Friday, October 14, 2011

More on craft beer and super-premium spirits sales

I've been talking about how craft beer and high-end spirits sales continue to buck the economy...and I've been getting a string of comments from my favorite grammar-ignorant punctuation-avoidant anonymous poster crying me false, saying that sales aren't that good, and will soon (when? After ten years?!) crash back to normal. Well...sorry, "Punkin Head," but there's more good news, this time from an interview with Midwest supermarket chain Hy-Vee's vp of wine and spirits, Jay Wilson in Shanken News Daily. Check it out...

Sales of beverage alcohol at the 245-unit Hy-Vee Inc. supermarket chain throughout the Midwest approached $500 million at the end of its fiscal year on September 30, according to Jay Wilson, vice president of wine & spirits. Total sales at the employee-owned chain were at $7 billion for the period. Hy-Vee is opening 3 new stores this year, and will have 248 units in the following eight states by year-end: Iowa, Nebraska, South Dakota, Minnesota, Wisconsin, Illinois, Missouri and Kansas. Its beverage alcohol departments range from 6,000 square feet down to a single 40-foot aisle. Wine and spirits each account for 30% of sales, with beer at 40%. The chain has made a commitment to educating its sales staff and has become a destination for wine, spirits and beer drinkers seeking selection and good value. So far, over 350 employees have received certification recognized by The Society of Wine Educators. 
[Edited here...]
SND: How has the slow economy of the past few years affected your business?
Wilson: While the on-premise accounts have been hurt, people are still buying alcoholic beverages to take home. So they’re coming to us instead of going out.
SND: When Market Watch interviewed you in 2008, beverage alcohol sales at Hy-Vee were $350 million. How have you done in the years since?
Wilson: We just finished our fiscal year on September 30, and we’re very close to half a billion dollars in beverage alcohol sales.
SND: How do you account for that growth? What’s driving it?
Wilson: Craft beer is up 35% and we have really embraced this market. We’re putting 44 feet of nothing but craft in an open-air cold case. We’ve also got some big growth categories in spirits. Vodka is the leading category for us, while Irish whiskey is showing about a 45% trend up over the last three years for us. Additionally, rum is a very big and growing category for us.
SND: Are you seeing any return to super-premium spirits?
Wilson: We’re seeing people going back to them. And there are some people who never left them. But we’re definitely seeing solid growth there.

Note: despite craft enthusiasts' fears that supermarkets will ignore crafts for the "big bucks" of mainstream beer, Hy-Vee clearly sees the benefit of craft's bigger margins.

Ball's in your court, "Punkin." 

24 comments:

Jeff Alworth said...

Lew, it's undoubtedly true that craft sales are on the rise--we have rafts and rafts of data to illustrate it. Supermarkets are also aware that sales of macro "premium" products are falling, which gives them yet more incentive to go for the hot, high-margin craft segment. InBev and Coors wouldn't be dumping so much money into Shock Top and Blue Moon if they weren't also keenly aware of the phenomenon.

Lew Bryson said...

Seriously. I don't know why this is even open to debate.

dave said...

That 45% in Irish Whiskey is interesting. I haven't really seen an increase of Irish Whiskey on shelves (granted I'm in NE, so different market). Though I would love to see more of it.

Lew Bryson said...

Believe it, Dave: Irish has been booming along between 15 and 22% growth for over 10 years. Pretty amazing.

Bill said...

Welcome back. I was worried you'd retired!

Lew Bryson said...

Tell you what, Bill, when I get a moment here, I've got SO MUCH to write about. I've been traveling a lot, and it's all been good.

dave said...

wow that is amazing numbers for irish whiskey. I do enjoy my redbreast.

L.F. Neuweiler's Son said...

This is old news. I was enjoying increased sales in handcrafted ipa's, porters, stouts, lagers before any of you geniuses were born.

Bart said...

Totally off topic but i just could not resist ! GABF medals are in and the score is PA 7 CA 51. What happened ? Hope you had a great time at whiskey fest in SF maybe i can buy you a pint at the Tornado next year. Cheers !

Anonymous said...

Bart,

The high cost vs. minimal reward to send a beer to the GABF isn't worth it for most PA brewers, especially non-packaging ones. I bet the percentage of our breweries that can't justify participating is upward of 80%. That said congratulations to all the winners!

Bill

Justin said...

Glad to read a post from you, Lew! I love that craft beer is doing so well and that it's bucking the economy. I had an economics professor that said each dollar a consumer spends counts as a vote. In this case, I'd say consumers are making their choice quite clear...craft is wanted! Prost!

Anonymous said...

