Retailers are using category management to put a head on supermarket beer profits.
Growing at less than 4% a year, beer sales are barely keeping pace with inflation, and may actually be slipping when population growth is factored in, according to industry sources.
Yet interest in beer has never been higher, with high-margin boutique beverages and exotic imports crowding shelves, fighting for space with high-volume popular and premium beers. Budget brews are joining the fray with suitcase economy packs -- large sizes with small price tags.
Category management is playing an integral role in boosting interest in the beer section. Such programs often include cross-merchandising campaigns.
"Cross merchandising is great with beer," Peter Kemp, senior category manager at Randalls Food Markets, Houston, said. "First, there's a large dollar ring. Then we sell across the store to meat, dairy, produce, grocery and many nongrocery items such as coolers."
Randalls has seen its beer profits grow 10% since it installed its own program with the help of an outside consultant two years ago.
Raley's Supermarkets, West Sacramento, Calif., sells across the store while building its beer profits by using category management, Bob Jennings, Raley's beverage buyer and merchandising manager, said.
"We're better utilizing the space we have," Jennings said.
Here's what retailers had to say about their beer category management strategies:
Ken Thiesse
New York state
DSD buyer/merchandiser
Wakefern Food Corp.
Elizabeth, N.J.
We use our own program to manage the category. Our main focus is to maximize the gross profit and ensure that our customers have a good selection.
Category management isn't a secret formula. It's a discipline of evaluating sales. We see that some brands dominate, and we make certain that they have adequate space to prevent out-of-stock situations.
Beer can be a destination product. In metro New York, no one has done this well. But some upstate stores have done a good job. Some Wegmans and Tops stores up there have walk-in coolers with kegs, half-kegs, barrels and cases in unbelievable variety. Some city beverage stores called depots exist. And we don't always offer the variety to compete with them. But the upstate supermarkets with big beer departments have pretty much put the depots out of business.
We've tried to expand our city sections, but there are limits because a lot of stores are small. We're trying to give space where we can, because beer is very profitable. Vendors inventory and deliver the goods, plus it has a high ring at the register -- usually over $6 an item.
We promote the larger packages and higher-priced imports, and the suitcases and 18-packs vs. the 12- and six-packs. We include high-priced imports in our promotions to get the average customer drawn to the premium markets.
Advertising is a bit confusing, since we operate in different states and the laws differ by state. Also, there are regional differences based on demographics and brands. You have to handle each store or area of stores differently.
In Albany, N.Y., Genessee is the top seller, while the city wants Rolling Rock. Then there are the micro or craft beers. There's so many of them coming out each week it's unbelievable. Most don't sell that well, yet the imports and the microbrews come to 12% of sales. They're growing, but not as big as some might lead you to think. But they sure add excitement to the category.
Tom Roesner
DSD buyer/merchandiser
Seaway Food Town
Maumee, Ohio
We use our own program. The major brewers are just starting to get into category management in this region. Our system is built on reading the trends. Now we have a lot more facts and figures that we can use to identify trends. We're using scan data, then setting our displays accordingly. Our stores are all over the map in size and volume of sales. In resets, we're starting with the largest stores first, then going to medium and small ones. Scan data is used in medium and small departments to trim out the slower movers and make certain that there's plenty of the best-moving products.
We aren't expanding departments, just making better use of what we have. We haven't been expanding cooler space, but in our remodels, we're using open cases instead of coolers with doors. This gives a better presentation, and they're easier to stock.
The value of managing the category is that you can ride the trends. Specialty and import beers are the trend right now.
That could change tomorrow. If so, we'll switch back to the medium- to low-priced beers. We make more of a dollar ring on the specialty and imports, so we look at dollars going through the registers instead of cases through the door.
Ohio just revised its laws to allow us to advertise beer with prices. Since the first of the year, we've been advertising a premium beer every week in our flier, and sales have increased dramatically, probably about 7%. The sales environment here is a state-set minimum price. No one can be any cheaper. Most retailers ride right on the state minimum. The ads let consumers know we have the beverages they want.
