While the economic downturn has affected consumer spending across many sectors, craft and craft-style beers are defying recessionary trends with an impressive upward trajectory.
By Howard Riell, Associate Editor
Keeping tabs on ever-changing consumer preferences is part of the day-to-day routine for convenience store retailers. And when it comes to beer, preferences change from store to store in many markets across the country.
Consumer interest in more flavorful, individual products has been behind the rise of craft products in the beer market. The most significant components of this trend are the creation of fruit-flavored alcohol lines, such as Anheuser-Busch’s Rita line and Mike’s Hard Margarita, both of which are giving c-store owners an opportunity to build a new profit center, but crowding an already packed cold vault.
The Boulder, Colo.-based Brewer’s Association lists more than 2,300 craft breweries in operation last year. According to its count, the growth of the craft brewing industry in 2012 was 15% by volume and 17% by dollars compared to growth in 2011 of 13% by volume and 15% by dollars. Craft brewer retail dollar value in 2012 was an estimated $10.2 billion, up from $8.7 billion in 2011.
There is little question that craft beverages have won a permanent place in American consumers’ hearts. According to Chicago-based Technomic Inc., more than half of consumers—56%—agreed that it is important for a restaurant or bar to offer a wide variety of craft beers. In addition, 49% noted they will go to a particular establishment because of its craft beer selection.
For convenience stores this is a blessing and a challenge. Coolers have a finite amount of space, but missing sales opportunities could end up driving your customers to the competition.
“Shelf space is a major concern, especially with the different packaging,” said Adam Rogers, senior research analyst at Beverage Information Group, Norwalk, Conn. “There are a lot of great new products from craft brands that are starting to emphasize the convenience channel, and finding a place for them is becoming a challenge, but a good challenge.”
Though craft business is on the upswing, Rogers conceded that it is not happening as quickly as the craft suppliers would like to see it move. “But I think that is primarily due to the mega-distributors having so much of a say of what goes where, at the end of the day.”
Retailers are committed to moving as quickly as they can.
“The craft trend has been in place in the Northwest for years and continues to grow,” said Tim Cote, vice president of the Beaverton, Ore.-based Plaid Pantries Inc., which operates more than 100 Plaid Pantry convenience stores. “The craft customer cuts across all demographics to some extent. Craft is strongest among young people, while this trend is less pronounced for the fruitier beers, which also skew more female than regular craft.”
Plaid Pantry has progressively tweaked its craft beer selection over the past several years, Cote noted. Leinenkeugels and Redd’s have proven to be the strongest sellers. They are priced in line with Corona and Heineken.
Not all retailers should expect to see the same results, Cote added. “The size of the opportunity does vary widely by market, some more toward craft, others more toward fruity,” he said.
West Des Moines, Iowa.-based Kum & Go, operator of more that 400 stores in 11 states, has also embraced the craft beer business. The chain carries between 10-30 craft beer brands, many in six packs. In all, craft beers reportedly account for approximately 8% of the chain’s total beer sales, and executives are looking for the sub-segment to notch strong double-digit growth over the next several years.
Seizing the Opportunity
In Rogers’ opinion, c-store operators may well experience a significant jump in sales from craft brews if handled correctly.
Indeed, latest research by Mintel on the craft beer market in the U.S. shows that sales of craft beer nearly doubled between 2007 and 2012—increasing from $5.7 billion in 2007 to $12 billion in 2012.
Moreover, the trend toward craft beer options is set to enjoy robust growth through 2017, with Mintel forecasting the segment to grow to $18 billion by 2017—a result that will see the segment tripling in the decade between 2007 and 2017.
“The growth rates seen by craft beer are impressive, especially during a period when domestic and imported beers have shown a flat to declining performance,” said Jennifer Zegler, beverage analyst at Mintel. “Unlike its domestic and imported beer counterparts, craft beer has been able to defy overall beer market trends and continue expansion during the economic downturn and subsequent slow recovery. While the craft and craft-style beer category remains a small segment of the $78 billion U.S. beer industry, the category has been able to stabilize the overall beer industry, which has experienced volume declines in the domestic and imported beer categories since 2008.”
The rise of craft beer in the U.S. has been supported by increasing consumer demand. Nearly a quarter (24%) of consumers who drink beer indicate that in 2012 they drank more craft beer sold at stores compared to 2011. Meanwhile, more than one in five (22%) report consuming more craft beer in bars or restaurants.
When looking at age, Mintel research shows that craft beer’s sweet spot is with 25-34 year old consumers. While overall, some 36% of U.S. consumers drink craft beer, half (50%) of older Millennials (25-34 year olds) do so. And craft beer also wins on taste. Some 43% of both Millennials and Generation X say that craft beer tastes better than domestic beer, compared to 32% of Baby Boomers.
Although successful, craft beer is not free from challenges. Only 17% of Millennials and 18% of Generation X say that craft beer is a better value. Instead, a majority (56%) of consumers of all ages feel that domestic beer is a better value compared to craft beer. Furthermore, Mintel research found that nearly half (45%) of consumers would try more craft beers if they knew more about them.
“Despite the variety of beer releases created by craft breweries, craft beers are not yet everyday beer choices for most drinkers due to a lack of understanding about their taste profiles. To continue growing, craft beer must be its own best advocate and expand appeal beyond Millennials who are most likely to consume craft beer,” Zegler explained.
In addition, Mintel research found that 50% of overall craft beer drinkers express interest in locally made beer, and 25% are interested in purchasing craft beer where it was brewed.
While not beer, fruit-based adult beverages have a wide appeal to convenience stores because they attract female customers.
“The one brand that is attracting most attention right now is Bud Light Lime-a-Rita because it’s coming out with so many flavor extensions,” Rogers said. The margarita-flavored malt beverage is 8% alcohol by volume. It is available in 12-packs of eight-ounce cans, 24-packs of 12-ounce shrink-wrapped bottles and single-serve 24-ounce cans.
“It actually is a good product flavor-wise,” said Rogers. “It also has the stronger alcohol content which, to these targeted consumers, is what they are looking for.”
Anheuser-Busch has also rolled out seasonal extensions, such as Bud Light Lime Cran-Brrr-Rita for the winter holidays.
To boost incremental sales of these new SKUs, merchandising remains vital. Creating a separate and distinct set near the craft beers would, in Rogers’ opinion, make a lot of sense in a convenience store setting.