Just as Mark Twain decried reports of his untimely death, so too do craft brewers and beer retailers dispute the idea that craft beer is on the wane. Still, with competition fiercer than ever and beer shelves crammed with choices, the days of indiscriminately adding new SKUs are over.
According to equity analyst Consumer Edge Research, the number of active beer SKUs in tracked channels was down about 3 percent in fall 2017 compared to the year-earlier period, while active craft SKUs showed an almost 6-percent drop in the same period (the group defines an “active” beer SKU as one that has monthly sales of more than $100). The group’s senior analyst, Brett Cooper, attributes much of that streamlining to distributor and retailer efforts to create efficiencies. Beer retailers are rethinking the idea that increased choice drives traffic, Cooper explains.
Major beer players say the craft beer boom has forced retailers to take a critical look at their selection and sales data in order to boost profitability. “There’s a tipping point at which the number of options becomes overwhelming for the consumer, the retailer and the distributor,” says Bruce Jacobson, chief commercial officer at Constellation Brands’ beer division. “Retailers and distributors still want to offer choice, but with products that best help their bottom line.” Vikas Satyal, senior director of commercial marketing at Heineken USA, agrees that the product proliferation created by craft has forced retailers to question whether they really need every SKU. “They’re looking at how to balance shoppers’ wants with their own profitability,” he says, noting that the cost of carrying so many SKUs has led beer retailers to scale back their offerings.
Bart Watson, chief economist at the Brewers Association—which represents independent craft brewers—also sees a scaling back in craft SKUs at retail. “It’s due to a combination of factors, but many chain retailers aren’t seeing the velocity they want on some SKUs,” he explains. “Retailers are constantly juggling product assortment to find the right mix of variety and velocity.”
Smarter Buying
Beer retailers say they’re monitoring their craft beer selection more than ever, but not necessarily rationalizing SKUs. “Craft beer options continue to be a customer favorite for us, so we haven’t cut back on our craft SKUs,” says Anthony Dyer, category manager for beer and spirits at Raley’s. The Sacramento, California–based grocery chain operates 113 stores in California and Nevada. Steve Byers, beer and wine director at Green Zebra Grocery, which has three gourmet food stores in Portland, Oregon, isn’t looking to rationalize either. “Craft beer is a driver for us,” he says. “We have an educated staff that pays close attention to the brands.”
Other retailers are intensifying their focus on craft. “We’re always culling when it comes to bringing in new products,” remarks Ryan Maloney, owner of Julio’s Liquors in Westborough, Massachusetts. “It’s a constant battle between inventory control and what’s selling.” Maloney notes that some of the best imports have been adversely impacted by craft, citing Belgian beers as an example. “We have to watch that, as there’s only so much room on the shelf,” he adds. Chris Cook, beer department manager at Merchant’s Fine Wine in Dearborn, Michigan, is spending more time than ever making sure he’s stocking the right craft SKUs. At Jubilation Wine & Spirits in Albuquerque, beer manager Simeon Wagner says that while he’s seeing no slowdown in craft beer sales, he keeps an eye on any slow-moving items and replaces them with new products when necessary.
“Retailers and distributors are getting a lot more selective in taking on new packages, styles and brands,” says Bump Williams, principal of the beverage alcohol consulting firm Bump Williams Consulting. As a result, local beers aren’t getting an automatic full placement of all packages at retail as they have in the past, he adds. Cook of Merchant’s—which stocks more than 1,000 beers, priced from $7 to $20 a six-pack—says that today’s highly educated beer consumer has made ordering a far more complex matter than in the past. He regularly checks online reviews and researches new beers.
Ironically, some of the products and packages that helped build the craft beer category are among those being rationalized today. “Craft seasonals and variety packs have taken a hit,” Cooper says, while Byers notes that “variety packs aren’t as exciting as they used to be.” Green Zebra stocks nearly 400 beer SKUs, priced at $9.99 to $15.99 a six-pack. Byers surmises that with some of the variety 12-packs priced above $19.99, customers no longer see them as such a good deal. “Where we’re cutting back is in package duplication,” says Dyer of Raley’s. “If an item is available in a 22-ounce package and a six-pack, we’ve pushed for the six-pack and cut the bomber.” All three retailers say that bomber sales are waning.
Craft Can Surge
If there’s any package that’s getting plenty of space these days, it’s canned craft brews—including non-traditional sizes like four-packs of 16-ounce cans and 15-packs of 12-ounce cans. “Cans are on fire,” Williams says. “Look for duplicate glass packages to get reduced.” That suits Oskar Blues just fine, as the Colorado brewer packages its beer exclusively in cans. “The explosion of craft cans has helped retailers add variety and further optimize space,” says Oskar Blues vice president of national sales Chris Russell. He notes that cans provide “better pack-out” than bottles, as retailers can typically display six-packs two cans wide.
Other segments also stand to gain from retail rationalization—including imports, flavored malt beverages (FMB), wines and spirits. “Brands across all segments grow when redundant SKUs are cut, but the big winners are high-end brands,” remarks Jacobson of Constellation. At Raley’s—which stocks more than 600 beer, cider and FMB SKUs, and where craft brews retail at $7.99 to $13.99 a six-pack—“spiked seltzers have really done well,” Dyer says. “I’ve seen them take quite a few spots.” Williams, meanwhile, says both wine and spirits are clear-cut winners, thanks to demographic shifts and the easing of sales restrictions. “What was once a beer-only space in some markets is slowly going away,” he remarks.
Beer marketers agree that retail rationalization can benefit the entire category. “The industry’s exuberance has created redundancy that’s strangling resources like shelf space,” Jacobson says. Bill Boor, CEO at Great Lakes Brewing, notes that suppliers, distributors and retailers have typically made plans based on historical information. “In recent years, that’s been more difficult because the retail landscape is so significantly different from year to year, with a whole new set of breweries and styles,” he says, adding that the emergence of data-based decisions about what styles get and keep shelf space—coupled with efforts to make room for new products—will create a healthier industry.
Rotation Nation
Retailers and industry observers don’t expect beer rationalization to intensify in 2018. “I don’t plan on cutting back our craft beer offerings,” says Dyer of Raley’s. “We’ll continue to monitor our current SKUs and pursue new breweries that have a proven track record, or have a strong demand from the craft consumer base.” Cooper of Consumer Edge doesn’t believe rationalization will maintain its current rate, adding that 2018 will be marked by “rotation of what’s on the shelf.”
Regardless, enhanced scrutiny of product mix and sales data is a certainty, brewers say. “We expect retailers to be more critical when it comes to managing space versus sales,” says Russell of Oskar Blues. “The time period for a SKU to prove it belongs on the shelf will become shorter.”
Beer retailers like Cook and Wagner are up for the job. “I’ll continue to be flexible in terms of understanding what our customers want, and I’ll tweak the selection when needed,” Cooks says. Wagner adds that he’ll do the same, noting, “It always comes down to the numbers.”