I think what you'll begin to see is oversaturation. The novelty will wear off for old beer drinkers like us (repressed as we were) and we will settle down into less experimentation. Each subsequent generation of drinkers will have grown up with these choices and wildly experimental styles, and wont be so enamored by them. The market will always be there but the experimentation, and the coverage by blogs such as this, will suffer. In other words, it wont be as big a deal to us anymore, or to "them."

Lew Bryson said...

Not sure about that settling into the groove and less experimentation; I think it may step up. I keep looking at wine. Wine is still broad, still expanding. And there are still plenty of underdeveloped beer markets out there.

JP said...

I look at these issues everyday for a living and I feel (a contrarian view to be sure, but I have always been a contrarian) The beverage market in advanced market economies(emerging markets are a different story entirely) could very well see a secular slow down on premiumisation. The demographics just are not there to keep supporting the thesis. You have an over levered consumer to be sure, who is aging fast and worrying about their retirement. any growth in population is coming from immigration which is not going to sustain that kind of growth (especially in the craft beer segment). You have a stagnant economy with very little prospect of real growth over the next decade plus rising commodity prices which are not really a major issue for spirits and beer right now, but they will be eventually. The Gen Xers and Millennials being the major markets for premium products are getting squeezed with stagnant wage growth and reduced future prospects(both small segments to other older and less affluent segments btw)
The problem is the global beverage manufactures know that without premiumisation they are essential SOL and are back to competing on price which they most definitely do not want to do. So they keep the pressure up with marketing spend eventually I believe there is a good chance the wolf shows up at the door so to speak. Watch what the majors do over the next couple of years in terms of strategy and that will tell you how the story plays out. I am not trying to claim that premiumizaiton is gone by any stretch of the imagination, but try to remember that the affects of these changes started in 2008 have not become permanent; consumers still are waiting on the sidelines thinking this too shall pass. Another recession will however will start to cement some of these current trends to be sure. So stay tuned, I am not trying to disagree with you lew but I do not see the contrarian as crazy as you claim

Justin said...

JP - I don't want to argue with a professional, but I just saw in DRAFT magazine that 600 breweries are slated to open by 2013. It doesn't appear that there is any sign of slowing down on the craft beer front; actually, it seems to be quite the opposite. Time will tell, of course. Also, I'm 30 years old and have no intention of changing my predilection for craft beer even if the economy doesn't pick up over the next decade. Yes, this is one man's view, but I know that if people want something badly enough, they modify their (spending) behavior accordingly. After all, the market is not filled with "rational consumers"...it is filled with humans.

JP said...

@ Justin, hey man your opinion is as good as mine, probably better given that I do not drink that much anymore, argue all you’d like . You have no intention of changing your habits to be sure, nor do I. But do you think it is fair to say that if you did indeed (god forbid) experience a change in economic circumstances for the worse, while you might not reduce your spend on premium beverages; you'd not increase it either? That is what I am thinking will happen. You and your buds (read, demographic) are already converted, where is the continued pace of growth going to come from? Immigrants? Highly indebted college kids and recent graduates who can't find a job? Working class folks whose real wages are stagnant if not decreasing? I completely agree with your opinion on the lack of rationality of consumers, but I also think ethos and social sentiment shape consumer behavior and I believe the idea of financing the "good life" via consumer debt will increasingly fall out of favor in this country. I think this will also shape the gratuity and hospitality industries which is a huge driver for the beverage biz. I do think the upside in emerging markets for premiumisation are still strong given the demographics and the pent up demand of consumers wanting to switch up, but developed economies are a different story. I do not think consumption will fall off a cliff, but I do believe growth will level off and eventually bounce along with the rest of the economy at GDP growth, say 1 or 2% in a good year flat or down in a bad one. Lew is right; the numbers DO NOT bear that out, but I still believe we are in the vapors of the economic environment of the last 35 years. I know most people do not agree with me and industry folks get their dander up if you dare to raise the point given that it could really wreck their current business model. But I am starting to hear more and more chatter about a slow down (not death) of the premium market in all areas of retail. But hey, it would not be the first time I am wrong.

Anonymous said...

Well it *would* be the first time Lew was wrong ;-)

I am a professional with an advanced degree and I make the same salary i did in 2008. Most of my coworkers the same. I've already switched down to less expensive beers and more beers of my youth. I just cant justify $40 a case or $5-$6 a snifter on a regular basis, particularly when there are beers every bit as good for $20 a case or less. I am not a snob and I judge a beer on it flavor/price not so much on its label or what some kid on a website says about it.

Lew Bryson said...

I'll pass on whether this is the first time I was wrong (and recall that while my wife does.read.the blog, she rarely reads the comments). But what beers that are every bit as good as, say, Sierra Nevada Celebration, are you getting for $20 OR LESS a case? I think we'd all like to know that.

Justin said...

