Brewbound Podcast: NIQ on Bev-Alc at Halftime 2024 and the Coming 4th Mega Category

[00:00:00] Justin Kendall: Next on The Brewbound Podcast, a halftime report with NIQ. Hello and welcome to The Brewbound Podcast. I'm Justin Kendall.

[00:00:19] Zoe Licata: And I'm Zoe Licata.

[00:00:21] Justin Kendall: And we're going to have a Bahamas report.

[00:00:23] Zoe Licata: I'm back. I made it. I returned.

[00:00:27] Justin Kendall: You're back and just as out. rotation going on this, although Jess will be here for our featured interview with Jon Berg, DP of Alcohol Industry Thought Leadership for NIQ. So stay tuned for that. Please like, rate and subscribe to this podcast. It helps us out. But let's get back to the Bahamas Beer Report. We got to have it.

[00:00:52] Zoe Licata: Yes, a lot of beers were consumed in the Bahamas. So I was on a very tiny island called Cat Island. So there was one liquor store basically and one grocery store and we stocked up twice for the whole trip because it takes like 40 minutes to get to these stores from where we were staying. But classic cliques were like what we were drinking the whole time. We got, I think it totaled four large cases split between us for the full week. But there were a lot of other beers that I did not know were a thing in the Bahamas, including something called Bushcrack. Have you ever heard of this?

[00:01:32] Justin Kendall: I haven't heard of Bushcrack.

[00:01:34] Zoe Licata: Bushcrack is like these bright silver cans with a fighting rooster on the front. It's like a lager, like it's kind of like a light lager, like just cheap light lager brands that you would get there. And it's just the craziest looking beer that was just like, if you didn't want to click, you were getting possibly a Bushcrack to have something like a little heavier, almost. I would equate it almost to like a Bud Heavy. I highly recommend looking it up. I might share a picture in the newsletter, but crazy looking cans.

[00:02:09] Justin Kendall: I am furiously Googling at the moment.

[00:02:13] Zoe Licata: It's an interesting thing to Google. But yeah, I think there are like 5 or 6% ABV. So those made it into our rotation. There's also a special Guinness that you could get in the Bahamas that I didn't know about either. It's like a Guinness for an extra. It's like 7 point something percent ABV, so much higher percentage Guinness and a much like maltier, almost sweeter tasting Guinness. Wouldn't say I totally recommend that one, but if you want to drink less Guinness to get the result of having multiple regular Guinness, then sure, you can go for that. But yeah, I didn't know there was other Guinness as well in this world. So those were some of the most interesting ones. They also, I know we talked a lot on this podcast over the past few years about non-ALC is doing great and then high ABV beers are doing great. And then there's like, we don't see much of the low percentage, like 2% beer is doing very well at all. Now Cape or Not just did a story on that as well. But in the Bahamas, the Klik brand, which is like the most popular brand, they have Rattlers that are like 2% ABV. and they taste just like, basically like a, I don't know, like a juice you get at like a 7-Eleven or something. They have like mango and cranberry, and I think there was a guava one. But yeah, 2% hadn't seen one that was that low percentage before, and people are just drinking them. This island, I don't feel like there was a lot of crackdown on where you were drinking. People were drinking both regular clicks and these 2% Rattlers kind of all over the place.

[00:03:55] Justin Kendall: You're speaking my language with 2% ABV.

[00:03:58] Zoe Licata: Right?

[00:03:59] Justin Kendall: Yeah, you absolutely are. And because I think one of our friends is putting out a beer called dad strength and it's 2.9% ABB. That is a sweet spot for a 46 year old man with the two and a half year old who's going on 13 and a puppy who is five months old and you know, a weekend already barking in her kennel.

[00:04:27] Zoe Licata: Yeah, highly recommend. I was a fan of the 2%ers. They were pretty good. I mean, they were real tasty. It doesn't taste like you're drinking alcohol and you kind of barely are with the 2%, but yeah, they were tasty. So I was a fan of the Radlers. A good array of beer beverages and all of them are made by like, same two, I think they have two main breweries out there. But yeah, I was glad to return home and like have a cider from Eden Ciders right away. And I had an Allagash within the first couple of days back because you get a little sick of having mainly the same light beer every day for like seven or eight days straight, but solid options.

[00:05:09] Justin Kendall: This is the thing that Craft Brewers love to hear, I'm sure. Anybody else in the total beverage alcohol space, I imagine, is, we need more choice.

[00:05:19] Zoe Licata: Yes.

[00:05:19] Justin Kendall: You just proved it. We need all this choice.

