Bump Williams Consulting shared the results of its year-end “3-Tier Growth Strategies” survey last week, providing a window into the thinking of brewers, wholesalers and retailers. The survey is centered around one question: “What are your top 1-3 growth initiatives over the next two years?”
Brewers are split into two camps, Williams found. Some are cutting costs, retrenching their footprints and looking to partnerships for growth. Others are making investments and “hoping for a year of innovation success.”
Meanwhile, distributors are focused on driving more profits through strategic acquisitions, partnerships and investments, Williams reported.
Finally, retailers want to drive store traffic, build loyalty and expand flavor-forward and ready-to-drink (RTD) offerings and “high-end velocity brands.”
The survey has historically not yielded unified growth strategies, Williams noted, which he believes is among “the root causes” the beer industry has lost “ground and shopping occasions to other beverage categories,” such as non-alcoholic offerings, energy drinks, sports drinks, water, kombucha, spirits and RTD offerings, among others.
The 2021 survey found few shared goals among the three tiers, beyond RTD spirits and how to move forward with e-commerce and direct-to-consumer sales. Last year, brewers were either “on the offensive,” seeking growth in beyond beer offerings, or on the “defensive,” shoring up their supply chain by acquiring cans or managing price. Wholesalers sought to balance their portfolios by zeroing in on premium-plus brands while rationalizing beer brands and cutting SKUs. And retailers were focused on creating “loyalty, foot-traffic” and increasing basket size, while managing innovation, assortment and variety along with costs.
Here’s a look at brewers’, distributors’ and retailers’ priorities for the next two years.
Brewers’ Top Priorities: Beyond Beer, Partnerships/JVs & Reassessing Core Portfolio
Diving into the latest survey, Williams wrote that brewers “appear to have a scattered approach to growth” for the next two-plus years, which “doesn’t appear to include the growth of ‘core beer’ brands.”
The priority list for brewers from 2023-2024 includes:
- Beyond beer
- Partnerships/JVs
- Reassessing core portfolio
- DTC/E-commerce
- Chain focus
- Expansion/contraction
- Own-premise
- Reducing headcount
- Contract production
- Increasing media/marketing spend
There is “strength in numbers” with joint ventures, partnerships and private equity money, Williams wrote. However, he cautioned that brewery leaders may find themselves in “uncharted businesses that they don’t fully comprehend or know how to compete in.”
Own-premise growth expansion strategies could work if those brewers are able to hire “competent and well-trained personnel to run them,” Williams wrote. However, “penetrating and building sales in the chain class of trade makes more sense for long-term growth,” he continued. Although traditional distribution cuts into margins and profits, “it’s the only way to drive real volume and help offset huge costs in infrastructure.”
“Volume and revenue cure all ills,” Williams wrote. However, he added that it’s unclear how companies can accomplish this when they’re cutting costs and eliminating headcount.
Williams declared innovation in 2022 “a bust” for beer and added that he expects more money to be spent on non-beer offerings and non-beer partnerships over the next several years.
“Juggernauts like light beer, value-priced brands, flavors and certainly Mexican lagers will always be around, only they’ll be competing for share within a shrinking business – all because of self-inflicted wounds of price, advertising, exclusion of select demographic groups, failed innovation and the launch of ‘beer’ products that looked, smelled and tasted like spirits,” he wrote.
Distributors Prioritize Logistics/Reducing Costs, RTDs, Flavor and Non-Alcs
For distributor networks, the focus is on growing via “focus, tracking and store-level execution on high-velocity brands,” reallocating resources to emerging and growth channels to increase productivity, creating more efficient delivery models and controlling costs and losses by “enhanced inventory management and SKU elimination.”
The top 10 priorities for distributors include:
- Logistics/reducing operating costs
- RTD/flavor/non-alcoholic beverages
- COT programs/routes
- High-end/velocity brands
- Reallocating resources
- M&A vs. selling
- Changing delivery/service model
- Retaining quality people
- Inventory management
- E-commerce research
Middle-tier M&A is expected to continue, although the pool of “qualified buyers is becoming limited while the abundance of potential sellers grows.”
Spirits-based RTDs and non-alcoholic brands continue to get a lot of focus, with Williams declining them as “fun to watch develop.” For distributors, the challenge will be in deciding which brands and styles to partner with and those to avoid.
“My only fear for the beer distributor network is potential legislative changes that could impact franchise laws and allow spirits into malt-based only stores, allow brands to switch houses without penalty or payment and the blurring of lines between beer distributors and future distribution networks that currently do not sell beer,” he added.
Retailers Priorities: Growing RTDs, Maximize Shelf Space, Cutting Inventory
Retailer growth strategies have “remained consistent for the past decade” with an eye on improving topline revenue and all commodities volume (ACV) market share growth, Williams wrote. Retailers want to make the most money from a limited shelf-space and offer “the right variety and assortment” of new and old products to shoppers while driving “loyalty, market basket size and shopping frequency.”
Priorities for the next two years include:
- Growing RTDs
- Maximizing shelf space dollars
- Reducing inventory
- Building shopper loyalty
- Managing price points
- Driving in-store traffic
- Focusing on flavors/imports
- Variety and assortment
- Reducing SKU count
- Single-serve expansion
Retailers have stayed ahead of “the consumer demand curve” by making room for flavor-forward beverages, non-alcoholic products, and RTDs without cutting into “the Mexican import profit machine,” Williams wrote. They’ve done so by using purchasing and loyalty card data, while leaning on outside consultants.
Retailers may be challenged in their efforts to balance assortment and variety with limited shelf-space this year, although Williams offered that single-serve cans “will go a long way in solving that problem.”
Although each class of trade has its own space management growth plans, Williams found a few common themes for retailers: flavors, single-serves, Mexican imports and RTD spirits.
New products will receive “a lot more scrutiny in 2023” due to a lack of recent success, which led to out-of-code inventory and “wasted shelf space,” Williams wrote.
“The key to future shelf space gains and innovation lies within truly understanding the consumer and how it aligns with retailer growth strategies,” he added. “Does this ‘innovation’ bring in new shopping occasions or new shoppers? Where is this ‘innovation’ sourcing shoppers from? Is this a ‘copycat’ product of something that already exists or is there something unique about it? Who is the demographic target for this new launch? What is the repeat purchase expectation, and will there be enough product in the pipeline to meet demand?
“Retailers decide what goes on their shelves, but consumers decide what stays on the shelf.”