There’s no question that craft brews have taken the beer category by storm in recent years, and retailers have gratefully accepted the opportunity to build beer margins and profits. One store operator, for example, now devotes 40 percent of his beer set to craft brews. Another merchant points to the hefty ring he sees from beers like Great Divide Brewing Co.’s Hercules Double IPA, priced at $17.99 a four-pack of 12-ounce bottles. Still another retailer reports that employees are quick to suggest a particular draft beer, available by the growler, that would pair nicely with one of the store’s freshly made pizzas or sandwiches.

But these off-premise operators aren’t the owners of upscale specialty or bottle shops—stores where beer fans have come to expect a deep selection of national and local craft brews. Rather, they run convenience stores, and craft is playing a transformative role in their businesses.

Indeed, c-stores and marketers are now partnering like never before to drive sales of craft brews in the channel, which has traditionally lagged behind other venues in craft offerings and share. According to Danelle Kosmal, vice president of beverage alcohol practice at Nielsen, craft is one of the fastest-growing beer segments in c-stores, with a 10-percent volume increase in the past year and a 15-percent dollar gain. In the past four years, craft beer distribution in the convenience channel has increased from 69-percent all-community volume (ACV)—distribution among beer-selling stores—to 86-percent ACV.

“Convenience stores have recognized the opportunity in craft beer,” says Tom Fox, a partner at the Detroit-based beer sales and marketing development firm CM Profit Group. However, he concedes that craft beer’s average rate of sale is slower than that of mainstream domestic beers. George Ward, director of off-premise national accounts at Boston Beer Co., notes that craft beer is extremely profitable for c-stores. “We’ve seen c-stores transition their shelf space from mass domestics to craft beers like Sam Adams to increase their profit potential,” he says.

Craft beer marketers are also seizing the chance to advance sales of their brands in c-stores, which comprise the largest off-premise channel for beer, according to the National Association of Convenience Stores. Chad Melis, marketing director at Longmont, Colorado–based Oskar Blues Brewery, reports that year-to-date sales of his company’s beers in c-stores are up 45 percent, mostly due to new placements.

Still, craft beer continues to play a less-prominent role in c-stores than in other retail outlets. According to the National Association of Convenience Stores, craft beer makes up about 4 percent of all beer sold in c-stores, despite accounting for 11 percent of the overall U.S. beer market. Steve Jannuzzo, national accounts manager for convenience stores at Chico, California–based Sierra Nevada Brewing Co., attributes craft’s small share in the channel to two factors. “Space is hard to come by in c-stores, and change can be difficult,” he explains.

Big Payoffs

But for those c-stores that are emphasizing crafts, the payoffs have been big. “I’m passionate about craft beer,” says Damian Wyatt, beverages category manager at Mapco Express. Out of the Brentwood, Tennessee–based company’s 377 units in seven states, 360 sell beer and 20 locations offer growlers. Wyatt notes that craft beer accounts for 9.1 percent of Mapco Express’s beer sales this year, up from 7.3 percent in 2014. He began focusing on the segment three years ago, despite resistance from mainstream marketers and industry experts who believe c-store customers prefer premium and sub-premium beers. “Some naysayers said we didn’t have the right consumer,” Wyatt recalls, adding that many of his mainstream beer customers grab a single-serve bottle or can or even a six-pack of a craft brew with their regular purchase. The craft beer selection at Mapco Express ranges from six items up to 40, depending on the size and location of the store. Six-packs are generally priced from $6.99 to $12.99.

Costa Mesa, California’s Plaza Chevron, a franchisee of the ExtraMile convenience store chain, has quickly developed a reputation for its craft beer selection. According to manager Mike Mendez, the store only started carrying craft beer two years ago, but three out of four cooler doors are now devoted to the segment, with offerings typically priced at $9.99 a six-pack. The change in beer selection has brought new, younger customers to the store. “They make big purchases,” Mendez says. “They’ll buy beer for the week.”