[00:05:22] Zoe Licata: I could not have survived. I mean, just on the regular clicks alone, I would not have survived. And yeah, I was desperate by the end of it for something else. So definitely happy with the amount of choices we have here. I don't know if I need as many options as there are out in the world, but definitely more.

[00:05:41] Justin Kendall: You and I are not done being on the road. In fact, I think that it's just begun for us this fall and the end of summer here and into the winter, we are going to get all the miles. And this is the most hilarious assignment because you're going to the place that I probably should go. And I'm going to the place that you most definitely should go because I'll be at the Beatbox distributor conference in Houston, Texas. And you're going to Sierra Nevada and Mills River, North Carolina. And I know how we arrived at this decision, because me being centrally located, it makes a lot more sense that I go to Houston than you go to Houston.

[00:06:25] Zoe Licata: Yeah, geographically, it made more sense. But yeah, it is a bit funny.

[00:06:31] SPEAKER_??: Yeah.

[00:06:31] Zoe Licata: I'm excited to go to North Carolina. I haven't been to North Carolina yet, so it's going to be a very quick trip, but good to see what Sierra Nevada is up to and potentially check out some other breweries in nearby Asheville. So it's going to be fun.

[00:06:44] Justin Kendall: Yeah. And I'm looking forward to the beatbox Conference and Monster'm very much hoping that they've recognized that there's a 46 year old coming and they've got a 2% whatever beatbox for the old folks in attendance.

[00:06:59] Zoe Licata: I don't like your chances for that.

[00:07:01] Justin Kendall: No, unfortunately, but wouldn't be a party punch maker. If it was that low, I think their lowest is the 6%.

[00:07:09] Zoe Licata: I think that might be your best bet for the sugar free ones.

[00:07:13] Justin Kendall: Yeah.

[00:07:14] Zoe Licata: Just nurse it throughout the day. You'll be fine.

[00:07:17] Justin Kendall: That's going to be one warm Tetra pack. Well, you can look forward to all of that on Brewbound.com. All of it available to Brewbound insiders and. I mentioned we're going to be on the road and we are going to be at the NBWA annual convention in San Diego. It's the off year. It's not Vegas. It's San Diego. And we're going to be recording podcasts like we did at the Craft Brewers conference. We're going to be there September 30th and October 1st. So look for us at the NBWA annual convention doing this podcast. And we're also going to have a happy hour, September 29th at the lost Abby's church. So you can pregame with us from, I think it's like four to six right before the NBWA. I keep saying NBWA over and over so you can pregame with us before the NBWA is opening party.

[00:08:17] Zoe Licata: Yeah. Stone is also having a party that day and it's after that party. So there's no conflict there. So you can kind of hop around and have a good time.

[00:08:27] Justin Kendall: Absolutely. So very much looking forward to that. Also looking forward to Brewbound Live, December 11th and 12th in Marina del Rey, California. We're going to have retailer one-to-ones with Whole Foods and Extra Mile, the convenience store chain. We're going to do a lot more one-on-ones, I think. More to come on that. And tickets are available now. We've got a handful of speakers that we've announced so far, but more to come. So get your tickets. Let's get into the news. And why don't we skip around a little bit and talk about the crapper's conference attendance? Because we just mentioned that and there's not a whole lot here. The B.A. released some facts and figures about this year's event. And the one that stood out to me is they said attendance in Vegas was nine thousand five hundred more than nine thousand five hundred. But that is down from the twelve thousand that attended Nashville the year before. Why is that? I think there are a lot of factors probably at play here. And one that we heard before the conference was price. Vegas is pricey and to go for that amount of time, probably a little bit more than say going to Nashville or Milwaukee or any of the other destinations we've been to in recent years.

[00:09:51] Zoe Licata: Yeah, Vegas is expensive. And this was kind of a bit of a, I think, a reality check a little bit. Because before we went to CBC, we were kind of like, this might happen. It seems like Vegas is kind of tough. It's really expensive. There are not a lot of Craft Brewers out there. So like, there's not a lot of local folks there. And then we got there and everyone seemed pretty positive and happy about the experience. So I think we backed off a little bit, but this kind of reminded us, no, actually it wasn't, it wasn't as big as previous events. And so it did impact folks like we thought it might have. I remember us hearing from a good handful of people in attendance too, that they just weren't bringing as many of their team members as they would have in the past. breweries wanted to have somebody there, but they weren't bringing like three, four or five plus folks as they might have at previous events.

