'We're Gonna Need a Bigger Boat'
A great beer renaissance is happening. In 1887, there were more than 2,000 U.S. breweries. By the 1980s, there were fewer than 100. Driven by the emergence of brewpubs and local microbreweries, there are now more than 2,400 breweries and countless new home brewers.
The Brewers Association reports that craft beer now represents 6.6% of the U.S. beer industry volume, and it grew more than 15% in 2012. C-store growth in craft is outpacing that of other outlets, but 2012 syndicated data shows share of craft volume in c-stores is less than 2% of beer sales. C-stores face a paradox with beer: They must stay in stock on core items that made them the No. 1 destination for beer, while opportunity in high-growth craft cries out for variety and space on the shelf.
For some perspective on space challenged c-stores, I turned to some old friends in the business.
John Knapp, director of category management for Miller Coors, recognizes that “it’s important for [c-store] operators to compete here.” However, he says, “They can’t waste space on unproductive items.”Beer industry consultant Bump Williams says, “Consumers tell you what they want with their wallets.” He suggests that “not everyone really looks at shelf space as valuable real estate these days; they are trying to hang onto as much shelf space as they can,” even if “some of their brands no longer[warrant] so many facings.”
Variety and Brand Selection
A new microbrewer, Dave Wolfe, cofounder of Urban Chestnut Brewery, recommends that c-stores “remain ‘SKU conscious’to ensure they don’t carry so many brands that they take the ‘C’ out of convenience.” Brian Peak, director of operations for Wallis Oil, says his stores have “one door of craft/imports where they can. More than two doors is overkill.” Knapp says, “In most markets, the top four to eight craft SKUs will satisfy most shoppers.”
C.J. Watson, Anheuser-Busch’s vice-president of category leadership, suggests “a balance between new and established high-end brands. If a retailer gets too far beyond the established brands, they run a risk of losing on their core business due to increased out-of-stocks and reduced velocity.” C-stores should “carry the most popular national craft brands in a basic six-pack and then focus on the well-known and popular regional and especially local brands,” Wolfe says.
Williams advocates “supporting local, but not at the expense of proven winning brands and packages. On a store-by-store basis, it’s critical for the retailer to know what brands and packages are driving volume and profits, and [this] can’t be sacrificed for being stylish.”
Support and Space
“Brewer and distributors should be sharing the numbers with retailers and suggesting changes to sets to support the increased demand,” Peak says. Williams cautions that if a retailer turns over the category-management responsibility to a distributor, the retailer “should hold them accountable” for improvement in the beer category in the areas of growth, profitability, gross profit, turns/velocity/foot traffic and market basket.
Taking advantage of craft opportunities may well require more category space. Retailers that have invested in beer caves know this investment formula and are well positioned. According to Watson, data suggests that there has not been “diminished returns from adding space and displays for the beer category. The more you have, the more you sell. The only limitation is the physical space at retail. Adding more assortment to the same or less space may have a negative impact.”
So what if a c-store created a “bigger boat” by doubling its beer space, putting all new SKUs in craft? On average, this would mean 75 new SKUs and four doors. The result leaves you with about half of what the average supermarket carries in craft and a third of what a liquor store offers.
While other channels have captured greater share of craft sales with this variety, they covet c-stores’ ability to capture the extremely loyal, high-frequency and very profitable core beer consumer. You have to like the competitive position that c-stores enjoy. Planning the best course of action from a position of strength is a good place to be during a renaissance.