Beer: The Upside of Boredom?

Jim Koch of the Boston Beer Co.
Beer: The
Upside of
Boredom?
Customers craving crafts ignore economic
slump; imports looking for equal win
By Steve Holtz || sholtz@cspnet.com
J
im Koch is realistic about craftbeer sales in convenience stores.
“The whole category’s only
5% of the beer business. In c-stores it’s
probably about 2% of the beer business,”
says Koch, founder and chairman of the
Boston Beer Co., maker of Samuel Adams.
Still, he’s vitally aware of the opportunity that exists in that small market.
“C-stores are the last frontier for craft
beer,” he tells CSP in an exclusive interview. “C-stores have really been the last
channel to open up space for craft beer.
… The opportunity has ripened for
c-stores, and craft beers are popular today
among c-store shoppers. That wasn’t as
true 10 years ago.”
Koch’s perspective is both realistic and
flush with opportunity.
Preliminar y numbers from the
NACS® State of the Industry Report of
2010 Data show microbrews up slightly
in the channel, making up roughly 2% of
beer category sales.
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Jul y 2011
53
Beer Set and the Recession
Did you change your beer set to accommodate consumers during the recession?
Yes, I gave more space to below-premium beers. 8.7%
Yes, I gave more space to single-serve packaging. 8.7%
Yes, I promoted deals more heavily. 7.8%
All of the above. 20.4%
No, I didn’t make any changes. 34.0%
We don’t sell beer. 16.5%
Other. 3.9%
Source: CSP Daily News Poll. Based on 103 respondents.
The optimism is in the growth upside.
SymphonyIRI Group data shows the
craft-beer category grew 12.8% in dollar
sales and 12.4% in volume in c-stores over
the 52-week cycle ending April 17, 2011.
This comes as the beer category overall
decreased 1.7% in volume. The only subcategories beating the growth of craft beers
were ciders (up 22.6%) and flavored malt
beverages (up 15.9%).
These statistics are echoed on the
streets. “When you walk into any highend store, you’re starting to see more
movement toward craft brews all around
the nation,” says Sulu Jaffer, manager of
nine Intown Market convenience stores
in Atlanta, and a craft-beer enthusiast.
Dana Sump, category manager for the
more traditional Casey’s General Stores, is
seeing it, too. “Blue Moon and Sam Adams
seem to be making the biggest gains [in
high-end beers],” he says. “This has a lot to
do with the continued focus on advertising and marketing of these brands. They
have a ways to go to catch Corona and
Heineken in volume yet, though.” The
high-end-beer set in Casey’s more than
1,600 stores can range from 3 feet to up to
12 linear feet, depending on the market.
Chairman of the Bored
Why the current success for craft beers?
Continued news of a struggling U.S.
economy and high unemployment
would suggest consumers are cutting
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back, not dipping in a little deeper for a
higher-end brew.
“They’re simply an affordable luxury,”
says Larry Munshower, convenience
channel manager for Rochester, N.Y.based North American Breweries, which
represents the Labatt Blue, Honey Brown,
Genesee and Magic Hat beer brands,
among others. “People have scaled back
on expensive houses, cars, jewelry, etc.,
but just about everyone can afford a $10
six-pack.”
Consumer data backs up Munshower’s theory. Craft beers have long excelled
in on-premise accounts; but as the
recession forced fewer restaurant visits,
those drinking occasions moved closer
to home, presenting an opportunity for
beer retailers, according to research from
Chicago-based Mintel.
“As consumers decreased on-premise
alcohol beverage consumption, they
likely moved to craft beer as an affordable luxury for home consumption,” says
a November 2010 report from Mintel.
Affordability aside, the trend is more
a reflection of consumer personality,
according to Tom Pirko, president of
Bevmark LLC, a food and beverage advisory firm.
“Consumers are bored, and they’re
looking for something to better define
themselves,” says Pirko, who is based in
Buellton, Calif. “In the recession, consumers have left the ‘middle’ out. …
They’ve gone in two directions: Either
they’re going to buy the cheapest possible
beer … or they will spend more if they get
the satisfaction of this image boost or if
they can choose something that is interesting and makes them look interesting.”
Retailer John Zikias has seen it, too.
“Consumers are starting to get fatigued
with trading down,” said Zikias, vice president of marketing for Thorntons Inc.,
Louisville, Ky., during the NACS State of
the Industry Summit in April. “We’re seeing people saying, ‘Maybe I’m not going
to buy that 18-pack. Instead I’ll buy a sixpack, but I’m going to drink a better beer.’ ”
The insight team for Tenth and
Blake, the high-end-brand managers for
MillerCoors, Chicago, tells CSP there is a
generational element to the swing as well:
“Millennials attempt to actualize their values of seeking variety, local sourcing [and]
a belief in authentic expression through
craft beer.”