[00:10:42] Justin Kendall: 100%. And I wonder if we're going to see a bounce back when it's in Indianapolis next year. Maybe you can pull more people in a city like that where it's not quite Vegas expensive, I would say.

[00:10:58] Zoe Licata: Not quite, no. No, it's a little better. Yeah, it'll be interesting. And I think that will also kind of gauge how much does the location matter versus just where craft is right now and where people's budgets are.

[00:11:13] Justin Kendall: And we get spoiled, you and me and Jess and you know, the, the folks who follow these trade groups to these various locations, because every other year we're going to Vegas for the NBWA convention. And this is the off year, obviously because of San Diego, but to us, it's like, oh, Vegas again, Vegas again, Vegas again. And I think there might be some of that where to.

[00:11:39] Zoe Licata: Yeah, we go to Vegas a lot. I never thought I'd be going to Vegas so much in my life.

[00:11:44] Justin Kendall: Me neither.

[00:11:45] Zoe Licata: It's something.

[00:11:48] Justin Kendall: It is something. All right, let's talk about one more thing, and that's Monster. They shared their Q2 earnings last week, and they talked a little bit about the alcohol business, and that includes the Beast Unleashed and the Nasty Beast Hard Tea, their F&Bs that they launched a year ago. They've got a bunch of Craft Brewers brands that they bought, and also Wild Basin Hard Seltzer. But this year, or this Q2, was the point where they cycled last year's launches, and they're having a bit of trouble with that, and they said that they're seeing declining F&B volumes, and that pushed net sales down about 32%, so down to 41.6 million, That was down from $61 million in Q2 2023. And then the company took a write-down of around $8.1 million related to brewery closures in the quarter. And that would have to be Deep Ellum. They didn't shut down the brand, they shut down the brewery in Taproom in the Dallas area, and that closed in May.

[00:13:04] Zoe Licata: Yeah, their craft brands have been in a weird transitional phase, I guess you could call it, recently, and we haven't quite figured out what they're exactly going to do with them. I mean, they rebranded all of it now, so it's all under Monster Brewing, and we've seen a lot of these larger total beverage companies just rethinking what they're doing with their craft brands, and this has not been an exception to that. wasn't too surprising to see there's going to be an impact from that. The F&B stuff, yeah, they have comps. Of course, you're going to expect some declines unless they're doing significant, I don't know, expansion or something. But F&B as a segment are doing really well still. You have to figure out how can you be in that segment and not see some benefit from that. I think Monster struggles still with its F&Bs of just like consumer awareness of the brands. Even when I just did that trial with some folks over the July 4 holiday, like we had a bunch of the Beast Unleashed stuff and they didn't even know it existed and confused of what it was and like, I didn't know we even had this here yet. So it seemed like there was a lot of big push initially when the brand first launched and then maybe hasn't, they haven't sustained it as much and it's just not in consumers' faces anymore.

[00:14:33] Justin Kendall: And that's one of the challenges when you're not going to lean into your brand equity. because their CEOs had said at the start, we are not going to use the monster name on these. And that's what you get. They didn't wanna have confusion in the marketplace with the non-alcoholic versions of their energy drinks and those things with the alcoholic drinks. And I get that to a degree, but we've seen so many companies lean into their brand equity. And I think that they're probably better for it.

[00:15:08] Zoe Licata: Yes, I can understand where the confusion would come from with Monster. There was people asking like, does this have caffeine in it? Like, what is this? But also some of the biggest compliments I've seen for that brand is people are like so excited that it tastes like the Monster beverages that they're used to and that they enjoy. So it definitely feels like it hinders it a bit that it's not leaning into that and being like, hey, here is a just like spiked version without the caffeine of a beverage that you know and enjoy.

[00:15:38] Justin Kendall: And I say this and the can has the M that is pretty much monster, but they're saying it without throwing it right in your face. I mean, it is pretty in your face, but still.

[00:15:52] Zoe Licata: Yeah.

[00:15:53] Justin Kendall: And the other thing I would say about this is Monster's late February earnings, the company took a nearly $40 million impairment charge on its alcohol business. And at the time, the company said that it was due to the, quote, continuing challenges in the Craft Brewers and seltzer categories. So you have one right down on top of an impairment charge and- There we are with where their alcoholic beverage business is.

