A NEW DIRECTION

RICHARD TURCSIK

Many retailers are taking their microbrew departments in a new direction to keep their beer sales heading north.

No longer in vogue are departments featuring hundreds of stockkeeping units of microbrews gathered from across the fruited plains. Instead, many retailers are now concentrating on a few leading and locally popular brands along with the strong national players, including Samuel Adams, Pete's, Red Dog, Anchor Steam and Sierra Nevada.

Dozens of microbrew brands have gone out of business over the past year, and the rate of introduction of new ones has slowed dramatically.

"I am not seeing new brands pop up like I was seeing a few years ago. I don't really see any growth in the microbrews over the next few years -- they have plateaued," said Bob Jennings, buyer and merchandising manager at Raley's Supermarkets & Drug Centers, West Sacramento, Calif.

Jennings said that while microbrews have maintained market share in his stores, most of the growth has come from the larger brands like Sam Adams, Sierra Nevada and Gordon.

Gary Hemphill, vice president for information services at Beverage Marketing Corp., a New York-based beverage industry consulting and sales tracking firm, made similar observations.

"The microbrews are still growing, but not how they were just a few years ago. A lot of the growth was coming from the introduction of new products and new brands," he said, noting that up until about a year ago, new microbreweries and brew pubs were popping up on what seemed like a daily basis.

Eric Shepard, executive editor of Beer Marketer's Insights, an industry newsletter based in Nanuet, N.Y., said the microbrews have plateaued because just about everyone who wanted to experiment with microbrews has already done so.

"There is also a saturation of the market; there are too many brands out there. I suspect that some of those brands have sat on shelves for far too long. Some consumers [may have gotten old beer] and it may have turned them off to the market," he said.

Roy D. Burry, a securities analyst with CIBC Oppenheimer, New York, had an even more pessimistic view on microbrews.

"The microbrews are dead!" he asserted. "It is a saturated market that is not growing anymore. A few strong companies may survive; for example, Boston Beer is doing OK, but in terms of the total segment of the beer business it is something like 2%." Not surprisingly, consolidation of companies is well under way.

New York-based Spring Street Brewing Co., which gained fame as one of the first stocks sold to the public over the Internet, was forced to seek a merger with Long Shore Brewing Co. after the bottom fell out of the craft beer market, according to its annual report published in late March.

According to the report, Spring Street had trouble expanding its line of contracted Wit beer to new markets because, "With few exceptions, consumers, retailers and wholesalers preferred local and regional brands over brands like Wit that were being marketed and sold into distant markets."

In response to current consumer preferences, retailers are looking to fill shelf space formerly devoted to a wide assortment of microbrews with the increasingly popular imports and strong domestic premium and popular-priced brands.

"When it comes to beer, you have to find a happy medium centering on category management," said a source for A&P, Montvale, N.J., who did not wish to be identified.

"I don't want to walk into a store on a Sunday and see that we are out of Budweiser 12-packs or Coors Light or Miller Light because we have gone overboard [on microbrews]," he said, adding that with some slow-moving microbrew brands the freshness of the product is also a major issue.

Oscar Sicola, liquor and beer buyer and merchandiser for Fiesta Mart, Houston, said that some of the microbrew items have already fallen by the wayside.

"I don't see anything on the horizon to indicate that there will be a huge influx of micro or specialty beers coming down the pike anytime soon," he said.

Although microbrews still account for 20% to 25% of sales in some of his locations, Sicola said those stores "are few and far between." To help spur sales he has increased facings of some local products that are well-received.

"We sell St. Arnold's, which is a Houston microbrew, and it is doing real well for us. Right up the road from Houston, about 100 miles from us, is another microbrew called Shiner. That is my leading item in micro/specialty beer six-packs and 12-packs. It is doing extremely well and nothing seems to be slowing it down right now. Both of those brands are growing," he said.

Spokane, Wash.-based Rosauers Supermarkets finds that customers in Washington, Oregon, Idaho and Montana have widely varying tastes when it comes to microbrew beers.

"Coeur d'Alene, Idaho, is 30 miles from Spokane, and [the town has] a beer called T.W. Fisher, which has a huge share of the market," said Pat Redmond, grocery buyer.

