Ciders are the ‘next big thing’ in alcohol beverages for supermarkets.
Summertime, and the living is easy …”
That Gershwin lyric, etched in the American soul for several generations, has come to represent one of the two major profit periods in adult beverage sales for supermarkets, the other being the winter holidays between Thanksgiving and New Year’s. The reason that spirits soar between Memorial Day and Labor Day isn’t exactly rocket science: As the thermometer rises, so does the need to wet one’s whistle.
Wine and Spirits Offer Variety
While wine and spirits are often thought of in connection with the fall and winter holiday season, some sell just as well — or better — when the weather heats up.
“Sweet wines do sell well during the summer,” notes Dan Szubka, category manager for wine and spirits at Highland, Indiana-based Strack & Van Til, a 38-store grocery chain. “In the summer, I see a lift in pouches and fruit wines like sangria. Sweet colds like Barefoot Refresh peak two times more than in the winter, as do lower sweets like Arbor Mist.”
Indeed, much of the snobbery that used to be associated with the wine aficionado has faded.
“Consumers don’t have to be highly educated about wine to enjoy wine,” explains Bill Sipper, the aptly named Managing Partner at Cascadia Consulting Group LLC, a leading consulting firm to the consumer packaged goods industry. “It used to be that consumers had to sniff the cork, swish the wine in the glass and pretend that they knew what they were doing. Today, people are just drinking it and enjoying it.”
Perhaps because of the popularity in recent years of Charles Shaw (immortalised as ‘Two-Buck Chuck’), wine consumers have become quite comfortable with the proposition that it isn’t necessary at all to spend a fortune for a decent bottle of wine.
“One of the things people are looking to do is break the rules,” Sipper says. “It’s OK to have red wine with fish, or white wine with steak. Some consumers don’t know what the rules are, so they break them, and it turns into something they like.”
At Carson, California-based Bristol Farms, an upscale grocery chain with 13 stores located throughout the Golden State, shoppers aren’t looking for expensive French wines. Rather, wines from Spain and Argentina, as well as a healthy selection of value wines, are what customers prefer.
“We have a strong representation of very good products under $10,” explains Geoff Nichol, Bristol Farms’ director of wine and spirits. “It’s probably the best time in history to be a wine consumer.”
Spirits also are perceived as beverages for fall-winter holiday gatherings. But the summer presents retailers with a golden opportunity to position spirits in the warm-weather adult beverage mix. Indeed, there are several reasons to promote liquor in the summer, beginning with consumers’ demand for more flavor and variety.
“Our liquor sales are pretty consistent,” notes Michael Glorioso, general manager of Glorioso’s Italian Market, in Milwaukee, the largest Italian grocery store in Wisconsin. Glorioso’s devotes about 1,000 square feet to its beverage alcohol offerings. “We have a very diverse clientele: college students who have come into the city, Baby Boomers who have plenty of discretionary income, and people who see us as a destination who come in and stock up.”
In California, meanwhile, liquor preferences tend to skew toward the traditional.
“Clear vodka and aged bourbon are doing very well, if you can find any,” says Bristol Farms’ Nichol. “Every producer has a new flavor, but they don’t seem to resonate with our clientele.”
Cider Sales Rule
Every year, it seems, the beverage category will produce a brand or segment that promises to become “the next big thing.” Sometimes, it takes off and establishes itself as a long-term player, as is the case with craft beer. Other times, the products will settle into small, albeit profitable, niches such as alcoholic teas and “hard-ades,” led by the Mike’s franchise.
Today, everyone seems to be talking about hard cider. Where it ends up in the long run is a matter of conjecture, but most experts agree that ciders will be on fire this summer.
“Any time you offer the consumer variety, you’re going to bring more people in,” Sipper says. “I think ciders will continue to be a nice trend. It’s an opportunistic time for retailers. The more they educate people and bring people into the category, the more they can sell.”