[00:16:25] Zoe Licata: Yeah, and I don't see that really improving too much. It's hard to see any positives really coming for a lot of Monster's craft brands because it doesn't seem like they're super, that they're prioritizing them all. I mean, I just think of like back to the Craft Brewers conference, it stuck out to me so much that Monster Brewing had a presence right outside of the trade floor promoting the Beast Unleashed and Nasty Beast brands. Like it was predominantly about those F&Bs and not about their craft brands while they were at a Craft Brewers conference. Like that consistently sticks out as one of the core interesting things that happened or that I noticed while we were at that conference.

[00:17:07] Justin Kendall: And that seems to be their strategy so far is to focus on those F&B brands and the Craft Brewers business is there too.

[00:17:18] SPEAKER_??: Right.

[00:17:18] Zoe Licata: It exists.

[00:17:20] Justin Kendall: Yeah. And they've also undergone a leadership change at the top of Monster Brewing. We've heard that Tony Short is no longer there. And I am unclear on the line of succession off the top of my head, but I believe that there's somebody that's been installed in his place already.

[00:17:39] Zoe Licata: Yeah. They wouldn't confirm anything to us, but there have been reports of confirmations out there that Tony Short is gone.

[00:17:49] Justin Kendall: Well, that's the news right now as it is, and we'll be having more news obviously on Brewbound.com. You can check it all out, become an insider today, but we're going to hop to our featured interview with Jon Berg from NIQ. Market research firm NIQ recently released its halftime report for the 2024 off-premise sales for beer, wine, and spirits. And we're gonna dive into it next with Jon Berg, VP of Alcohol Industry Thought Leadership at NIQ. Thanks for joining us, John.

[00:18:29] Brewbound Podcast: Yeah, appreciate you having me. It's always a pleasure to talk to you guys.

[00:18:33] Justin Kendall: Yeah, we're stoked to talk to you, even though things are a little cloudy right now from the numbers that we're seeing. So we're at the halfway point. What's your read on the health of the beer category at this point?

[00:18:46] Brewbound Podcast: You know, the beer category definitely has some elements that are trending in a negative direction. Of course, those elements, they're trying in a positive direction. The component that we're keeping a close eye on is the value versus volume. And so everybody knows that the industry has been digging to try to find some volume and wall streets asking the really hard questions, you know, where's that volume going to come from and how are we going to get that? And so right next to that volume equation, if you take a look at things, which I tend to do over an annualized basis, that rolling 52-week view, if you take a look at that, what you see is some subsidization kicking in. You see the manufacturer community trying to find a way to build that volume. And one of the best levers to pull to get that volume is to subsidize the shopper and give them a price decrease. And so we're seeing that across nearly every segment of beer right now.

[00:19:50] Justin Kendall: And it's becoming pretty clear to how important RTDs are to the category, and especially when they're removed from the equation. So I guess at this point, are RTDs becoming their own mega category?

[00:20:05] Brewbound Podcast: Yeah, I'm really glad you brought that up because that's how we've been looking at it, or we've been at least supplying that view of RTD as the mega fourth category. And that we didn't come upon that necessarily just arbitrarily. You know, we do a lot of presentations for retailers or retailer groups. and conferences that are retail driven. And when we ask those retailers that are making those new item decisions, those SKU rationalization decisions, one of the things that comes through loud and clear is the consumer views, or the shopper anyway, views RTD as holistic, you know, sure. of them know it's beer you know it's malt based or wine based or spirits based but most people are much more focused on the flavor and the usage occasion for those RTDs and so what we're seeing is a shopper who can plug and play nearly any element of RTD into their repertoire and RTD is replacing many items in that repertoire that used to be typical beer, wine, or spirits items.

[00:21:18] Jon Berg: In your report, you break down the different elements of the RTD category on its own. There's two different stories playing out here. Some are doing well and some are not doing so well. So how can you summarize what we're seeing in that part of the industry?

[00:21:32] Brewbound Podcast: It's really a tale of offsetting directions. So you've got things like FMBs, which are still moving the needle as far as growth is concerned, but you also have the shakeout in the hard seltzers, and there's kind of an offset there. And while all of that is happening, you have the wine RTDs trying to push themselves forward, and some elements of it are doing really well. And then, of course, you have the spirits-based RTDs, which have definitely been on fire But the growth over there is somewhat constrained based on distribution, the where legal distribution element. So what we ended up with is really interesting. We kind of end up with an offset of FMBs to hard seltzers, getting us back to a little bit of value growth, kind of peeking through, but still kind of struggling to try to find all that volume I was talking about earlier. It's been elusive even for RTDs as the category has kind of matured.

