Craft has had a rocky 2022 in off-premise channels, with declines in dollar sales, distribution and shelf space.
How can producers battle those declines? Aligning strategy with retailer needs is key, Brian “BK” Krueger and Dave Williams of Bump Williams Consulting (BWC) said during a Brewers Association (BA) Collab Hour last week.
Price Likely Not Causing Craft Declines
The majority of craft producers have taken price in the past year, and many expect more to come as supply chain constraints, input price hikes and other economic impacts of the COVID-19 pandemic continue.
In 2019, prior to COVID-19, the average case price of craft beer in off-premise outlets recorded a “relatively minor” uptick, increasing +0.8%, to $37.88. That price remained pretty stable through 2020 and the first year of the pandemic, increasing +0.4%, to $38.03/case. Price really spiked in 2021, increasing +2.7% year-over-year, to $39.04 a case, and in 2022 the average price surpassed $40, increasing +4.4% YTD through August 20, to $40.45.
“You have to start wondering if consumers are doing the math at the shelf in terms of getting the biggest bang for their buck, or ‘Where can I make my dollar stretch the furthest?’” Williams said.
But the need to increase prices is not just a craft issue, and “everyone is in the same boat,” Williams said.
The average case price of both flavored malt beverages (FMBs) and imports has increased +4% YTD through August 20, while hard seltzer price increased +7%, with the price gap between craft and its competition remaining relatively the same to previous years.
“Once you start to see gaps widen, that’s when the thought process or the appeal or the allure of trading down or trading out might start to sound a bit better in a consumer’s head,” Williams said. “But if everybody’s in the same boat, those gaps are gonna remain fairly stable as time wears on.”
Craft sales also don’t reflect a sharp shift towards lower priced offerings, BWC reported. Both low- and high-end craft have experienced sharp declines in dollar sales – a -16.8% decline in off-premise dollar sales YTD for craft beer under $20/case, and -17.3% for offerings $80-$89.99/case – while premium beer around the total average case price has recorded smaller declines ($40-$49.99/case down -2.6%).
“There’s been no completely abandoned ship mode, where there’s steep, steep double-digit declines on the higher end, whereas the lower priced end is faring quite a bit better,” Williams said. “I think this is more of a universal theme that we’re seeing across beer in general where consumers are still willing to seek out quality in their purchase, particularly when it comes to crafts.
“But there also might be occasions where they’re considering certain pack types or price points a bit more as of late,” he continued. “So dropping the price or a high price is not necessarily creating an abandoned ship mode, but there are slightly more visual sweet spots.”
The Need for Craft to Explore Beyond Beer Offerings is an ‘Unfortunate Reality’ Now
BWC asked retailers “what they see the shelf sets looking like moving forward,” and across various off-premise channels – grocery, convenience, supercenter, liquor and drug stores – the majority of retailers said they intend to expand shelf space for wine- and spirits-based ready-to-drink canned cocktails (RTDs). Retailers also categorized RTDs as a “priority” or “top” focus for future shelf sets.
Dollar sales of spirits-based RTDs increased +58.1% YTD in off-premise channels through August 20, according to Bump’s monthly report, citing NielsenIQ data. RTD volume increased +65.7% in the same period.
By contrast, retailers across off-premise channels said they expect a “focus on priority brands,” SKU reduction and inventory control for beer products. Beer dollar sales have increased +0.3% YTD through August 20, while volume declined -4.5%.
“There’s already a lot of overlap when it comes to consumers shopping across multiple categories,” Williams said. “And if certain categories are getting more attention, or share of mind more focus, you know who’s going to be paying the price there.”
BWC also surveyed 350 legal-drinking-age (LDA) consumers and asked what types of bev-alcohol they purchased in the past six months. Hard seltzer was the most popular, purchased by 73.7% of consumers. Wine was second (67.1%), followed by domestic beer (58.3%), FMBs (55.4%) and import beer (54.6%). About half of consumers purchased craft beer in the period, while nearly half (48.6%) purchased spirits-based RTDs.
What stands out from the survey is the amount of diversity in consumers purchasing habits, Williams said.
“Anytime there’s that crossover opportunity, that just tells me that there’s always potential for a lost occasion or a missed occasion, and one or two isn’t going to do much damage, but if those occasions are substituted on a more frequent basis, or over the course of a year, those start to add up,” Williams said. “Particularly if those occasions are [RTDs or FMBs] – areas that are getting a bigger retail focus, getting more shelf space, getting more displays – I might start to be a little bit more concerned about just how many occasions I’m at risk of losing as other areas in the business start to grow and source those occasions.”
The most obvious way for craft brewers to address retailers’ shift to RTDs: explore producing beyond beer offerings, Williams said.
“This isn’t for everybody, but it’s the unfortunate reality that we’re living in,” Williams said. “Some retailers, some consumers are looking for that one-stop shop, or ‘I know the brand, but I like these other styles.’ If there’s something that can meet that occasion, and you have the ability that doesn’t draw focus away from your core business, your foundational business, it’s worth exploring.”
Craft Falling Behind with In-Store Promotion
If beyond beer isn’t an option, it might be time for producers to reassess how they are using in-store promotion at off-premise outlets, the BWC team said. Especially with craft’s representation in in-store promotional activity “lagging behind its peers.”
In NielsenIQ-tracked off-premise outlets, the average number of weeks with a craft display declined -0.5 weeks YTD, to 10.3 weeks. In contrast, competing segments have increased their average weeks with displays, including premium beer (+0.6 weeks, to 18.9); imports (+0.7, to 14.3) and FMBs (+1.6, to 9.7 weeks). The only segment to decline sharper than craft was hard seltzer (-2.9, 16.2 weeks).
The gap pattern is similar when analyzing weeks of promotional support at retail. Craft increased its weeks with promotion in off-premise retailers +0.4 weeks YTD, to an average of 24.1 weeks. However, that increase is again below competing segments: premiums (+0.5 weeks, to 26.7); imports (+0.6, to 25); FMBs (+1, to 19.3); and below premiums (+0.5, to 19.3).
“Yes, we have decreased the amount of shelf space that’s dedicated to craft – what’s equally more concerning with that multiplier effect is this promotion and display,” Krueger said. “The news here isn’t great, but this is an opportunity. This is where we can learn from what other people are doing and dedicate those resources to go in and attack it.
“What are they doing to gain more display?” Krueger continued. “Is it a price that they’re pulling at a certain time of year? Is it a promotion? Is it a digital coupon? Is it a rebate? Is there something going on with that retailer that these suppliers are supporting in these other segments more than we are in craft?”
Read previous reporting on BWC’s Collab Hour report:
Bump Williams Consulting Pt. 1: Declines in Craft Distribution and Shelf Space Concerning