“Increased availability of brand varieties are changing what consumers are drinking,” agrees Pat McGauley, VP of marketing innovations at St. Louis-based Anheuser-Busch (A-B).
According to data from Schaumburg, Illinois-based Nielsen, cider grew 85 percent in dollar volume and 87.2 percent in case volume for the 52 weeks ending March 19, 2014. Beer, meanwhile, grew just 1.3 percent in dollar volume (driven entirely by the high-end craft and import segments) and saw a 1.2 percent decline in case volume.
Those numbers will only grow further in the short term, as both A-B and Chicago-based MillerCoors have jumped aboard the cider train.
A-B, which introduced Michelob Ultra Light Cider (120 calories, aimed at the Michelob Ultra consumer — i.e., females) in 2012, and Stella Artois Cidre (described as a “European-style cider beverage with 4.5 percent alcohol”) in 2013, is launching a new brand, Johnny Appleseed. MillerCoors, which acquired Crispin Cider in 2012, launched a new product in the segment, Smith & Forge, in February. Smith & Forge targets men, as demonstrated by its ‘sturdy drink for the hardy gent’ tag.
Given the success of Boston Beer Co.’s Angry Orchard and slumping sales in the beer category, is it any surprise that the major brewers have opted to introduce new ciders into the market this year?
“When Boston Beer can come out with a product like Angry Orchard and have it go from inception to leader virtually overnight, there’s no doubt that had an effect on MillerCoors and A-B getting into that space,” explains Tom Fox, a partner at the CM Profit Group, a Detroit-based firm specializing in national account and category management consulting. “Both companies understand that in order to grow, they need to get into the flavor side of the business.”
And while it’s still small, cider has been a fast-growing segment for the past few years.
“It’s definitely hot — and when you get A-B and MillerCoors involved, they will get distribution very quickly, and a lot of sampling,” continues Fox. “If the segment is worthy of a two or three share, it will get there a lot quicker now, with A-B and MillerCoors behind it.”
Jim Koch, founder and chairman of Boston Beer, sees the big brewers’ full-force jump into the small cider pond as a win-win for everyone.
“They have clout to get their product onto retail shelves,” says Koch, who’s often credited with creating the craft category with the launch of Samuel Adams Boston Lager in 1985. “They get trial and massive distribution very, very quickly.”
Crafts, Imports Keep Movin’ on Up
While ciders may represent an exciting new profit center for retailers, summer beer sales will remain eminently important to the retail bottom line.
“Our beer sales take about a 25 percent-30 percent jump in the summer months,” says Glorioso. Eighty percent of Glorioso’s eight-door cold box is devoted to imports (mostly from Italy), crafts and specialty adult beverages.
“Moretti and Peroni are doing well,” continues Glorioso. “LaRosa is another imported brand that does well. If it’s premium and it’s from Italy, it will do well. Domestic brands are all down, with one exception: Pabst Blue Ribbon is bucking the trend. It’s showing consistent growth.”
At Strack & Van Til, the trend is similar. “Summer beer sales in one of the largest center store categories are key to the bottom line,” says Mike Nisevich, the chain’s category manager for beer. “These represent a proportionately larger piece of the total-year revenues. Though it is desired to win throughout the year, lack of a strong summer showing makes it much more difficult to achieve the budgeted sales goal.”
The trend toward flavors has a profound effect on the beer category, and so it should come as no surprise that the craft segment — incorporating local microbrews as well as the more widely distributed brands such as Samuel Adams, Sierra Nevada, Anchor Steam and Leinenkugel — is the growth leader, given the segment’s propensity for incorporating a wide variety of flavor options into the mix.
“Yes, this zest for flavor has come to define the category, certainly in terms of growth,” observes Fox. “Craft has taken the industry by storm with double-digit growth for double-digit years. While it started very, very small, it’s gotten to the point now where it won’t be long until craft has a 10 share of the entire [beer] category. And no one sees this growth stopping.”