[00:22:36] Justin Kendall: It's one of those things with hard seltzer where you look at the segment and it's in decline, and it's been in decline for a while. But what's really impressive about that segment is that it grew to the size that it is. And I don't think people on the outside really understand how big that is when you look at it in comparison to something like spirits-based canned cocktails or those sort of things.

[00:23:02] Brewbound Podcast: Yeah, it's a great point. And the situation with the, I kind of laugh, I was doing a discussion the other day, and I said, don't be too quick to, you know, shovel dirt on the seltzer category. Because, you know, if you look at product life cycles in general, and I've been working in beverage alcohol for about 20 years, and I've been able to observe a lot of product life cycles, both, you know, individual products and, you know, categories or subcategories. And what you see is you see sometimes this maturity and then this decline, which we're seeing in seltzers. But then something will happen along the way to push the envelope a little bit and kind of begin that growth cycle again. In other words, it kind of reaches that decline or that maturity level. And then, you know, there'll be an innovation that'll drive it back up again. That would be something that I would watch for in seltzers. Seltzers are also concentrated on those core elements, those core flavors and brands that are really driving it right now.

[00:24:09] Jon Berg: John, back to RTDs, I have a taxonomy question. We were just discussing, I just spent the whole month at my mom's and apparently the Boomer Women's Set really likes the ready-to-serve drinks. So the, you know, like pre-made ready-to-drink options, but multiple servings in one package format. Where does NIQ categorize those? Would they be considered RTDs as well?

[00:24:33] Brewbound Podcast: What we've been doing is we've kind of called the whole thing ready to, and we've got a new piece of work we just sent out. That's all about the ready to super segment or mega category. And then what we do is underneath that, we say ready to drink, which would be a single serve to your point, which is spot on. And then the ready to serve products, which would be a multi-serve. And you know, what's interesting that I've worked with those ready to serve products over the years. especially on the individual manufacturer side. And they've always, maybe not, they've had pockets of growth. And those pockets of growth have always been flavor orientated. But the consumer for this wave of RTD growth that has happened, I was kind of watching for them to gravitate more towards the economies of scale by going to the RTS. Because so many of those RTD products you can also buy in a ready-to-serve format. And while there has been some growth there, I was actually thinking it was going to be higher than it's been. So the convenience of being able to just open up those individual cans and have those multi-packs of different flavors right now is outweighing the one single-flavor multi-serve that you're going to have with your at-home entertaining. That's super interesting. It's something that I don't know, I'm still in the camp that not to walk away from that issue. I think that ready to serve, I'm just looking for that moment in the sun to kind of blossom. And I've been predicting it for a while, and it'll come with either premiumization or may come with economic impact too.

[00:26:17] Jon Berg: Yeah, I mean, I can see them certainly having their moments, particularly with like at home entertaining. So I don't really know where the life cycle is on that right now. I certainly do not have the time nor a clean enough house to have people over because as we've also discussed, I have a 14 month old. So maybe one day.

[00:26:37] Brewbound Podcast: You know, when we look at or when I have looked at consumer segmentation in the past, there's this at-home entertaining segment that's called need to impress. And it can be pretty sublime or it can be pretty overt. It's that consumer segue that kind of gets different treatment with at-home entertaining. So if you do have a group of people coming over and there really is that need to impress moment, the more premium RTS, ready-to-serve products, really seem like it's going to be directionally a good way to go.

[00:27:10] Jon Berg: For sure. Can we go to channels for a little bit? How are Bev-Alex trends varying by channel? I know during the pandemic there was a huge focus on grocery and then when the world started to open back up, C-Stores really picked back up again. What about right now where we're kind of living in the, I hate this phrase, but the new normal? Does any one channel stick out from the others, either good or bad?

[00:27:31] Brewbound Podcast: I would absolutely say the convenience channel for the first time ever in our, we have a product called Omni shopper fundamentals that our basis team creates. And as a former client, I used to buy that every single year. And what you usually see at the top of the heap in that consumer view is price. It's always price being the most important. But for the first time ever, what we've seen is convenience actually override price just by a little bit. But it's peaking itself in front. And so what we're finding is not everybody says, my time is worth more than money, which would be the loose interpretation that you would give that. But enough people are in that camp where, whether it's e-commerce or whether it's C-store driven, which is where we're seeing so much of the growth, people say, you know what? I know what I want. It's a planned purchase. I just need it quickly. I don't have time to go through the entire store looking for that particular product. I know I'm paying a little bit of a premium here, maybe in the convenience space, although that's arguable, but I need it quickly. And that's making a really big difference right now. If economic circumstances change, we may see the movement back to price still important, and it's important with different people. But that convenience factor and the convenience channel is really where it's at right now.

