For the last several years, retail beer sales have followed a familiar pattern: Revenue goes up while cases are flat to slightly down.
Last year was different. Dollar sales inched up just 0.5 percent, about a fifth of the growth rate in recent years, while volume dropped nearly a full percentage point, according to Nielsen all-channel data through Dec. 30.
The grocery channel appears to be the hardest hit, with revenue down 0.8 percent, marking the first time since before 2010 that revenue slipped into the red. Case volume fell 2.2 percent. Convenience dollar sales were up 0.7 percent, but volume slid 0.9 percent.
"Retailers are really feeling the pinch,” says Dan Werth, MillerCoors' chief customer officer. “And what it tells us is that we all need to think about how we approach the beer shelf.”
We talked to Werth about what that approach could look like.
Q: Let’s start with a basic question. How important is the beer category for retailers?
A: Hugely important. Beer sales in the grocery channel total about $11 billion, up about $1 billion from 2013. Beer is the No. 4 category in grocery and the No. 2 category in both the convenience and liquor channels. Seventy percent of shoppers at grocery say they went to the store to buy beer, making it one of the most valuable categories for driving trips at retail. And that’s consistent across all age groups.
Q: What’s the major challenge that retailers are facing today?
A: Fragmentation. SKUs are up 17.5 percent since 2013, and that has hurt productivity, confused shoppers and increased out-of-stocks.
It’s not just us saying it: there are too many SKUs on the shelf. This has led to record out-of-stocks, not to mention lost sales on core brands.
The real driver of this has been the expansion — the increasingly non-productive expansion — of the craft tail. For a long time there’s been this belief that if retailers add more high-margin brands that people just naturally would trade up. But that really hasn’t panned out. The facts are the facts: The top 20 percent of SKUs drive 75 percent of category volume, 80 percent of case volume and 92 percent of category growth.
And if you take away space from those SKUs, you’re asking for trouble.
Now, SKUs actually declined last year, down about 2.2 percent across all retailers. But in grocery they’re down just 0.5 percent. So retailers will likely be taking a harder look at the number this year.
Q: But don't retailers need variety?
Variety is important, especially in certain accounts like liquor stores, but the tail has gotten incredibly long and increasingly less productive. Any SKU that makes it to the shelf needs to add value.
Q: What should retailers be thinking about doing differently?
A: Well, let’s start with what stays the same. You need all segments to be represented and healthy in order for the category to be healthy. They all play a role with different consumers and with different occasions. If you’re putting all your eggs in one basket, the only winner is going to be your competition.
As for what’s different, the name of the game today is occasions. Over the last number of years we’ve made a big investment in researching consumer trends and just in the past 12 months, we’ve talked to more than 20,000 consumers and analyzed more than 1.5 billion retail transactions. One thing that’s more pronounced now vs. 10 or five years ago is that more and more when people buy beer they’re thinking first and foremost about who they are with and what they are doing. With that context, they can tell you very clearly what they want.
That makes the flow of the shelf and the products on it more important than ever before.
Q: How so?
A: If you don’t have what they want for that particular occasion, they are more than willing to go across the street to get it.
Q: So it matters what you have on the shelf.
A: Yes.
Q: OK, so what does that shelf look like?
A: Let’s start from a segment perspective. Do you need Mexican imports? Yes. Do you need the right craft assortment? Yes.
But should you listen to people that tell you American light lagers are yesterday’s news?
Probably not.
Coors Light, Miller Lite and Bud Light represent a third of beer volume sold at retail. That’s one out of every three beers. And they move. They have three times higher velocity per SKU than the above premium category as a whole and two times higher velocity than imports in the grocery channel. Now a big reason for that is that they fit in with a wide range of occasions, from big social occasions down to more intimate at-home occasions.
They also have very strong brands. They have a loyal base and they are about as far from interchangeable as you can get.
People also have a strong preference for bottles or cans — like a 79 percent exclusivity. And they’ll buy the pack size, bottle or can, that fits in with the occasion they’re buying for and the money they have in their pocket. There’s a difference between a 12-pack occasion, an 18- and a 24. They’re not the same.
Q: How about economy?
A: When people ask whether economy brands matter I like to point out that five of the Nielsen Top 10 Growth Brands in 2017 were economy. It remains an incredibly important segment that has a very loyal customer base. According to our data, 55 percent of consumers have a single brand or a small set of brands in mind when they walk in to make that purchase. That goes up to 76 percent when you look at shoppers in the economy segment.
Economy is actually underrepresented on the shelf, which is strange given other trends we’re seeing, like the success of value menus at fast food restaurants or the exponential expansion of dollar stores. You can’t forget about or ignore value.
Q: So what does this mean when setting a shelf?
A: There is no simple, one-size fits all solution here. That is the power of this approach. We know that the occasions remain very stable across retailers and class of trade, but the items within each can be tailored to the specific needs of shoppers.
For instance, we talk a lot about big social occasions, but the two biggest consumption occasions are relax and connect — a little more low-key. The convenience channel saw a lot of their growth this year on singles, that was based heavily on the relax occasion … after a long day people want to take a break, to shed the day, and singles are perfect for that. Retailers who re-balanced their singles door based on that insight saw a big impact. The connect occasion is about moments that matter with family and friends, the chance to connect and engage with the people closest to you, with a beer they know and trust. Here is where we see light lagers play a big role, across all price tiers. These are key brands that they know and trust, and having the right mix of packs to go with meals at home is key.
Q: Alright. Bottom line here, what should retailers be thinking about in 2018?
A: All segments matter and they need to be properly represented in order to grow the category. Also, occasions matter and they impact every aspect of category management in-store and online. The shelf is incredibly important, but occasions also affect how we merchandise and feature the category. We’ve built some really great solutions for our retailers, all of them grounded in occasions, and we've got the data and expertise to help our distributors and retailers best meet the needs of today's beer drinkers.