As the beer industry wraps up a second consecutive difficult year in which sales once again struggled while the number of beer items remained at a historic high, retailers face a new round of critical decisions to ensure they’ve got the proper assortment.
The stakes are high: beer is a key traffic driver to retail stores, with some 70 percent of consumers saying beer triggered a trip. On top of that, the beer shopper spends 43 percent more in-store than the average shopper and the category has provided more than $4 billion in revenue growth between 2013 and 2017, according to Nielsen data.
But the industry turned in a tough 2017, with sales volume down 0.9 percent and this year that trend has been even worse, with sales volume down 1 percent year-to-date through Dec. 8, according to Nielsen all-outlet data.
For Jeff Long, MillerCoors vice president of category management and e-commerce, the falling volume is the clearest signal yet that retailers have to take a hard look at what is on the shelf.
“For years beer has grown through item expansion, capitalizing on the explosion in craft, flavored malt beverages, and now, seltzers to fuel revenue while total category volume was flat to slightly down,” he says. “This year some 19,000 SKUs have been sold, up from just 6,000 in 2008. Eventually, something has to give. This kind of fragmentation is tough on every part of the system.”
Shoppers experience frustration with a seemingly endless sea of options; item productivity is declining; retailers are converting less shoppers to beer buyers in their stores; and out-of-stock rates for key packs are at an all-time high, Long says.
That’s why many retailers are starting to weigh which items they can cut. The road to reducing SKUs is lined with peril; cut the wrong items and shoppers will walk. MillerCoors research suggests that if a retailer doesn’t have a consumer’s preferred brand or pack, it will lose those sales 55 percent of the time.
“Consumers are more thoughtful about their purchases in beer than ever before, and all of the fragmentation means that retailers have to find ways to make shopping for beer easier and more enjoyable,” Long says. “While it may be enticing to look at cutting a package or two among core brands like premiums and premium lights, our data shows there’s a lot of risk in that approach. Drinkers won’t necessarily shift to another package size within the brand; they may leave the store altogether.”
Long offered four key considerations retailers should heed when determining their assortments for 2019:
1. Consider the consumer and the occasion
Beer packages are designed to meet the needs of key consumer occasions. A six-pack of bottles is perfect to bring to small gatherings with friends and family, while a six-pack of 16-ounce cans might be the package of choice for consumers relaxing at home over the course of the week. Or consider 24- and 30-packs, which are key stock-up packs or perfect for a large-group party or celebration. Cut any of them and shoppers may delay their purchase (9 percent), or worse, leave the store altogether (31 percent).
2. Consider the shopper
The average beer shopper is incredibly brand and pack loyal. About 55 percent of consumers said they entered the store with a specific brand in mind. What’s more, 34 percent of the time they had a specific pack in mind. Within the premium segment, which includes bread-and-butter brands such as Miller Lite, Coors Light and Bud Light, pack preference is even higher. A striking 57 percent of buyers who favor premium light six-packs of bottles, purchase only that pack. For premium light 12-pack buyers, the figure is 46 percent. A third of 18-pack buyers are exclusive to that pack size.
3. Consider the store opportunity
Be wary of anyone who says they can provide a static “market level” view of a pack’s transferability, a measure of how much of a pack’s sales shift to a different pack if it is not on the shelf. Beer is an incredibly local business, and as such, making a national decision to cut a package will lead to a lot of false reads. Here’s an example: Last year we saw several retailers pull 18- and 20-packs because they thought those sales would simply transfer to 24-packs. Instead, when consumers didn’t find those packs, they traded down into 12-packs. So while sales of 12-packs grew by 5 points, on average, 24-pack volume declined. What’s worse, retailers that dropped those packs saw the number of households purchasing in the segment fall 2 percentage points over prior trends. As a result, those 18- and 20-packs came back into a significant number of sets.
So, instead of taking a national view on transferability, we’ve found the best approach is to look at each individual store when making decisions about which packages belong in a set. We calculate store opportunity as a combination of a pack’s transferability, shopper dynamics and the competitive environment to make recommendations on which products earn shelf space in each store.
4. Consider the productivity
While productivity isn’t the sole reason an item should be on the shelf, consider the top 3 percent of SKUs account for 80 percent of sales. Simply put, beer’s long tail has gotten longer and even less productive. Although craft six-packs have higher dollar sales than any other pack group at $1.2 billion year-to-date, it took nearly 5,200 SKUs to get there. As a result, they’re one of the least-productive segments in beer with sales of $4,841 per retail placement. Premium light large packs (24s and 30s), on the other hand, are the most productive with $43,382 in sales per retail placement. That’s eightfold better than craft six-packs and three times more productive than import 12-packs, on average. So if a retailer is considering dropping, say, an 18-pack of premium lights to make way for another craft six-pack, they should keep in mind that those 18-packs are four times more productive, on average.
“Every segment has to play a role in a healthy beer category at retail,” Long says. “We believe in a balanced approach, and that does not mean every segment gets the same amount of space; it means that getting the items right within each segment is more critical than ever.”