[00:29:00] Justin Kendall: That's how I treat ordering pizza on Fridays. Do I have time to get it? Probably not. So I'm just going to have delivery and pay the premium there.

[00:29:11] Brewbound Podcast: Yeah, we kind of bake it into our personal consumerism and the way we handle ourselves. But, you know, big credit to the convenience store industry for seeing it as an opportunity not to necessarily take excessive margins, but an opportunity to really capture that consumer and have that convenience location be their go to, you know, for beverage alcohol. It's really, I think, a watershed moment or a significant shift, especially for those in that convenient space.

[00:29:46] Justin Kendall: So one of the things that stuck out to me about the Halftime Report was you wrote that there is no single core driver across all segments. Rather, several factors are influencing value, volume, or both. And that can be anything from like moderation and health and wellness concerns to cannabis and THC consumption, premiumization, usage, occasion, substitutions, and then inflation and retail pricing. So as we're sort of working out that value volume equation, what is your thought on how we get to a healthier balance between the two?

[00:30:29] Brewbound Podcast: Thank you for calling those out. We did try to put some work and some thought into the different consumer impact points. And some of those, I don't think are ever gonna leave us, things like premiumization. And apologies if this is language that gets used a lot. I tend not to say trade up or trade down, which we hear a lot. We hear people talk about that a lot. The way the beverage alcohol consumer that I found over the years actually works is they have a repertoire. and they trade within that repertoire. So they have premium products in there, they have sub-premium products in there, and they move around and just utilize them at different rates. Okay, maybe that's semantics, maybe that is what you would call trading, but I think those products stay in our repertoires and we just use them a little bit more, a little bit less. But I think for that volume and value equation to change, I think probably the biggest impact that I see right now is that moderation of consumption. We've seen that come in waves over the years, but this is probably one of the biggest waves that I've ever seen in terms of acceptability. We used to see moderation in pockets, and people would almost be apologetic or be outcasts for moderating their consumption. But now it starts to make sense to more people. It makes sense generationally. It makes sense from a health and wellness perspective. And so I think what the beverage alcohol community is going to have to come to grips with is, OK, I'm going to try to drive this value proposition. But I also realize I can't take as much price if I really want to drive the volumetrics. And there's going to be a right-sizing or there's going to be a reckoning that's going to come. And I think it's already upon us. But moderation is, I think, what's going to drive that.

[00:32:27] Jon Berg: What do you think that reckoning is going to look like?

[00:32:29] Brewbound Podcast: I think the way it's going to look is that people will lean on the premium part of their repertoire a little bit more. So I'm drinking less, but you know what? I'm actually going to drink things that are the more premium part of what my selection process would normally be. And now that I'm there, You know what, Mr. Manufacturer, I actually want to be subsidized over here, too. So what's happened in the past is in your repertoire, you expect a little more subsidization, maybe a lower price point. Now you're going to be over there on the premium side of your repertoire and you're going to be saying, you know what, now that I got here and I'm using this more often, I'd actually like to be subsidized, see a deal once in a while, maybe have a way for me to consume a little bit more of that product. So it could end up, the way I think it's gonna end up looking is it could be an overall premiumization that's gonna significantly impact consumers going forward.

[00:33:31] Justin Kendall: In the last year, there's been a lot of talk about shelf space at retail. And when you look at things at the halfway point of this year, How do you gauge who is, as far as segments go, or even categories, who the winners are and the losers are at the shelf?

[00:33:49] Brewbound Podcast: When you talk to retailers, especially those that are in the liquor store industry, the very first thing they'll tell you is, how do I create more space for non-alcohol products? That's the number one place they go. RTD sort of got carved out a long time ago. And I think what we saw was a lot of rationalization for SKUs, especially in the table wine segment. And so these stores that had these enormous selections of especially the still wine and all the different varietals that weren't seeing the turns or the ROI on that have seemingly cut back a bit on that to create space for, well, they had already done that to create space for RTD, but RTD is so temperature specific. Temperature state is really important in RTD, but the non-alcohol products, you see them like my local liquor store went from four feet a year ago to 16 feet of non-alcohol. The problem from a merchandising standpoint is they have a lot of out-of-stocks because a lot of those non-alcohol products take a different route to market. And so there's a little bit of a learning curve there as to how to make the stores look the way they should, as far as inventory levels are concerned.

[00:35:11] Jon Berg: Obviously, it's just one story, but in your local store, 16 feet of non-nog products, what are you seeing? Is it mostly beer?

