For retailers, the key to successfully navigating the beer category and growing their bottom line lies in optimizing shelves and merchandising.
By Nick Lake, senior director category management national accounts, Heineken USA
Over the past few decades there have been several significant shifts in the external environment that have impacted the entire U.S. beverage alcohol industry. These movements have put the three main players—beer, wine and spirits—on a constant path of change. While the wine and spirits categories had been taking share and gaining a disproportionate amount of retailer attention with new products and marketing campaigns, the fact remains that the beer category provides retailers with many financial advantages versus wine and spirits as beer turns faster, has higher adjusted gross margin return on investment and significantly lower costs as a percentage of sales than wine and spirits.
Collectively, the beer industry has been sending retailers mixed messages relative to the best path to growth. Some companies promote a premium light growth strategy where others suggest a craft-centric approach. The reality is that the category is much more nuanced, and retailers need to have a strategy to optimize all of these segments.
While all segments are important, the clearest path to category growth is with upscale. Last year marked significant growth in the beer category (2% in volume and 5.3% in value) and the upscale beer segment was the driver of that growth. The upscale segment has grown 1.5 times more volume over the past 5 years than the premium and value segment combined.
More importantly, the upscale category resonates with a majority of consumers. In fact, nearly 75% of consumers buy upscale at some point, compared to just 61% who buy mainstream beer. In addition, upscale consumers are the most loyal segment consumers with 30% buying upscale exclusively compared to 18% of consumers who are loyal to the mainstream segment.
The appetite for upscale will continue to grow when you take into consideration our rapidly changing consumer landscape. Over the course of the next 10 years, millennial consumers (those currently aged 21-34) will represent 40% of Americans 21 and older. By 2036, the majority of these consumers, aged 21 and over, will be multicultural. These rapidly growing and increasingly influential upscale consumers, who are expected to account for 70% of beer category growth, are redefining the beverage alcohol landscape. They are more likely than their predecessors to explore new products, equate cost with quality, trade up as the economy improves and employ social media to gain knowledge and plan their purchases. Millennial and multicultural consumers are more likely to shop in the upscale section where quality, variety and image play a critical role. There is no segment that attracts and resonates with these consumers like imports.
Upscale imports are more efficient and more profitable than any other segment and have the highest marketing spend per case. In fact, imports grew nearly the same 8 million cases as the craft segment with fewer SKUs than the previous year while the craft segment added 15% more SKUs just to drive their growth. Within upscale, imports are the destination segment as they generate traffic and provide faster turns.
In retail outlets that are growing their beer category, an estimated 90% are driving growth of upscale faster than mainstream. In fact, more than 33% of these retailers are growing the category while the mainstream segment is declining. Retailers growing upscale are seeing a growth rate of nearly 2.5 times that of retailers who focus on growing mainstream.
From a feature standpoint, retailers can leverage the power of the upscale segment by optimizing reach and lift year-round. The optimal strategy is to lead with the biggest scale brands—Heineken and Corona—and fill-in with high-lift growth brands like Dos Equis, Newcastle, Blue Moon and local crafts. This strategy will enable retailers to maximize their return on investment from their feature activity.
At HEINEKEN USA, our Growth & Profit Solutions thought leadership approach is unique to the industry. GPS starts with the shopper and the retailer and ultimately leads to category growth. We gather insights that will bring clarity on how retailers can better compete across channels and how to capture more shoppers beer occasions by impacting shopper decisions before, during and after purchase. By taking this perspective, we are providing proprietary solutions that work now and will continue to work throughout the decades to come.