By Terri Allan
One of the tiniest product categories in the cold box seems to be garnering big attention from convenience store operators these days, driven by double-digit growth rates and handsome margins. As consumers continue to pull back on spending in outlets like restaurants, convenience retailers who want to effectively compete with grocers and other channels should keep an eye on the cooler.
Sales of craft beer in convenience outlets jumped 16 percent in 2008, according to NACS State of the Industry data, posting the best performance of all beer segments.
“For the last several years, craft beer in convenience stores has grown quite a bit,” confirmed Joe Whitney, director of sales and marketing for Sierra Nevada Brewing Co. Whitney believes that as “craft beer moves more toward the mainstream,” its consumers are increasingly looking for the product in more and more venues. And while he notes that crafts still represent just a small portion of the total beer category in convenience stores — 1.5 percent, according to NACS — he predicts opportunity ahead for marketers and retailers alike. For craft brewers, convenience stores are “the next frontier.”
For the 52 weeks ending January 25, sales of craft brews in convenience stores amounted to more than $233 million, according to Information Resources Inc., a Chicago-based market research firm, with an average case price of $31. Sierra Nevada Pale Ale was the top selling craft, followed by Shiner Bock, Samuel Adams Boston Lager, Fat Tire Amber Ale and Sam Adams seasonal brews.
Convenience retailers and beer marketers report that pricey craft brews are performing well in spite of the economic recession. Ken Gaston, owner of Oscar’s Market in Vancouver, Washington, suspects his customers are opting to purchase crafts like MacTarnahan’s Amber Ale and Widmer Hefeweizen — both brewed in nearby Portland, Oregon — for consumption at home, rather than going out to restaurants and bars. “They’re taking their entertainment money and staying home,” he surmised.
Similarly, Tim Cote, vice president of marketing at Plaid Pantry, a chain of 100 stores in Washington and Oregon, calls the trends on craft beer “sneaky growth,” noting that customers “are leaving restaurants and taverns where they would spend $5 for a craft beer and buying a bottle from us for $1.25 to $1.50 and drinking at home.”
Craft beer marketers say that the strength of their products during such difficult economic times indicates that beer consumers are rationalizing when it comes to spending money. Consumers may be choosing not to dine in white tablecloth restaurants, for example, suggested Sam Calagione, founder and president of Delaware’s Dogfish Head Craft Brewery Inc., but they still want to reward themselves.
“Craft beer represents an affordable luxury in a challenging economy. Consumers are willing to spend $2 to $3 more for a world-class beer,” Calagione said, adding, “affordable luxuries become more important to consumers as their budgets are squeezed.”
Not surprisingly, convenience stores enjoying the most success with craft brews tend to be those located in “well-developed craft beer markets,” said Whitney. He points to the West Coast and high-end markets in Arizona, and especially the Northwest.
“Oregon is a craft beer haven,” remarked Phyllis Simpler, operations manager at Minute Market, with 11 units in southern Oregon. “We have seen the craft beer category grow significantly in the last few years.” She reported that of the typical six-door cooler at Minute Market, one door is devoted to crafts, representing 17 percent of the beer selling space. Walk-in coolers feature additional craft brews, and best-selling labels include beers from the area’s own Southern Oregon Brewing Co. as well as Boston Beer Co.’s Sam Adams and Sierra Nevada Brewing’s Pale Ale.
Gaston from Oscar’s Market estimates that he stocks more than 100 different craft brews in a 40-foot walk-in cooler and in warm displays. Overall, crafts account for 10 percent of the store’s total beer sales.
Cote, meanwhile, said that while mainstream domestic beers are Plaid Pantry’s biggest sellers, his stores devote up to 25 percent of cooler space to craft brews. Those beers in turn account for 20 to 25 percent of the chain’s beer volume sales, and “even more” when it comes to dollar sales. Top-selling craft beers at Plaid Pantry include those from companies such as Widmer Brothers Brewing, Full Sail Brewing and Deschutes Brewery.
Marketers of craft beers say convenience store operators in other states can also capitalize on the growing interest in their products. Joe Menetre, sales director at New Belgium Brewing, maker of Fat Tire, recommended that store operators begin by making room for leading and local craft brews. “Pull a light lager and take a chance on a craft,” he advised.
When it comes to craft beer, Whitney of Sierra Nevada added that consumers claim convenience stores “need to offer more variety. They don’t have the selection that groceries do.” As part of Sierra Nevada’s efforts to expand its presence in convenience stores, the Chico, California-based brewery advises convenience operators on the overall growth trends for craft beer in their particular markets. If a market indexes well for crafts, there’s no reason a local convenience store should not be able to take advantage, Whitney said.
Suppliers also point out that due to space constraints, convenience retailers in general lag behind other merchants when it comes to offering seasonal brews and variety packs — two of the hottest trends in the craft beer category. Whitney reported that sales of seasonal beers skyrocketed 60 percent in grocery stores last year. “But c-stores have been very limited with seasonal beers,” he said. “And that’s too bad because it’s a hot segment.”
Menetre added that convenience stores “will have to capitalize on the trend toward seasonal beers, as more of them discover that seasonals are going through the roof.”
Similarly, variety packs — six-packs, 12-packs and even larger sizes that feature a mix of styles from a craft brewer — are becoming increasingly popular. “Variety packs do very well,” said Plaid Pantry’s Cote. Top sellers at the chain include those from Widmer and New Belgium.
Craft beer singles, generally in 22-ounce bottles, are a no-brainer for the convenience channel, marketers and operators agree, boasting even healthier margins than their domestic and imported counterparts. “One advantage c-stores have is the ability to promote singles,” pointed out Sierra Nevada’s Whitney. “That’s such an impulse purchase.” He suggests that convenience retailers make it attractive for customers to purchase a 22-ounce bottle of a craft brew along with their usual 12-pack of a domestic beer by stocking a variety of the microbrews.
Indeed, retailers Gaston and Cote report that craft singles can be priced from $2.99 for year-round or seasonal brews to $5.99 for “extreme” beers, generally limited production and higher alcohol products. Cote said singles account for 10 percent of Plaid Pantry’s craft beer sales, with individual stores featuring from one to two-and-a-half cooler doors devoted to the brews.
Beyond the cooler, warm displays of craft beer help to promote the category. At Plaid Pantry, half of the chain’s beer displays feature craft brews. “They’re good signs. They let the customer know we’re in the craft business,” said Cote.
Menetre agreed that warm displays can be powerful. While the brewer said most convenience shoppers “don’t pick from a warm display, it will spark a decision by the time they get to the cold box.”
Craft beer marketers are quick to point to the desirable demographics of craft beer consumers. Overall, they’re “high-end consumers,” said Whitney, prone to trading up and with higher basket rings than regular domestic beer drinkers. A case of Budweiser in a convenience store is priced at about $20, he explained, while a case of Sierra Nevada goes for $34.
And Menetre maintained that with such a high basket ring, “that’s not a shopper you want to turn away.” The New Belgium executive cautions that unlike other shoppers who will replace one brand for another, the craft beer shopper “will go somewhere else if craft beers are not available.”
With such a desirable consumer, lofty margins and favorable growth trends, craft beers appear to be just the thing for convenience retailers who want to remain competitive. Marketers expect that, barring any excise tax increase, craft beer will remain the most dynamic segment of the beer category.
Even with a continued rough economy, craft beer can still surge in convenience stores. “If consumers continue to go out less but still want to have a craft beer,” said Menetre, “this could be a good opportunity for c-stores to attract those customers.”
Terri Allan is a New Jersey-based freelance writer, specializing in the beverage industry. She can be reached at terri4beer@aol.com.