Certainly not at Strack & Van Til. “All our crafts, collaboration brews and limited releases get snatched up instantaneously,” notes Nisevich, adding that India Pale Ale “is still rock solid for us.”
Much of the growth in the craft segment is the result of slow erosion in the premium beer category, which has been dominated by light beers for more than a generation.
“There is no doubt that ‘Big Beer’ is struggling,” says CM Profit Group’s Fox, himself a former executive with the Miller and Stroh brewing companies. “I can only imagine how much [the major brewers] are spending on advertising and marketing. It could be close to $1 billion, just so that they only lose a couple of percentage points. But it remains a significant percentage of the category, because it’s just so big.”
Indeed, while the light segment fell by 2.2 percent in dollar volume for the 52-week period ending March 29, 2014, according to Nielsen data, overall beer sales were up 1.3 percent. How can this be? The formula is quite simple, actually.
“The consumer is relentlessly trading up at the same time [that] overall beer consumption is down,” explains Boston Beer’s Koch. “People are drinking less, but drinking better.”
“One trend we see is consumers shifting to more premium offerings,” agrees A-B’s McGauley. “Consumers are including more options in their drink set than they once did.”
For Boston Beer, seasonal varieties offer the highest potential for profit, because new flavours are introduced to the marketplace as the seasons change. Koch points to the success of Boston Beer’s most recent short-term variety: Cold Snap, a spring seasonal that became nearly impossible to find when winter actually passed into spring.
“We’ve never had a seasonal that caught fire like this one did,” says an enthusiastic Koch. “Usually at the end of the season — for a spring seasonal, that would be March — sales tend to tail off, so that’s how we brewed it. But with Cold Snap, the demand actually accelerated.”
One thing’s for sure: Change is the name of the game in the alcohol beverage category these days. Also, ‘flavour’ is much more than just a buzzword. It affects all segments, including imported beer.
“The flavoured beer/beer mixes segment is one of the fastest-growing beer segments, growing at more than 20 percent in 2013, according to Nielsen,” notes Steve Ward, VP of national accounts for White Plains, NewYork-based Heineken USA. “This incredible growth indicates that consumers of legal drinking age are actively seeking new varieties beyond regular beer. Flavors are an essential part of our beer and near-beer innovation strategy, and Heineken USA is introducing several new products to the market.”
Given the trend toward cider, Heineken USA isn’t about to get left behind this summer.
“Our new Strongbow Gold Apple Hard Cider is a perfect ‘bulls-eye’ between tart and sweet, while our new Strongbow Honey & Apple Hard Cider leverages the popular natural honey flavor that is increasingly gaining popularity among target consumers,” Ward says.
Driving the trend of “spirited” beers, Heineken USA is also introducing Dos-a-Rita, a premium, ready-to-serve “lager margarita” extension of its Dos Equis franchise, into Sun Belt states from California to Florida. “We also have Desperados, a lager mixed with tequila, barrel-aged beer and a hint of lemon, rolling out in Florida and Georgia, and Amstel Radler, a delicious blend of beer and lemon juice that will primarily be available in the Northeast,” says Ward. “Finally, exclusive to the off-premise channel, the Beers of Mexico variety pack will feature a new limited-edition Dos Equis variant: Dos Equis Azul, a new flavor that combines beer and blue agave into an undeniably interesting golden lager with a refreshing, balanced taste and smooth finish.”
Change, and Then Some
To say “It’s not your father’s beer (or wine, spirit, cider or alternative malt beverage)” is an understatement.
“I remember back when Budweiser owned over 50 percent of the market, and Bud Light was a rocket,” Glorioso recalls. “I just looked online this morning, and I had no idea that they had fallen as far as they have and that many of their brands are just crashing.”
Much of that can be attributed to the young adult drinkers who simply are not interested in their fathers’ beers.
“But you know something?” Glorioso asks rhetorically. “As much as the younger generation wants to support local microbrews, when the major players come out with something unique, they’re getting trial.”