As a result, volume sales of the top 10
premium light beer brands were down
0.4% in c-stores for the 52 weeks ending
April 17, according to SymphonyIRI. Bud
Light was flat, Coors Light up 2.8%, and
Miller Lite down 2.4%.
So with the new Tenth and Blake team
driving high-end sales, is there a risk of
cannibalizing domestic beer sales?
“No, there’s definitely room for
growth for both our craft and imports,
as well as premium lights,” the team says.
“Ultimately, it comes down to occasion.
We have a broad portfolio of options for
beer drinkers, whether they’re seeking
refreshment or seeking to savor a beer.”
The Role of Imports
Meanwhile, the imports side of the highend-beer coin is facing mixed sales results.
Certainly in a market where consumers are
looking to demonstrate “authentic expres-
Top 5 Craft/Domestic Specialty Beers
Product
C-store sales ($ millions) PCYA*
Blue Moon Belgium White Ale
Case sales
PCYA*
$13.2
29.8%
393,874
29.9%
Rolling Rock
$9.2
48.2%
459,135
69.4%
Sierra Nevada Pale Ale
$8.5
9.3%
240,862
9.7%
Shiner Bock
$6.6
5.7%
211,792
5.1%
Samuel Adams Boston Lager
Total (including brands not shown)
$6.3
5.0%
186,400
6.6%
$74.8
12.8%
2.2 million
12.4%
Top 5 Imported Beers
Product
C-store sales ($ millions) PCYA*
Corona Extra
PCYA*
$134.3
2.7%
4.3 million
2.6%
Heineken
$84.2
–0.7%
2.6 million
–0.9%
Modelo Especial
$55.6
17.9%
2.2 million
19.3%
Labatt Blue
$19.6
–8.7%
955,628
–8.2%
Labatt Blue Light
Total (including brands not shown)
$18.9
2.9%
933,564
34.6%
$417.5
2.9%
14.7 million
2.5%
Source: SymphonyIRI Group
* Percent change from a year ago
sion,” imported beers can fit the bill.
But sales data from SymphonyIRI,
echoed by preliminary figures from the
NACS® State of the Industry Report of
2010 Data, show the import category
basically flat, down 0.1% in 2010.
The Mintel report says imports’
loss is craft beer’s gain, showing more
than one-third of beer drinkers “have
decreased import consumption in favor
of craft beer.”
More recent data, however, suggests
that tide may have turned in more recent
months.
“The slowdown in the economy
has negatively impacted the disposable
income of many beer drinkers and led
to some trade-down,” says Steve Ward,
vice president of national accounts for
White Plains, N.Y.-based Heineken USA,
acknowledging the struggle imports have
faced. “But we are seeing that the import
segment overall is returning to growth.”
More recent SymphonyIRI numbers
show imports grew 2.5% in convenience
stores for the 52 weeks ending April 17,
2011. As cited above, during the same
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52 weeks ending April 17, 2011
period, craft beers were up 12.8%, showing that both high-end subcategories can
grow at the same time.
Scott Waters, vice president of convenience channel for Chicago-based Crown
Imports LLC, importer of Corona, Modelo and recent U.S. entry Victoria, agreed
growth has returned in recent months.
“High end is what’s growing because people are looking for something authentic,”
he says. “People are looking for authentic products that satisfy their needs and
branded items are doing very well.”
Ward adds, “Good beer is an affordable
luxury for many consumers, and all our
research tells us that the desire to upgrade
their beer experience on occasions they
consider special is alive and well for beer
drinkers. This bodes well for the imported
segment in the near term as disposable
income improves.”
Still, what’s driving the increase? If it’s
affordable, why was it flat in 2010?
taSte and valUe
Koch of craft specialists Boston Beer obviously has a view. He subscribes to Pirko’s
boredom theory and says any retailers who
focused on budget beers during the recession did themselves a disservice by trading
the consumer down.
“The subpremiums don’t taste that
much different from the premiums, so on
that end, people can get pretty much the
same flavor for less money,” he says. On
the other hand, “a craft beer … will sell
for the same price as [an import], but it’s
got a lot more flavor, and the consumer
can tell that. … People are looking for
value, and value doesn’t necessarily mean
the cheapest thing on the shelf. Value
means something that is worth what you
pay for it.”
The major brewers are keenly aware
of these issues, of course. On the craft/
imports side, they’ve bulked up their
portfolios with introductions and acquisitions of microbrews—most recently,
AB-InBev’s purchase of the Goose Island
brand—and import brands.