[00:35:19] Brewbound Podcast: Well, I actually have the numbers on the non-ALC side. It actually conforms pretty close to what the percentages are. So yeah, it's about 70, 75% beer. And what's really interesting in the non-ALC beer space is, you know, we were talking about flavors and RTD, and not only is that happening in beer as well with so much flavor coming through on the craft side, But you also see that in the non-alc offerings too. You see flavor really dominating the shelf. So you have your core non-alc beer, and then you have all the flavors that either go along with that or surround that. And then much less space, probably rightfully so from a sales to space ratio for non-alc wines and non-alc spirits as well. So what's up with Kraft?

[00:36:11] Justin Kendall: The Kraft number is deepening in the red. So what's going on here and what are your expectations for the segment going forward?

[00:36:20] Brewbound Podcast: Craft, I think has, there's a couple of unicorns out there. You know, there's a couple of unicorns out there for craft that are somewhat, or in some cases, mostly flavor-driven as well. So it's probably that same RTD usage occasion. It's that wind down occasion that's so important to that RTD consumer. But the Craft Brewers business that continues to slide has been, it's almost like the wine category where you have LDA Gen Zs coming in who don't necessarily understand the category. And they aren't going to absolutely gravitate towards trying to learn about Craft Brewers. It should be more of an enjoyment and not necessarily an educational experience, although some people would absolutely argue with that. But for a lot of those Gen Z LDAs, it's kind of got those same barriers to entry where I don't really understand what it is that I'm looking at. And that's why for Craft Brewers, it's so important to have that experiential, you know, the, the, the brew houses and the brew pubs where I can trial something before I make that commitment to go even buy a six pack, you know, which is kind of devastating to make a multi-pack purchase of something that you end up not liking. You know, I was talking about RTD before. I think there's definitely that product lifecycle that's in more of a decline, but I think there's going to be something come along as far as innovation that's going to probably start to either level that out or hopefully bump it up.

[00:37:58] Jon Berg: So that was a really great and insightful take on Craft Brewers. We have recently been having quite a few conversations with our colleague, BevNET Spirits editor, Farin Salnikar, about what's happening with craft spirits. And to me, not an expert in spirits by any means, it feels like craft spirits are having all of the things that Craft Brewers saw happen to them in a much more condensed timeline. Does that sound accurate? There's been a lot of talk in industry chatter about craft spirits having a really rough go right now, but what are you seeing in the numbers?

[00:38:31] Brewbound Podcast: the craft spirit story is so localized and you know what, I mean, I would offer that a lot of Craft Brewers either got started that way or still that way. You know, it's still very localized and it's so important for neighborhoods and communities and individual markets. And so it's hard to necessarily come up with a one size fits all. But I would tell you from a craft spirit standpoint, I think a lot of bets have been put on the table by bigger organizations that have wanted to get crafty, you know, they wanted to bring a craft type spirit into their portfolio. And so I think there's quite a few consumers that are kind of checking into that, you know, who actually makes this? Is it really locally made? Is it really locally owned? And people in this particular day and age, they need to do a lot of information seeking to really have the real deal, especially if it's something that they want to support locally. So that would Craft Brewers and craft spirits would probably be subject to a lot of that moderation that we were talking about earlier. They probably are on the front lines of having to deal with some of those usage occasions being moderated usage occasions.

[00:39:50] Justin Kendall: When I was reading the report, it didn't come as a surprise to me that beer, wine and spirits are probably going to struggle to achieve flat growth rates this year. Is that sort of considered a victory in the year 2024 at this point?

[00:40:05] Brewbound Podcast: I think so. I think, you know, everybody wants to be bullish. Me too. You know, I, and I want to be a cheerleader for seeing the industry find that growth, but I have to say at least for the next 12 to 18 months, some of those consumer aspects that we outlined, I think are really going to be the drivers. And unfortunately, you know, especially if there's replacement, within our individual consumer repertoires, I think flat is going to be pretty good. For some of the mega categories, flat would be a dream come true. It's just going to be really hard to do, but there's going to be these individual pockets, whether it's imports or some of the super premiums that I think are going to lead the way. It's just not going to be necessarily enough growth to pull the middle ground up. The big middle is going to still have a hard time finding their way back to any growth at all this year.

[00:41:02] Justin Kendall: The data seems to show that price increases have led to lower volumes and now dollars are trending in that same direction. Do you believe that price declines would help reverse these negative trends or is the die sort of cast here?

