-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 this need 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.

The research focused on the following factors:

Factors 1 through 5 were discussed in the first of this two-part series (Progressive Grocer, June/July 2009) and addressed apparent shifts in consumer preferences. This article focuses more specifically on category management practices that retailers deem to be most effective in generating sales of alcohol beverages. More than 70 supermarket alcohol beverage category managers participated in the survey. Their responses were cross-tabulated from companies with more than 50 stores and with 50 or fewer stores. Significant differences in category management perceptions were expressed by the two company size groups and will be discussed later in this article.

 Category Growth

 In the approximately 35,000 supermarkets in the Nielsen database (stores with annual sales in excess of $2 million), alcohol beverage sales increased very slightly to 5.54 percent of the industry's grocery sales in 2008, from 5.46 percent in 2007. 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 Figure 1, 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.

Report Findings

Optimizing sales and profitability from retail inventory movement is a complicated matter. The right product must be on the shelves at the right time and priced competitively. Plus, merchandising displays and promotions must appeal to consumer tastes that are measured by syndicated data sources and proprietary data collection tools. Supermarket category managers look to suppliers for these important elements of category management support.

Suppliers of some categories have more effective category management programs than others, and there are different levels of effectiveness among suppliers for each category.
Overall, supermarket retailers rated the category management support of alcohol beverage suppliers as average (rating of 3.0 out of 5.0). Supplier category management ratings for most beer and wine choices were higher than for spirits, and are reflected in the graph in Figure 2.

Category managers at larger chains (50-plus stores) were more pleased with category management support by beer suppliers than were managers of smaller firms. Most of the larger chains rarely rated poor, with the notable exception of value-priced beer. More effective category management support appeared to be in place for mid-priced and premium/super-premium wines than for value-priced and box wines. This was especially the case for operations managers and chains with more than 50 stores.

All of the spirits choices earned aggregate ratings that were below average. The average rating was over 60 percent for each product choice, but frequent poor ratings by all groups influenced the overall ratings. This could represent a tremendous opportunity for improving category management services by spirits suppliers desirous of increased growth in the supermarket channel. Premium spirits rated better than the other choices, due to relatively stronger excellent ratings by chains with 50 or fewer stores. Paradoxically, value-priced spirits were rated the second-highest growth prospect for spirits but had the lowest category management support rating.

As addressed in the first article of this two-part series, imported beer and value-priced spirits are projected to have relatively strong sales growth, but the supplier category management support for these products is rated relatively low in this portion of the study. Conversely, premium/regular beer earned the highest category management rating but was rated the lowest choice for projected beer sales growth.

Impact of Competing Channels

Seven potentially competing market channels were presented to survey participants, who were asked to rate the cross-channel competition from each with ratings of 1 (low) to 5 (high). Competition for alcohol beverage sales by other market channels surveyed was not strongly felt by any of the rating groups, according to the graph in Figure 3.

Based on the more frequent ratings of none for cross-channel competition, the chains with 50 or fewer stores felt a weaker overall competitive threat than did chains with 50 or more stores. Retailers rated other supermarkets as medium competition, but all other channels were below medium. The highest ratings for other supermarket competition came from the chains with more than 50 stores. Convenience stores, drug stores and dollar stores were rated the weakest competition for supermarkets in both studies.

Considerations for Choosing a Category Captain

Supermarkets include tens of thousands of SKUs in the stores' product mix and cannot have optimum insight into the drivers for success for the full mix.  Often, for the most important categories, retailers will choose a category captain from among suppliers for a particular category. The category captain is often the category's dominant supplier and will be expected to provide sophisticated category expertise that will help the retailer maximize sales, profitability, inventory turns, etc., for products in the category. The category captain will also be expected to offer broad recommendations that will help competing brands in the category improve sales. The retailer trusts the category captain with confidential data on sales and pricing, and must be able to trust the category captain to focus on strategies for selling all brands within the category, and not just its own brand.

Supermarket retailers were asked to rate 17 considerations for choosing a category captain for alcohol beverages, using ratings from 1 (low importance) to 5 (high importance). The participants had strong feelings about these considerations and the category captain concept in general, as shown in the graph in Figure 4, as nearly all of the 17 considerations were rated above medium in importance.

Taken together, the retailers expect commitment of expertise and personnel to grow the category, and planning and execution of the plan to maximize category sales. The highest rating by chains with more than 50 stores was for personnel to execute category management plans, with 72.7 percent rating high importance. The rating disparity between the larger and smaller chains was also the greatest for this factor, with only 43.5 percent chains of 50 or fewer stores rating high importance. The chains with more than 50 stores also favored considerations involved with the quality of strategy and planning expertise.

Summary Comments

Category management support by suppliers of beer and wine was rated to be more effective than support by suppliers of spirits. Only the lowest-value beer and wine choices were below average, while all of the spirits choices were below average. This research does not reveal whether relatively low sales of spirits in supermarkets is a function of suppliers' below-average category management support or if the support level is lower due to the relatively small sales volume. Either way, opportunities exist to drive sales growth of spirits with improved category management support, especially in chains with more than 50 stores.

Category managers were also asked if they expected recent consolidations and acquisitions to result in any changes in service. Generally, they did not expect levels of service to change appreciably, and maybe to get even better. Matt Montgomery of Woods Supermarkets reported that the "service level has increased in these categories, vs. declining in other traditional DSD situations." The category manager for a national retailer said, "It has to have an effect, but 'good' suppliers will use this as an opportunity to fine-tune their sales teams and provide the value that should have been provided all along!"

For overall category management services, Jim Lingo of Hy-Vee reported that "improved sales and profit" appealed most to his company. Lingo cited stand-up displays, movable displays and companion food suggestions as effective merchandising aids. Montgomery of Woods Supermarkets agreed, although he saw less benefit in companion food suggestions. Bill Chrisco of Schnucks Markets preferred movable displays because they are usually "more attractive and require less inventory." The category manager for a national retailer reported that "assortment and segmentation" were the two most valuable category management services performed by suppliers.

The alcohol beverage category managers who participated in the study did not feel strong competitive pressure from the other retail channels studied. The greatest perceived competition came from other supermarkets, and was primarily felt by chains with more than 50 stores.

Finally, alcohol beverage category managers broadly agreed on the importance of category captains and the services provided by them. The insight into consumer buying tendencies and developing plans for optimizing inventory turnover was of particular value to chains with more than 50 stores.

Joe Weston is senior consultant at Gerke & Associates.