By Terri Allan
One of the oft-repeated anecdotes from last year’s State of the Industry Summit, held in April, is from Walter Zimmermann, chief technology analyst at United Energy. He said that if the country was indeed entering a recession — and he turned out to be right — then convenience stores were well-positioned to survive and perhaps thrive. “When people are stressed they’re probably going to smoke more; they’re probably going to drink more,” he told the crowd. “That’s right up your guys’ alley.”
Thankfully, he was right. And while convenience store shoppers in general scrutinize their discretionary spending and seek value, the good news is that despite the trading down and enhanced competition from other trade channels, there continues to be opportunities for increased sales and profitability in the beer category.
“The recession is hitting convenience stores hard,” remarked Bob Gulley, senior category manager at am/pm. “Consumers are looking for value more than ever,” and increasingly trading down to below-premium brews and seeking beer multi-packs with value pricing. Moreover, Gulley continued, consumers are “consolidating trips. They’re shifting to grocery and drug stores from convenience stores.”
Todd Siegel, senior category manager of beverages at Thorntons Inc., said he is seeing the same trends at the chain’s 125 stores that sell beer. Siegel reported that large-pack sales of sub-premium brews like Keystone, Natural Light and Busch have increased. But even as the volume sales are helpful, he noted, “the margins are not as good as on regular domestics, imports and crafts.”
Beer marketers corroborate that economic conditions, coupled with fluctuating fuel prices, are taking a toll on convenience stores. Chris Steffanci, senior vice president of sales at Heineken USA, reported that the convenience channel — the largest retail segment for beer — is losing share to grocery, drug and liquor stores. He cited “lack of traffic, higher gas prices and the overall economy” as factors.
Joe Vonder Haar, vice president, convenience channel at Anheuser-Busch Inc., said that the shift became apparent when gas prices started hitting $4 a gallon last year. “Consumers are changing their buying patterns. They’re separating their buys,” he explained. While convenience stores “have always been a destination for beer,” Vonder Haar reports that the recession has disrupted the traditionally high correlation between the pump and beer sales.
According to NACS State of the Industry data, the beer category continues to be profitable. Sales of premium brands are still strong, and in 2008, beer experienced an 8.42 percent increase in gross profit dollars per store, due to a 1.28 percent increase in gross profit margin. Beer ranks fifth in terms of total gross profit dollar contribution among the in-store categories, earning an average of $36,707 in 2008, and its gross margin contribution percentage is 8.39 percent, on average.
Tight consumer spending has prompted a shift in beer package trends. Convenience executives and beer marketers point to the growing consumer interest in large multi-packs — packages traditionally more common in grocery and big box stores.
Craig Morris, director of national accounts at MillerCoors LLC, reported that “30-pack cans and 24-pack cans were the only growing premium packages” in convenience stores during the first quarter of this year. He attributes it to “consumer preference for price per-serving value during the economic squeeze.” Indeed, Gulley says that am/pm, with 1,400 stores that sell beer, is “focusing on value” by stocking 30-packs at everyday low prices (the overall top-selling beer SKU at the chain is an 18-pack of Bud Light in cans).
Gulley remarked that another popular beer package is the relatively new three-pack of 24-ounce cans. The three-packs — promoted by vendors like A-B, MillerCoors and Heineken — contain the same amount of beer as a standard six-pack but with a little bit lower price point. The packages help “get us foot traffic every day while multi-packs don’t,” the am/pm executive said. A-B’s Vonder Haar reports that the three-packs were introduced “at the request of retailers as a way to effectively merchandise single-serves. It’s purely a convenience item as a shopper can pick it up in one hand and still shop the store.”
In addition to new packages, some convenience retailers believe that an expanded beer selection will help get them through the tough times, and they remain committed to enlarged coolers such as beer caves. Thorntons, for example, boasts 72 stores with beer caves, and Siegel links them to an overall beer sales increase “month after month. They allow us to increase our capacity, and offer the packages that we never had room for,” he explained. “That’s important, especially now.” Siegel especially likes the caves’ single doors because they allow for full-door merchandising of beer singles and another full door of craft brews.
“Best-practice retailers play up cold and in-stock,” remarked Vonder Haar. “It’s not about a 100-case display, but pack out.” And while caves can be a big capital investment, the A-B executive called them “an investment in the category,” and said they provide retailers with a “point of differentiation.”
Promotional and merchandising support help to drive sales. Gulley says am/pm does “quite a bit of custom promotions” with beer vendors, but generally opts for those with some type of local tie-in, such as a program featuring a local baseball team.
Siegel reported that with 12-packs in convenience stores facing fierce competition from other channels, “we’re trying to emphasize singles.” In a program Thorntons has planned with A-B, the chain will feature 24-ounce cans of Budweiser and Bud Light on ice in barrel merchandisers, placed in highly visible areas beginning around 3:00 p.m. each day.
Both Siegel and Gulley report that any concern they might have had a year ago about their relationships with leading beer marketers and their distributors have dissipated. The joint venture between Miller Brewing and Coors Brewing and A-B’s acquisition by InBev have had little effect on their businesses, the retailers said.
Siegel believes that the joint venture has actually been a boon for Coors Light, a label seeing healthy growth, as the brew “has benefited from being able to go with the Miller network.” As for A-B’s new parent, Siegel reported, “there’s been no pain from InBev.”
Convenience retailers and beer marketers see a number of areas of opportunity for the beer category, regardless of the economic climate. First, they point to new legal-age consumers. “For a lot of guys in their 20s, a c-store is their pantry,” remarked Jim Koch, president of Boston Beer Co., marketer of Samuel Adams Boston lager. “They don’t shop in grocery or club stores.” Vonder Haar agreed: “The next generation [of beer drinkers] grew up in c-stores. This brand new audience will seek variety, packaging mix and efficiency.”
Brewers and retailers also describe opportunity in working together on convenience store-specific programs.
“I think as brewers, we can do a better job of helping to create excitement both in the cooler and on the floor,” admitted MillerCoors’ Morris. He points to “new ideas that tap into the c-store consumer passion points. We have to move from ballot-box sweepstakes to more interactive and passionate programming. Let’s really give [consumers] a reason for buying beer here versus someplace else.”
Both Gully and Vonder Haar believe there’s big potential to tie-in beer programming to emerging and profitable segments like foodservice. Heineken USA’s Steffanci said his company is working with retailers and distributors on beer sampling programs in convenience stores, where legal, such as is done in liquor and grocery stores.
Vonder Haar believes convenience retailers can even take it one step further through “knowledgeable employees.” Customer service ranks second to location for beer convenience store shoppers, he said, noting that increasingly, retailers are showing interest in educating and training their employees about beer. The A-B executive says that as retailers continue to be under pressure with other categories like fuel and tobacco, they must focus on those segments — like beer — with the most potential. “They have to look to the future,” he said.
Terri Allan is a New Jersey-based freelance writer, specializing in the beverage industry. She can be reached at terri4beer@aol.com.