domestic dominance

Beer sales make up a big chunk of c-store sales. To keep it that way, retailers are taking new approaches to fend off the competition.

The beer category has earned its spot in conveniencestore cold vaults. Despite the fact that the limited demographicand space restraints steal some of the product’sfull margin-growing potential, it’s still a top-selling powerhousein the industry. According to the National Associationof Convenience Stores (NACS) 2007 State of the Industry Report,beer and related beverages make up the third largest segment inthe industry, pulling in 12.17% of sales on average. To keep thesenumbers up, retailers are beefing up their selections as well asfinding ways to further solidify the popularity of domestic brews.

The average beer drinker shares a lot of characteristics with theaverage c-store customer. Both tend to be creatures of habit, oftenbuying the same types of products with each visit. Both also tendto be die-hard brand loyalists, sticking to their favorites and rarelydrifting out of those waters. For retailers like John Tomlinson, thecategory manager for Englefield Oil Co.’s Duke and DuchessShoppes, realizing these characteristics have become essential tohaving a successful beer offering.

The chain carries beer in six doors per store. Despite therecent growth alternative beverages and craft beers haveseen, Tomlinson keeps five of those six doors dedicatedto domestics to satisfy the nature of both c-store shoppersand beer consumers.

“The domestic beers do very well in all the stores,” saidTomlinson. “I think that customers are drawn by both the pricingof the products as well as the taste.”

Ad Power
Beer’s audience expects a level of reliability from its brandof choice, which is what keeps a drinker coming back for theirfavorites, Tomlinson said. Despite that fact, however, he has alsonoticed trends shifting due greatly to the amount of advertisingfrom beer manufactures.

“Advertising is huge when it comes to the popularity of thedomestic brewers,” said Tomlinson. “A great example is theSuper Bowl, when beer commercials are everywhere. Whether itsAnheuser-Busch, Miller or Coors, when any of them launch a newcampaign, we see a [sales] increase due to it.”

Lately, some of the more expensive import and craft beers,such as Blue Moon and Sam Adams, have gained fiercely loyal followings that drive some attention awayfrom domestic beers, causing those brewersto release line extensions to compete.For instance, Anheuser-Busch has releasedBudweiser Select as a means of offeringa healthier, more premium-flavoredbrew for the supporters of its Budweiserflagship brand. Miller has followed suit,launching Miller Chill to compete withimports such as Corona.

While line extensions can complicate acrowded cooler, Tomlinson has been successfulimplementing new products intohis stores with favorable results. “Someextensions like the Miller Chill have donevery well for us,” he said.

When deciding whether a newSKU is right for the shelves, Tomlinsonrelies heavily on the brewer ’s faith inthe product. “I depend a lot on whatthe manufacturer ’s representativeshave to say about the new product,”he said. “Sometimes you can tell thatthe manufacturer is going to put a lotinto marketing the product, and that’sgoing to make a major difference inhow well it’ll do on the shelves.”

To determine how much space aproduct gets, Duke and Duchess onlyexperiments in the space it’s already allottedfor the manufacturer, which puts alittle extra pressure on the new product toperform well, but also doesn’t waste anyspace if it doesn’t.

Just because domestic manufacturersare holding most of the space in the coolerdoesn’t mean that the imports and craftswon’t receive similar attention. In fact,Tomlinson feels that the alternative beverageshelp the entire category flourish.“It’s a win-win situation,” Tomlinson said.“We have a lot of customers who are regulardomestic drinkers that may come inand want to try something new every nowand then, and they’ll pick up a Blue Moonor a Heineken. Having that extra varietykeeps the customer coming back.”

Taking on the Big Boys
C-stores offer customers a quick andeasy outlet to pick up beer while shoppingfor other wares, but unfortunately,so do most liquor stores. Due to their sizeand dedication to the product, it can bedifficult for convenience retailers to makecustomers think of their stores first foron-the-go beer needs.

Sunny Singh, general manager forGardena, Calif.-based United Oil, runsinto this problem regularly. With mostof the chain’s units operating in the busyLos Angeles area, United faces some rough competitionfrom liquorstores andc-stores alike.

“For a bigliquor storebeer is theirbread and butter. They have more space forproducts and can blow us away on prices,”Singh said. “We have to compete by offeringconvenience and low prices on otherproducts.”

For John Zuber, vice president of marketingand general buyer for Spartanburg,S.C.-based Li’l Cricket food stores, the keyto keeping up with competitors is offeringease and value. The chain may only havefive doors in the average store for beer, butthey stock it with a variety of SKUs, complementingthe section with floor displays.

“The 18-packs are by far our best seller,”said Zuber. “Customers get the best valueon those packages, and they’re also themost heavily promoted by the manufacturer,which helps push them further.”

To help provide a bigger presence forbeer, Li’l Cricket recently began constructingstores with walk-in beer caves. Thoughonly a limited number of stores have caves,the chain is looking to invest more of itsresources to offering a wider selection.

“The beer caves made for great additionsto the stores we recently built fromscratch,” said Zuber. “They’ve increasedour space, which is important becausewe now have more room to experimentwith more varieties. We’ve seen abig lift in sales compared to the otherstores without caves.”

While the beer cave is an ideal solutionfor rural chains like Li’l Cricket with plentyof space, stores in urban areas like UnitedOil need to depend on other solutions forthe competition. Since most of the storesallocate as much as 40% of cooler spacefor beer and related beverages, Singh targetsselling beer as an impulse buy. Manyof United’s stores enjoy heavy gas volume,giving Singh a chance to focus on offeringdrivers a quick stop to grab beer.

As for competing with other local cstoresin the area that can offer the samething, it becomes a battle of price.

“Many of our stores are located nearchurches and schools, and therefore don’thave liquor licenses,” said Singh. “Becauseour competitors are capable of selling beerin more locations than we are, they may beable to pull away our in-store sales fromcustomers seeking beer.”

To keep United Oil’s stores on the mindsof stop-and-go beer consumers, its strategyis to price competitively with other stores.“We’re usually able to maintain averagemargins with our beer while staying competitivewith the stores across the street,”Singh said. “But we want to give our customersthe every-day low price on all of ourproducts, which sometimes means reducingthe mark up.”

But pricing isn’t always everything.Having what the customer is looking for isparamount.

“Beer customers can be very difficultbecause whatever it is they like orthey’re used to, they won’t switch awayfrom it. They are very brand-loyal,” Singhsaid. “Offering the selection the customerwants always comes first, withpricing a close second.”

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