from there.”

Forsith said sales are ahead, but “not by leaps and bounds.”
— Additional reporting by Jeff Wells

TOP 5 SELLING ALCOHOL BRANDS*

*at food stores

SOURCE: SymphonyIRI for 52 weeks ending June 12, 2011, excludes sales from Wal-Mart Stores, club stores and gas/c-stores