In Bend, Oregon, where craft beer is omnipresent, c-stores are committed to the category. “New customers are shocked to find seven full cooler doors for crafts, including four doors devoted solely to 22-ounce bottles,” says Kizer Couch, co-owner of Stop & Go Mini Mart. Couch acknowledges that beer drinkers in his market skew more toward crafts than in other markets, and as a result, he commits 40 percent of his beer space to the segment. He also notes that his customers are now venturing into emerging beer styles, including porters, stouts and sour beers. Stop & Go stocks roughly 175 craft beer SKUs. Craft bombers are typically priced at $4, and 64-ounce growler refills are usually $10.

Merchandising Marvels

As with other trade channels, convenience stores are finding that effective merchandising strategies can help build sales of craft brews. Plaza Chevron features a craft beer of the month for the promotional price of $7.99 a six-pack. Mapco, meanwhile, offers two mix-and-match programs: a build-your-own-six-pack option for $9.99 and a $3 deal for two 16-ounce cans. The chain further promotes the segment by partnering with leading craft brewers on promotions that are tied to its rewards program and are often supported via social media.

While Wyatt concedes that growler sales at Mapco aren’t intended to pay the bills, he says they’re exceeding expectations. The retailer notes that draft beer at c-stores allows operators to differentiate themselves. “It’s very unique for a convenience store to have beer on tap,” he adds. Still, Wyatt says growler systems are high maintenance and require constant attention. “We treat the station as we do the food area,” he explains. Growlers have been so successful at Stop & Go stores—where 36 different beers are offered on draft—that Couch and his partners launched The Growler Guys in 2012. The franchise chain now has 11 growler outlets in the Northwest.

A key package in c-stores is the single-serve bottle or can. Craft singles provide operators with a higher ring and improved margins over mainstream beers, offering shoppers a chance to sample a new craft brew without committing to a multipack. “The ring is attractive to retailers, and it’s an affordable luxury for consumers,” CM Profit’s Fox says. He recommends that c-store operators devote at least one cooler shelf to craft singles due to their “profit and sampling opportunity.”

Tight Squeeze

While craft beer certainly has momentum in c-stores, challenges persist. Convenience stores are the most constrained for space among all retail venues. “Cooler configurations are a problem,” says Fox, noting that c-stores typically devote one-tenth the space to the beer category that grocery outlets do. Nielsen’s Kosmal says that even though c-stores have nearly doubled the number of craft items on their shelves to 10 SKUs in the past four years, space is an ongoing issue. “With so many new styles, packages and local brands being introduced, space will continue to be one of the obvious challenges in any channel, but even more so in c-stores,” Fox notes.

The clout of major marketers in the c-store channel also factors into craft beer’s role. “Domestic brewers are the category captains for c-stores,” Fox explains. “They won’t go overboard in advocating for a lot of space to accommodate crafts.” Mapco’s Wyatt agrees. “The biggest challenge is the big brewers,” he says. “Do we really need 40 different types of packages for the same beer? It comes down to SKU rationalization and taking chances on increased varieties and new brands.”

Despite the challenges, retailers, craft beer marketers and others say there is still a growing opportunity for the category in the convenience store channel. Wyatt believes it’s likely Mapco will soon see 10 percent of its beer sales coming from craft, and he’s eyeing an even bigger portion down the road. Fox agrees that it’s possible for craft beer in c-stores to reach a double-digit share, even though the major domestics will continue to work to maintain their own share.

Boston Beer’s Ward advises c-stores to offer the right variety of craft brands and packages and to merchandise around key occasions. “Visibility is key,” he adds. “Drinkers should be able to easily identify craft beer, and it’s important for c-stores to merchandise dedicated sections and to include craft brews in their promotional schedules.”

C-stores also need to balance their beer offerings. Fox suggests that if craft accounts for 5 percent to 10 percent of beer sales in a given market, c-store operators should allocate up to 20 percent of their beer space to the segment, given the margin and profit opportunity it provides. He notes that such an allocation won’t harm the major domestic beers. “After all, you don’t want to cut into the bone,” he says.

Kosmal agrees. “C-store retailers will need to find a balance between supporting the mainstream brands that provide most of the volume, while still making space for craft brands that contribute to growth and meet the consumer need for more variety,” she says.