“These beers are an affordable choice
for high-end drinkers, who tend to be
higher income and less affected by the
economic downturn,” says Manny Zayas,
vice president, convenience-store channel
for Anheuser-Busch Inc., St. Louis. “It has
led to some softness across the industry
and, in particular, the industry’s largest
segment in premium lights.
“While we wait for the economy to
recover, we remain focused on the things
we can control: staying in front of our
consumers through aggressive marketing
and improving business processes.”
Adds the MillerCoors Tenth and
Blake team, “Consumer taste palates
are evolving and expanding. Consumers are demanding variety in purchases,
and experimentation appears to be an
increasing value.”
Consumer research from Heineken
USA supports the idea that imports
Crafting a Strategy
In setting a cooler, it is possible to have too much of a good thing. Beer brewers all acknowledge the small share crafts and imports represent in convenience stores (about 2%), but
they also encourage growing the section as appropriate to take advantage of current trends.
“Retailers need to overinvest in the high end, whether it’s imports or you’re in a hotbed
for crafts, like Seattle, Chicago or New York,” says Scott Waters, vice president of convenience
channel for Crown Imports LLC. “[Crafts and imports] put more money in the till. They satisfy
a customer that’s probably younger, more affluent, so they’re also buying the better grade of
chips and other products. So the basket ring for imports is going to be higher. It’s a valuable
customer.”
One trick to getting it right is avoiding some common misconceptions, outlined here by
Jim Koch, founder and chairman of the Boston Beer Co.:
▶ Craft-beer drinkers experiment a lot.
“Generally, that drinker has a favorite craft-beer brand. They may have tried a few; they
typically settle on one,” says Koch. “So they’re not that experimental.”
▶ Craft-beer retailers need to carry a wide variety of brands and styles.
“The very consistent pattern is: Roughly five brands in crafts and domestic specialty make up
75% of the volume. Then the next 200 brands make up the last 25% of the volume.”
▶ Craft-beer drinkers drink only craft beers.
“The idea that the craft-beer drinker doesn’t buy Bud, Miller or Coors is wrong. There’s a lot
of overlap.” 58
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For tips on how to develop a craft-beer set, visit www.cspnet.com/crafttips11.
J uly 2 0 1 1
are getting a sustainable boost, according to Ward. “Our customer research
reveals that import brands tend to have
a larger multicultural consumer base
than domestic brands. Together, AfricanAmerican and Hispanic consumers make
up 44% of import volume, as opposed to
22% of domestic volume,” he says.
Daniel Mandelbaum, brand director for Heineken, says this insight goes
back to the beginnings of craft beers.
“Traditionally, craft beers are served in
draught,” he says. “The draught format
is not readably available in many of the
African American- or Hispanic-focused
on-premise channels.”
These two groups, Ward says, have
been hurt more by the struggling economy, driving the sensitivity of the import
market. Alternately, the market for crafts
is highly Caucasian, so crafts are less
affected in an economic downturn.
“That being said, there is a huge opportunity with multicultural consumers,”
Ward says. “The demographic is growing
rapidly; by 2020, ethnic consumers will
drive more than 70% of all the growth in
the beer market, much of this driven by
multicultural millennials,” who embrace
upscale products and “tend to favor
imports above crafts.”
Down on the Upside
On the budget-beer side, both A-B and
MillerCoors have decided that as they
make price increases, they will lean
more heavily on budget beers, essentially “minding the gap” between the low
end and the middle, and aiming to trade
consumers up.
“We continue with our strategy
introduced with the September 2010
price increases of reducing the price gap
between our own subpremium and premium brands, which has historically been
around 25%, to a level of around 15%,”
Anheuser-Busch InBev CEO Carlos Brito
said during an earnings report in May.
“We’re encouraged by the progress we’re
making, and we’ll continue to work to
narrow this gap in the coming years.”
The strategy makes sense to Waters
of Crown Imports. Many retailers, he
says, overreacted to the recession by overinvesting in budget beers and trading
consumers down.
“Below premium, everybody jumped
on that bandwagon for all the wrong reasons. And that was they felt like there’s
less money in everybody’s pocket,” he
says. “What we’ve seen in the last six or
eight months is the below-premium
beginning to decline, and that’s primarily because the domestics have closed the
gap with the premiums from a pricing
perspective because that wasn’t good for
their business either.”
SymphonyIRI data shows domestic
subpremium brands were down 4.3%
for the 52-week period ending April 17.
To Pirko, ultimately, minding the
beer section comes down to recognizing
trends and knowing what’s happening in
your store and your market.
“You have to be very adaptable in the
convenience-store [industry],” he says.
“These trends are picking up speed.
