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The numbers show beverage alcohol sales are a nice buzz for grocers now, but a broader assortment of premium-priced wine, spirits, and even beer can help keep the party going.
Last year beverage alcohol ranked as the fourth-fastest-growing department in the grocery channel, up 5 percent in the 12-month period ended September 2005. Overall category sales were $14.4 billion last year, according to ACNielsen's Homescan panel, which comprises households equipped with in-home scanners used to record all UPC-coded purchases.
Such growth in the grocery channel is somewhat surprising, considering that a Homescan analysis shows that the percentage of households that buy alcohol is down close to one percentage point from last year, driven largely by decreases in the percentage of households buying beer. This means that nearly 1.1 million households that have purchased alcohol in the prior year are no longer buying it.
The reason for the growth in dollar volume is a 1.1 percent increase in total dollar buying rate, meaning that those who purchase alcohol are spending more. This indicates that those doing the buying are upscaling their selections across the board, buying more expensive products in increasing proportions.
Given the restrictions against selling various types of alcohol that the grocery channel faces in several states, it's impressive that beer is the channel's eighth-largest category, wine is its 18th-largest, and spirits/liquor is its 39th-largest category. These three largest beverage alcohol segments are where more than a quarter of all consumer beverage spending, whether alcoholic or not, occurs.
With $2.2 billion in grocery channel sales, spirits make up 15 percent of grocery beverage alcohol department sales, and 74 percent of spirits sales through the combined food/drug/mass channel (excluding Wal-Mart). Spirits sales in the grocery channel are strong, up 9 percent from last year.
What are the trends driving spirits consumption? Pop culture, for one thing, is helping to generate interest in spirits, especially among image-conscious consumers. For example, "Sex and the City" drove interest in the cosmopolitan, a cocktail typically made with either vodka or rum, because Carrie Bradshaw and her pals sipped them week after week. The twist? People aren't satisfied with just any "cosmo," they want top-shelf cosmos. Effective brand marketing is leading consumers to reach for premium-priced spirits as never before; more than ever, a mixed drink is considered "cool."
Having observed the inadvertent impact of pop culture on the success of spirits sales, marketers are now deliberately seeking out these vehicles to showcase their products. Tequila brand Gran Centenario recently placed its product in the Broadway production of "Sweet Charity," for example. Not only that, it succeeded in having the dialogue changed to include a mention of its tequila.
Another reason for the category's success is flavoring innovations. By adding flavors such as lemon, orange, raspberry, or vanilla, these inventive types of brandies, gins, rums, tequilas, vodkas -- and even whiskeys -- are generating some $550 million in grocery store sales, an increase of nearly 11 percent vs. year ago on a dollar volume basis.
Flavored spirits should continue to be a hot segment into 2006, given the number of new product introductions and the marketing support behind them. ACNielsen is currently tracking over 800 flavored-spirit UPCs, an increase of 36 percent vs. two years ago.
Wine rang up $4.3 billion in sales last year in the grocery channel, contributing 26 percent of beverage alcohol revenue. In terms of food, drug, and mass dollar share (excluding Wal-Mart), grocery stores generate 83 percent of total wine sales.
The category rose 9.4 percent over last year in the grocery channel, a large jump from 2 percent growth the previous year. One major reason for this is that consumers are trading up to more expensive wines. But three other factors are contributing as well to the sales spike: Call them the box office, the box, and the critter.
The box office refers to the film "Sideways," which featured two middle-aged best friends on a weeklong road trip through California's wine country. Miles, a wine connoisseur played by Paul Giamatti, had a particular obsession for pinot noir. Moviegoers drank it in, helping drive pinot noir sales up 59.1 percent since last year.
Besides the influence of the silver screen, winemakers have built category growth through innovative packaging and marketing.
Usually, "outside the box" is a phrase associated with creative thinking. However, a number of wine marketers are finding success by thinking inside the box. They're helping wine lovers overcome the historic stigma of traditional boxed (cask) wines by introducing new sizes, new varietals, and new science. In addition to the old-fashioned five-liter boxed wines, the cask segment has incorporated three-liter premium wines into its lineup, featuring varietals not available in a five-liter box, such as syrah and pinot grigio. The technology of boxed wine has also improved: Spigots seal in the wine and prevent oxidation, maintaining flavor for as long as six months, according to some experts.
While still a small segment, premium-priced three-liter boxed wines demonstrated a remarkably strong growth rate of 77 percent over last year's sales. The highest-priced three-liter wines, those selling for over $16 per unit, soared 537 percent.
Clearly, consumers are willing to experiment with wine marketers' new innovations. Ninety-one percent of three-liter boxed wine sales come from people who are switching a portion of their buying from traditional 750-milliliter bottles. The rest are starting to buy more wine, or are trying it for the first time.
Over the past three years, vendors introduced more than 700 new wine brands, thereby increasing wine marketers' need for attention-grabbing "fun" labels that make an impression on consumers. Increasingly, some are turning to critters. Perhaps trying to mimic the success of the Yellow Tail label, 11.7 percent (83 in total) of new brands introduced over the past three years had an illustration of a cute animal on the label.
Many of these critter-labeled wines are finding success. An analysis of the top 100 brands sold by volume (14 of which have a critter label) shows that grocery store sales generated by wines featuring a critter label drove nearly 30 percent of their collective growth.
Other innovations being embraced by wine enthusiasts include 187-milliliter "four-pack" bottles (dollar volume up 22 percent from last year) and 375-milliliter bottles (dollar volume up 41 percent from last year). Even the sacred natural cork is making way for alternative closures, including screw caps. Aseptic packaging and plastic are starting to infiltrate the category as well.
When evaluating the success of the wine category, it's important for grocers to take advantage of the ongoing research that indicates moderate red wine consumption may help protect against certain cancers and heart disease, and can have a positive effect on cholesterol levels and blood pressure. This is great news for wine lovers and should be communicated by grocers. And as the graying of America continues, grocers shouldn't lose sight of the fact that "older" consumers are the most important age demographic to the wine category.
Variety on tap
With $9.9 billion in sales, convenience stores still reign when it comes to beer, generating 54 percent of combined food/drug/mass/convenience channel sales. But its share has been declining (dollar sales down 1 percent from a year ago), and grocery stores have been picking up some of the slack (dollar sales up 2 percent from a year ago). Beer contributes the majority (54 percent) of grocery channel beverage alcohol sales, at $7.5 billion.
However, while beer remains the largest beverage alcohol segment, its performance has become a concern. An ACNielsen Homescan analysis found that many beer drinkers are simply drinking less. Changing preferences are also contributing to the category's challenges. The key beer consumer age demographic has been age 21 to 34, but data shows that these consumers are trading their beer for other types of alcohol -- mostly spirits. Beer marketers must clearly find innovative ways to connect to the consumer and make beer "cool" again.
The industry is putting greater effort into new product development, new packaging, and new marketing, all aimed at increasing beer-drinking occasions. The bright spots for beer now include imports, craft beers, and other segments, which are demonstrating strong growth. Though imports account for a small portion of beer sales, they're growing faster than the overall category, with an annual growth rate of 9 percent. Craft beers -- nearly all-malt beers that emphasize flavor over mass market appeal -- are selling at a rate 7 percent higher than a year ago.
Danny Brager is v.p. of ACNielsen's Beverage Alcohol Team. The ACNielsen Beverage Alcohol Team will bring you new insights and marketing ideas every quarter in Progressive Grocer.