[00:41:20] Brewbound Podcast: The consumer is king, as we know, and once they've come to grips with some of the inflationary pressures in their lives, it's almost like it's a compounding effort. It's kind of like compound interest, just kind of builds and builds and builds. Individual inflation rates, when you take a look at them, that's been that compounding effect that people have had. It's that piling on that has made prices for just about everything we buy push the limits. With pricing, we usually look at three elements. One is fairly complicated, which is coefficient. The other is gap. What is the gap between other products that people buy? And then threshold. And so what we're talking about right here, I think, has to do with threshold. And when you pass a particular threshold, whether it's psychological or economic with consumers, they unfortunately will speak with their wallets and not buy you as often or not buy you at all. We call that the amplification effect when you cross over that threshold. And it was pretty easy to see that some of those thresholds were probably crossed with price increase. Now it takes a while. It does take, to your point, Justin, it takes a while for, you won't see price drops, but you'll see price subsidizations off of that frontline retail price. And that'll start bringing choppers back to some of these brands that they may have walked away from or shifted to something else. So while it's hyper complicated, it's actually quite simple. Once you identify those thresholds to use them to price either down across or understand what the volume loss is going to be when you do cross them going on the way up. It was probably a little more in the weeds analytics than you wanted, but the whole price elasticity thing I think is really interesting.

[00:43:15] Justin Kendall: No, I find it pretty interesting. And last week I was on an earnings call for Ball and the chairman and CEO was calling for price decreases in the premium light beer segment. And so that to me is sort of notable, you know, when you see like the head of a major supplier group saying, you know, our partners need to reprice their products. I feel like that's pretty noteworthy.

[00:43:41] Brewbound Podcast: I think you're spot on with that, and that's a good call out. Pricing happens, and people who do brand pricing understand this, pricing happens at a very localized level. So it's not one size fits all for any kind of national design. I think what we're experiencing is a lot of test and learn from some of these beer suppliers who are, they're going into a particular market, they know they crossed a threshold, and so what they're gonna do is they're gonna probably deal back to see if they get their volume back. And if they do, they're going to take that test and learn strategy and probably implement it elsewhere. So look for that to happen and probably select markets.

[00:44:21] Jon Berg: John, this report was extremely thorough and I spent a lot of time reading it. Thank you. When you sent it out. But what in here surprised you? Was anything, did anything pop out as something being, you know, not the way it should be?

[00:44:35] Brewbound Podcast: There wasn't anything that was too surprising to me just because we look at it so often, you know, and we're kind of monitoring it over time. I think what probably is starting to surprise me a little bit is the fact that people are a little bit out of breath with all of the new UPCs that have come cascading in. And so when we analyze this, we're also kind of behind the scenes looking at how many items are actively selling at any one given time. And retailers are just sort of out of breath. Consumers are just sort of out of breath with all of that flavor fatigue. And I'm a little surprised that anybody would be surprised that we would start to see some of the effects of that. And so what we're seeing is some of the new items that are coming out, especially innovation around flavor, we're starting to see that have a kind of a quick decay rate. So in other words, you may have experienced a new flavor or a new innovation coming out and having it have a pretty decent product life cycle or two expectations. Now those expectations are being cut like maybe in half or a third as far as how long they actually last. So the way we talk about it with retailers is trying to decide where the end of life strategy is for some of these products. And so I'm a little concerned about people who are trying to launch new brands or new products or new innovations and what their expectations are going to be. And so I think we're going to see some right sizing of that in the back half of the year and going into next year too.

[00:46:13] Jon Berg: Super interesting. You know, whenever we do conversations about innovation, we always try to include a question about how long do you give it to work? You know, how long do you wait and see if it's taking?

[00:46:25] Brewbound Podcast: It's almost like in advertising, they use that term decay rate, where the more GRP something gets or the more exposure you get to it, it does have a decreasing rate of ROI. In other words, you can't just keep throwing more ads out there and expect that the impressions are going to build you to a good place. It kind of stops after a while. And so the same thing happens with beverage alcohol innovation, especially within one particular segment. People, while they might love that kind of innovation, there really is, we call it flavor fatigue, but it could be any kind of innovation. It's very real and it impacts all of us as shoppers.

[00:47:06] Justin Kendall: Thanks for doing this, John. We really appreciate it.

[00:47:09] Brewbound Podcast: Yeah, it's always great to talk to you guys. Thanks, John.

[00:47:13] Justin Kendall: And that's our show for this week. Thanks to Jess and Zoe for all they do. Thanks to our audio team. And thanks to all of you for listening. We'll be back next week.