You really can make more money if you
understand the dynamic of change for
consumers that’s going on right now.”
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SHare aliKe: When Four Loko and other high-alcohol
malt beverages with caffeine were forced off shelves
by the FDA, it allowed more established drinks, such as
Sparks and Tilt, to regain some share.
Not Your Mother’s FMB
Once upon a time, the flavored malt beverage (FMB) category was
the beer for the lightweight drinker, often female. Today’s additions to
the subcategory are not your mother’s FMBs. With alcohol volume in
the newer drinks pushing 13%, brewers have captured the attention
of 21- to 29-year-old male drinkers, among others, bringing attention
to a subcategory that was an afterthought for some in recent years.
“Have you tried the stuff? It’s nasty to me,” says one convenience
retailer in the Midwest who requested anonymity. Citing Four Loko and
Joose as the primary traffic drivers in the category, he says, “Nevertheless, we are selling a bunch of it.”
And he’s not the only one. Preliminary
numbers from the NACS® State of the
Industry Report of 2010 Data, citing Nielsen
statistics, show the FMB category grew 0.6%
in c-stores, the largest growth of any beer
category, to account for 4.3% of beer sales.
SymphonyIRI Group data shows the category
grew 15.9% in dollar sales in c-stores during
the 52-week period ending April 17, 2011.
“There’s a lot of new choices, a lot of
opportunity to introduce new products,” says
Tom Pirko, president of Bevmark LLC, a food
and beverage advisory firm.
Much of that opportunity comes via
the tenet that there’s no such thing as bad
publicity. Last year, the FMB category had a
major run-in with the Food and Drug Administration and several state agencies following
newspaper reports of teenagers and college
Top Flavored Malt Beverages
Product
C-store sales ($ millions) PCYA*
Case sales
PCYA*
Smirnoff Ice
$18.9
–7.1%
533,156
–7.3%
Four Loko Fruit Punch
$11.1
11.3%
352,156
8.2%
Four Loko Watermelon
$10.8
24.0%
336,459
22.4%
Twisted Tea Hard Iced Tea Original
$10.4
35.9%
347,600
40.5%
Mike’s Hard Lemonade
$9.4
24.6%
267,581
25.2%
Mike’s Harder Lemonade
$7.2
78.2%
224,245
79.3%
Mike’s Harder Cranberry Lemonade
$6.8
52.5%
208,316
52.2%
Smirnoff Ice Green Apple Bite
$6.6
–4.9%
188,089
–5.2%
Tilt
$6.3
298.3%
223,325
308.3%
Tilt Lemon Lime Citrus
$4.6
NA
164,392
NA
Sparks
$4.5
–48.1%
152,959
–44.7%
Four Loko Lemonade
$4.4
3,833.5%
137,000
3,914.8%
$183.2
15.9%
5.6 million
16.9%
Total (including brands not shown)
Source: SymphonyIRI Group
* Percent change from a year ago
52 weeks ending April 17, 2011
students being sickened by the drinks and
some dying in accidents or suicides.
business appears to be booming.
Most of the hubbub centered on the drinks—most notably Four
“Quarterly national sales of Four Loko are up 27% year-to-date
Loko—containing caffeine, which many argued masks the effects of
over last year, showing that the public has again embraced Four Loko
alcohol, allowing the drinkers to drink more than they could handle.
as an alcoholic beverage of choice,” Chris Short, vice president of com-
When the industry overwhelmingly agreed in November to remove
munications, tells CSP. “This is particularly impressive given that the
the caffeine, the category saw a brief dip in sales as manufacturers
product was effectively off the market for a period of time. … We are
scrambled to reformulate their drinks.
gaining our shelf space back and seeing sales increase every month.”
Today, “We believe … this is a category that’s coming back,” says
And unlike craft or import beers, c-stores are the primary outlet for
Tom Mahlke, CEO of Roswell, Ga.-based Gila Brew Co., makers of Crunk
these beverages, which most often come in 24-ounce cans. Still, not
Juce, a 12% alcohol beverage that debuted in July 2010 in a caffeinated
every retailer is ready to play in the subcategory.
version and was relaunched in May after being reformulated. “Various
“I don’t even play around with that. I don’t want to attract that kind of
news I’m hearing suggests sales volumes are up to at least 60% or
customer,” says retailer Sulu Jaffer, who aims for a high-end beer and wine
where it was [in fall 2010] to having already surpassed where it was. I
atmosphere in the nine Intown Market convenience stores he manages in
think that proves the viability and the staying power of this category.”
Atlanta. “It’s done well at some other stores. But anything that gets any
For Chicago-based Phusion Projects, the makers of Four Loko,
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kind of negative publicity, I don’t want anything to do with.”
■