@JP, I agree with much of what you’re saying. My first response was just to point out some of the figures that the industry is touting, but you hit the nail on the head: industry does not want to hear that their current business model is flawed. “Pride goeth before the fall.” They have got to scan the environment and get a realistic sense of the market’s ability to bear. It seems that there is a trend for macro breweries to purchase craft breweries in order to expand the scope of product they offer. While this may be a good idea on some levels, one wonders what effect that will have on the market, given time. Interesting stuff, for sure! Also, to answer your question: you are right that I wouldn’t increase my spending on premium beverages if I experienced a change in economic circumstances. Truth be told, I really only have a beer every now and again, but when I do, it’s a craft. My purchasing frequency is fairly low, so I can afford to spend a little more when I do buy beer. If I drank it like water, I would have to change my predilection for craft, because I certainly couldn’t afford it then.

Lew Bryson said...

Try this, guys. Premiumization is failing in categories where there's not a significant difference between the bargain and the premium: vodka, for instance. People dropped a few levels when the economy tanked, and found that Smirnoff really does taste pretty much the same as Grey Goose, especially when you're making a Bloody Mary.
But when you're talking about whiskey, or beer, premium really does make an objective difference in the product. You can SEE the difference; more color, and in whiskey (remember, bourbon's not allowed to add color or flavor), color means more age, and more age -- up to a point, and speaking generally -- means more flavor. In beer, well, there's things you can do, but generally, extremely pale light lagers have less flavor. If people spend more money on beer or whiskey, generally they do get more. It's not just hype, and remember; when we talk about premiumization in beer, you're talking about a $2 difference in a sixpack. Not a lot, for home consumption.
Also, the big brewers are, IMO, screwing up royally by putting in some serious price increases in order to keep their profits up in the fact of falling volumes. They're shrinking the difference between mainstream and craft -- which will prompt more people to experiment -- and they're also shrinking the difference between their bargain brands -- Busch, Natty Light, Keystone, Miller High Life -- and their flagship brands; the idea apparently is to make the bargain brands less appealing, because they make less money on them. Bad ideas. All they're doing is making craft look less expensive, which leads to more trial...and THAT is where the premiumization is coming from, and why I think it will continue, at least in beer. There's a huge number of people out there who haven't ever tried craft, and a lot of them, once they do, stick with it. When you're talking about a draft SNPA vs. a draft Bud Light, well, a lot of places they're a buck apart. People still seem willing to pay that buck. And if they buy two SNPAs instead of four Bud Lights, well, that's not a win for the bar, but it is a win for craft beer and premiumization. It's a trend with a lot of factors.

Justin said...

@ Anonymous (10/19 @ 8:33 am), I am also not a beer snob. I enjoy trying all different styles, flavors, and breweries’ beers. After all, a beer is not just a beer – it is an experience! With regard to drinking “on a regular basis”, I enjoy the occasional beer, so spending more on craft isn’t a big deal to me. If I drank beer more often, then I’d probably be right there with you and consider buying less crafty brews.

jp said...

i think Diageo's numbers today pretty much sums it up on and how I think it will play out North Amercia, flat with weak wine and flat beer (although the numbers get a boost year on year on ROKK which came out last year at a low px point, they must have been giving it away for free) Same story in Europe vs very strong growth in Emerging markets driven by premium spirits. Diageo is pretty much the flag ship for the strategy of premiumization and the trade up proposition. Thus how they go, goes the entire beverage biz in my opinion. BTW if you are interested in this topic, check out their investor relations website I think late last year they had a seminar on premiumization strategy and there is a great set of slides explaining the nuts and bolts behind their strategy as well as a transcript of Q&A

Anonymous said...

Well Lew I am not going to go into comparing one particular beer versus another ad infinitum, but I can buy a dundee variety pack for ~20$ of which their ipa, porter, or any other style in it is (to me, and regardless of what people on a website say) every bit as good as a full case of most other beers at over $30 a case. Used to be able to say the same thing about stegmaier porter at $15 a case until some expert implored them to raise the price by 50% thinking it would be a good idea to give them "snob cred" but essential ran their sales into nothing.

Justin-- I understand. Wasn't referring to you specifically. Keep doing what you enjoy. For me after years and years of paying a premium and some tasters fatigue, I am not getting quite the return on some of those high priced beers that I expect.

Lew Bryson said...

Not really asking for an exhaustive list! But if you can get the Dundee variety for $20, that's a good deal. As for your shot at me on the Steg, well, I'd rather see them make money on a case than lose money. $15 a case when you're putting a lot of money into plant improvements just doesn't make sense; see all the German breweries that are in financial troubles because their prices are too low. When you look at how much other prices have gone up -- milk, for example -- a $20 case is a deal.