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Category Close Up: Pouring on the Profits

Category Close Up: Pouring on the Profits
By Terri Allan

A number of smart conve­nience retailers readying their stores for the hot cate­gories of the future have "grape" expectations.

Wine sales have been on the rise lately at Thorntons Inc. In fact, the surge in sales has prompted the conve­nience store chain to add wine products to more of its stores. "We€™re expanding and upgrading our wine offerings," re­ported John Zikias, vice president, sales and marketing, at the Louisville-based chain. By the end of this year, 28 units in Indiana, Illinois and Ohio will stock wine, he continued, up from 18 stores in September. Zikias attributed the move to "increased customer demand for wine."

The Jacksons Food Stores chain is also benefiting from growing consumer interest in wine. "Our wine business is good. Year to date through August, our wine sales are up 15 percent," said Rich Faw, category manager for the Merid­ian, Idaho, convenience store operator. Faw noted that while overall demand is strong in the four states (Washington, Oregon, Nevada and Idaho) where Jacksons offers the product, specific wine type and varietal trends vary de­pending on the market. "Malbecs and moscato are getting popular," he ex­plained, "but in a market like Idaho, sweet wines like rieslings and white zinfandel are strong." About 180 of Jacksons€™ 207 stores sell wine.

And at Handy Mart in Virginia, wine sales at two of the stores that feature dedicated wine departments have been so strong that the convenience-store operator is considering adding more to future units. Kevin LaFollette, vice president, operations, said that wine sales at the two stores, which offer "D-Vine Wine" sections, surged 19 per­cent in the most recent fiscal year.

Indeed, the wine category, albeit tiny, is a growing one for the nation€™s conve­nience stores. Tony Gaines, director of customer development at E. & J. Gallo Winery, revealed in September that overall volume of wine in the convenience channel is up 6 percent year to date, according to IRI data, making it "one of the leading CPG categories in c-stores, based on growth." Dollar sales and gross margin trends for the segment are also showing impressive gains.

According to NACS CSX data, aver­age monthly per-store sales of wine jumped last year to nearly $12,000 from $9,084 in 2009. Average gross margin dollars from wine increased to $3,324 from $2,616 in the year prior, with gross margin percentages up to an average 28.2 percent in 2010, versus 27 percent in 2009.

Gaines remarked that "consumer perception of wine is helping" to drive sales in convenience stores, along with changing consumer demographics. He noted that the emerging "millennial" consumer is increasingly a wine drinker. This burgeoning consumer demand has prompted many convenience retailers to either add wine to their stores or to expand their current wine offerings.

The Price is Right

Wine suppliers report that pricing can be pivotal when it comes to selling wine in convenience stores. Wines priced be­low $7 for a 750 ml bottle are the sweet spot, Joel Magad, director of national retail development at Trinchero Family Estates, the marketer of Sutter Home wines, said. Gaines concurred, noting that Gallo€™s Barefoot label, priced be­tween $5 and $7 per bottle, is growing at a rate of 25 percent.

Indeed, wines priced from $4 to $5 per bottle, so-called "opening" or entry-level wines, are surging at a rate of 50 percent, Gaines said. While the price point may be somewhat modest, the wine marketer noted that it is an impor­tant one as it "brings in new consum­ers."

Unlike other in-store categories that are seeing marked trading down during the weak economy, wine is experienc­ing "price point bouncing," the E. & J. Gallo executive continued. "For special occasions, people will continue to buy the better wine," he explained, "but for everyday consumption, there is some trade down. At the same time, consumers are buying more wine."

Jacksons Food Stores attempts to sat­isfy every wine customer€™s preference, regardless of pocketbook. Faw said that his stores try to offer at least one label of every leading varietal at a range of points, such as $6, $8, $10 and $12. Overall wine selection at Jacksons ranges from single-serve 187 ml bottles at $1.99 each ("We sell thousands in a month," Faw reported.) to five-liter boxes of Franzia wine at $14.

And some convenience store chains have opted to launch their own private-label wine in an effort to market value-priced wine to their customers and to improve on already attractive margins. Earlier this year, 7-Eleven added VitAlma pinot grigio to its proprietary wine offerings in select stores. The Italian wine, priced at $7.99 per bottle, joined the retailer€™s other private-label wines, Yosemite Road, Sonoma Crest and Cherrywood Cellars.

Smart Merchandising

Convenience retailers and wine marketers note that savvy shelf management and merchandising strategies can add extra luster to wine sales and profitability. Faw reported that most Jacksons Food Stores locations feature a four-foot-wide section of warm shelf space, four shelves deep, for wine, and at least one shelf in the cooler. He said he also strives to have one featured wine display, such as the recent promotion in Idaho awarding 50-yard line seats to Boise State football games, in partnership with Gallo.

Handy Mart€™s D-Vine wine departments, meanwhile, are about 120 square feet, LaFollette reported, and carry between 35 and 50 SKUs, priced from $9.95 to $29.95 per bottle. To help merchandise featured wines, such as those touted for $20 or less, the stores erect separate racks. In addition, wine department signage helps customers make their product selections, LaFollette noted, with descriptors like "intense red" and "sparkling white." Thorntons also provides educational information on its wines via shelf tags that describe the wines and suggest food pairings.

Gaines remarked that with the right merchandising support, convenience retailers "can take the wine buyer away from other trade channels." He pointed to best-practice strategies like placing a wine display near the front of the store €" such as a front endcap €"adding warm product to buttress cooler supply and outdoor signage, where legal, alerting consumers that the store sells wine. Moreover, Gaines noted that some convenience stores now feature wine caves or wine cellars.

With the holidays approaching, the E. & J. Gallo executive recommends the expanded use of wine displays in convenience stores. "Even a small three-case stack display of sparkling wine or table wine can help drive inventory sales," he said. "And a three-case stack only takes up one-and-a-half tiles." Faw from Jacksons Food Stores agrees that wine displays during the holidays are a good strategy; his stores feature up to four wine displays at year€™s end. Thorntons, meanwhile, has found success by cross-merchandising wine bottles with items like gift bags, tissue paper and corkscrews for last-minute gift-giving purchases.

Outrageous Opportunity
While convenience store operators and wine marketers alike are enjoying the favorable trends for wine, they still point to several areas of opportunity. Gallo€™s Gaines and Trinchero€™s Magad believe the time is right for convenience stores to venture beyond the 750 ml bottle package. Single-serves are a no brainer, they say.

Gaines noted that 187 ml packaging accounts for 18 percent of all wine unit sales in the channel, yet many convenience stores don€™t stock them. "You wouldn€™t have your beer selection missing singles," he suggested. Magad, meanwhile, reported that Tetra single packs are "catching on quickly. It€™s the ideal convenience package for the cstore customer."

But Gaines sees the biggest opportunity for wine in convenience stores as more and more retailers jump on board. According to the winery executive, there are some 35,000 convenience stores that can sell wine but do not. "Wine is an easy category to get into," he said. "All you need is about three feet of warm shelf space and a shelf or two in the cold box." And the benefits can be rewarding, he continued, with wine overall outselling categories like meat and ice cream in convenience stores.

For those retailers already selling wine, the future is, well, ros̩. Handy Mart۪s LaFollette remarked, "There is no question that wine will continue to grow in sales and contribution."

Terri Allan is a New Jersey-based freelance writer, specializing in the beverage industry. She can be reached at terri4beer@aol.com.