Bob Jennings
beverage buyer/
merchandiser
Raley's Supermarkets
West Sacramento, Calif.
Beer is a very big category here, and a very important one to manage. We have 84 stores in California and Nevada and they all have beer.
Anheuser-Busch really has the tools and manpower to help us with this category. It doesn't specialize in the microbrew segment, but it has the tools to utilize the information for us. Ultimately, they want to grow it overall. There's so many micros coming into the market that a supermarket not paying attention can lose focus on what's important. The profit margin is better on the micros, but you really have to concentrate on what's doing the most for business.
It's difficult to pinpoint growth, but we feel we're better utilizing the space we have. We have in-depth studies on who's contributing sales to the category, and we're experimenting with demographic studies to identify which stores should be selling which product. Ultimately, we want to make certain that the right mix of products is in each store. We haven't begun clustering stores yet, but we're working on it. Right now, everything is schematized and authorized at the corporate office; then the sets are sent out to the individual stores. Every week, we feature beer in our advertisements, utilizing the micros as secondary, not main, items.
DSD buyer
Midwest chain
We're working with Miller. We give them our data, then they put it into a computer and tell us what we could expect if we rearranged our sets. It's all in an infant stage, since the program was put in place at the beginning of the year. We'll have a track record by the end of the year for comparison. Right now, we don't know how much, but the sales are definitely up. We cluster stores, but each one is done on an individual basis, based on the scan data for the particular store.
In rearranging the sets, we segment everything into subcategories of imports, micros, premium, subpremium and cheap beer. You want to see what is the largest category in sales, then build up from there. The premium beers are the highest sellers in our stores. But switching up to premium doesn't work everywhere. Category management is based on inventory turns. You want to move the higher-volume products and cut back on the slow ones. We've discontinued some items to grow the category. Identify what the consumer wants, then give him plenty of it.
Rick Kelly
category manager
K-VA-T Food Stores
Grundy, Va. The key to this category is that we don't take a standard brewer's set. We have our own program using the Apollo system in conjunction with data from Information Resources Inc., [Chicago,] and store-specific data. We take a store-specific approach that takes into account the demographics of the neighborhood to determine potential sales of superpremium, premium and below-premium beers, or a combination of all of them. The mix varies by location.
We've obviously tried to take advantage of the growth in craft and imported beers and expanded our sections. Even in markets where you wouldn't think they'd sell, there's people who want these beverages. We try to make the best use of available space. We're dedicating more space to specialty beers in our new stores and remodeling projects. The space available varies widely. We've got facings of warm beer anywhere from 16 to 56 linear feet, and cold cases ranging from five doors to 12, depending on the stores.
The benefit of managing each store is the increase in sales and profits. In the process of doing this, you increase your inventory turns. Due to the markup on beer, making the best use of every foot in the department will most certainly increase profits. We have beer in 45 of our 65 stores. Some towns have laws against beer sales. We advertise beer in most locations, devoting a portion of the weekly ad section to beer and wine. Cross merchandising varies by store. The managers have the capability to do it with displays.
Brian Cain
beer and liquor buyer/merchandiser
D&W Food Centers
Grand Rapids, Mich.
The brewers have category-management programs that are really sophisticated, but there's no real replacement for getting to know your customers' likes. Most software programs are accounting systems that can be used to track sales and movement.
We manage our inventory pretty closely. Our employees stock it once a day, and the vendors do it once or twice a day. We see the individual items, and get a feeling for their movement. When we stock the cooler, we can see if we need more room for beer "X" and less for beer "Y." Our newer stores have 52 feet in cold beer and 12 feet in warm. The craft beers generally are short-term sellers, but a few are in for the long haul.
We're moving toward having a distributor set the craft beers with whatever is hot. Most are hot today and cold as ice in two months, so we're getting away from firm schematics on them. Most supermarket products are reviewed once or twice a year, but beer should be reviewed more often.
