-By Joe Weston

Sales of beer, wine and spirits in supermarkets' product mix continued to grow in 2008 and are important elements in driving basket ring for retailers. To sustain that growth in the face of strong competition with other food products for consumers' discretionary dollars, the implementation of effective category management programs and understanding of consumer preferences are essential.

With these needs in mind, Gerke & Associates recently collaborated with Progressive Grocer for online research on selected variables that influence effective merchandising of beer, wine and spirits in supermarkets. Responses from over 70 supermarket category managers revealed important strategic changes from previous alcohol beverage research by Gerke in the supermarket channel. These changes are likely based on consumers' lower-cost preferences due to cutbacks in personal spending for non-essential items.

The research focused on the following factors.

Factors 1 through 5 will be discussed in this first of a two-part series. The second report will deal more specifically with category management practices that retailers deem to be most effective in generating sales of alcohol beverages. For this study, the responses by retailers were limited to managers in the alcohol beverage category and were cross-tabulated from companies with more than 50 stores and with 50 or fewer stores. Significant differences in growth projections were expressed by the two company size groups and will be discussed later in this article.

Report Findings

In the approximately 35,000 supermarkets in the Nielsen database (stores with annual sales in excess of $2 million), alcohol beverage sales increased slightly from 5.46 percent of the industry's grocery sales in 2007 to 5.54 percent in 2008. Since 2006, total grocery sales (prepackaged, UPC items only) have increased 6.6 percent, while alcohol beverage sales in supermarkets have increased 10.2 percent.

As shown in the accompanying table, beer sales volume far exceeds that of wine and spirits. The percentage sales growth of wine is the greatest of the three, but wine sales' percent growth has slowed since 2006. To an extent, sales of alcohol beverages have floated with the "rising tide" of supermarket sales growth, as evidenced by the small increases in percentage of in-store sales for beer, wine and spirits, respectively.

Projected Sales Growth for Alcohol Beverages by Supermarket Retailers

Based on comparison between the 2008 Beverage Insights study and a similar study conducted by Gerke in early 2007, retailers have switched from projecting growth of high-dollar alcohol beverages to growth of value-priced beverages for the next two years.

According to Matt Montgomery, category manager for Woods Supermarkets in Missouri, "The 'downsizing' of customer purchases to lower-cost options may continue for another couple of years, and there are no guarantees it will revert when business improves."

Retailers participating in the Beverage Insights report projected the greatest beer growth for high-end domestic beer and imports, buoyed by extremely high growth ratings by retailers with more than 50 stores. The larger companies were also more optimistic than smaller chains regarding the sales growth prospects for beer, wine and spirits in supermarkets .

The greatest projected growth for wine and spirits was among value and mid-priced brands for the entire sample of retailers. A comparison of the projected growth for the most expensive and least expensive category brands is shown here. The smaller chains were very negative about growth prospects for ultra-premium and super-premium spirits.

A recent domestic spirits brand acquisition by a European company has targeted supermarkets as a growth channel, despite the average growth rate of 4.9 percent and a relatively stagnant market share position. Looked at another way, these low numbers could mean there is plenty of opportunity for growth in the category in supermarkets.

Projected Display Space Growth for Alcohol Beverages by Supermarket Retailers

Category managers were given the choice of allocating less space, same space or more space for the next two years for each of the alcohol beverage categories surveyed. The ratings confirmed the projected growth in sales volume, led by more space for mid-priced and super-premium wines and high-end domestic and imported beer. The spirits category received mostly same-space ratings. For nearly all products, the larger chains projected allocating more display space than did the smaller chains. This was especially the case for high-end domestic beer and super-premium wines.

Importance to Basket Ring

Wine was the clear winner for importance to basket ring value, by all rating groups. The larger chains were the most emphatic about the importance of wine in basket ring and also provided the highest rating for beer, which was rated higher than spirits. There was some retailer preference for more expensive choices for beer and wine, and preference for the least expensive spirits. This pricing disparity may help beer and wine build basket ring value more quickly than spirits. Montgomery believes "a key factor in gaining basket ring sales is supporting secondary displays with promoted items."

Importance to Shopping Trip

Chains with more than 50 stores gave one of the highest ratings of the study (76.2 percent) to high importance for wine as an attraction for destination shoppers. But that enthusiasm was muted in chains with less than 50 stores, which placed wine (28.9 percent) behind beer (37.0 percent) in importance to consumers' buying trips. The larger chains also rated beer and spirits as more important to the shopping trip than the smaller chains. Fewer participating retailers sold spirits than beer or wine, which may have accounted for some of the lower importance ratings.

Stores' Competitive Differentiation

The most frequently cited differentiating concepts by study participants were:

Availability of Product: Consumers generally buy on impulse and often are very loyal to brands; recent industry studies suggest that consumers will often shop at another store for their preferred brand if it is out of stock in the first store visited Display Appearance: Displays are competing for attention and discretionary dollars  with other non-essential food products Display Location and Other Display Strategies: Displaying cold product in the store is especially important for beer sales, and displays must be easy to see
Price incentive tactics had some appeal to the larger firms, but the overall ratings for discount pricing were medium at best. All factors surveyed, and ratings on a scale of 1-5 (low to high), can be found here.

Sales of beer, wine and spirits continued to grow in 2008 in supermarkets, although the total alcohol beverage category growth rate slowed. Beer sales volume continued to dominate the category, but retailers projected greater growth potential for value/economy wine and mid-priced wine than for any of the beer categories.

On the other hand, the most expensive wine and spirits brands scored the lowest values for projected growth, possibly in response to the challenging economic climate.

Larger chains with more than 50 stores were more optimistic than smaller chains regarding sales growth prospects for beer, wine and spirits in supermarkets. Overall, beer, wine and spirits were viewed as above average in driving growth in consumer basket ring value, but the impact was lower than in a similar Gerke study in 2007.

The second part of the Beverage Insights research, which will discuss category management issues, cross-channel competition, the value of category captains and promotional programs, will appear in PG's August/September issue.