"You go into Montana and they have their favorite brand. If you go down into eastern Oregon, it is a totally different group of beers, with Portland Brewery selling very well. The beers are more regional than by city, because they take in more areas, including whatever major cities are there," he said.

Redmond described the microbrew business as "faddish."

"In Germany every town has its own sauerkraut. In this country just about every town has its own beer," he said.

At Rosauers, microbrews account for 8% to 10% of department sales, a figure that is holding steady. "That figure is not going down any. We are constantly fine-tuning our sets to add in the most popular new items," Redmond said.

A beer buyer for another leading Pacific Northwest chain, who did not wish to be identified, said that when it comes to microbrews, his shoppers definitely want something local.

"People in Washington will drink Washington micros and Oregon micros, but people in Oregon drink Oregon micros and Washington wines. That is a general rule of thumb," the buyer said.

He noted that microbrew sales have slowed down: while they used to double annually, they now increase 10% to 15% each year, he said. In an attempt to augment sales this summer, he plans to promote microbrews together with the enormously popular import category.

"One is going down and the other is really hot. I'm going to piggyback some promotions and take it more as a larger category," he said, noting ads might read something like "Your choice, two packages for $11."

Jennings of Raley's said he will be promoting microbrews occasionally throughout the summer to stimulate sales.

"We'll have a couple of microbrew beer sales throughout the summer in which we feature about 10 different microbrews. We just want to maintain the sales that we have, and they continue to be pretty good margin items," he said.

Back East, Magruder, a small chain operating in the Baltimore/Washington corridor, has had success with Old Heinrich, a locally produced product.

"We have small stores and to really do microbrews properly, you need a minimum of 100 varieties. In a grocery store you can carry maybe 20 or 25," said Mark Polsky, senior vice president of the Rockville, Md.-based chain.

Polsky observed that microbrews are holding their own, but they are not a big category in the grocery stores. On the other hand, Magruder's liquor store carries about 200 varieties of microbrews, where they do very well, he said.

Tom Roesner, buyer for beer, wine and liquor at Seaway Food Town, Maumee, Ohio, said his sales of microbrews have slowed down and even started to decline.

"I think the microbrew section is going to be like the wine cooler section was 15 years ago, and you're going to end up with a few surviving brands, like Pete's, Sam Adams and a few others," he said.

Roesner had success with one local microbrewery until it failed and shut down. "There is another strong local brand called Great Lakes that hasn't been presented to us yet. Once it is we will probably take it on," he said.

Waning sales have prompted Roesner to re-examine the category.

"We are doing an SKU rationalization and are looking at taking the items that are not performing properly off the shelves. We have no expansion plans for the category," he said.

To help stimulate sales, Seaway is testing a mix-and-match program in two of its high-volume stores. Under the program customers can pack a cardboard six-pack holder with six different varieties.

"We price the beers on a per-bottle basis. Each bottle has a paper price sticker so the cashier can either ring up that price or take the bottle out of the holder and scan it," Roesner said, adding that state law prohibits offering multiple beers at a discounted price.

While microbrews may already have seen their heyday, Roesner said, total beer department sales are still increasing.

"We are still seeing strong growth of the premiums, and the mid-tier beers in the 24-can cases are doing well. A lot of the imports have also been strong," he said.

"We find our shoppers are drinking less, but they are drinking a better quality. If the economy should have a turn I think we will see a shift back to more of the mid-priced products," he said.

Retailers and industry experts noted that while interest in microbrews may have crested, the demand for imports is rising.

Hemphill of Beverage Marketing said "tried-and-true" import brands, including Heineken, Molson and Corona, have seen strong sales increases, while microbrews continue to decline. Volume at Boston Beer, the parent company of Samuel Adams, declined 7% in 1997, according to Beverage Marketing figures.

Like Shepard of Beer Marketer's Insights, Hemphill observed that the consumers have been overwhelmed by the large number of microbrews inundating the market.

"People may have gone back to the famous imports, like Corona, Heineken and Bass, because they are the brands that people may have been familiar with. A lot of the major imported brands are doing well and did well last year," Hemphill said.