Some of the most coveted merchandise items at Chicago’s East Delaware Pantry cost anywhere from $75 to $125. And still, customers are clamoring for more. “Demand for Japanese whiskies is high,” explained Neelam Patel, owner of the convenience store, located in the city’s downtown, and East Delaware often is fortunate to receive deliveries of the allocated products while many area liquor stores go without. But it’s not just Japanese whiskey that’s thriving at the shop. “The bourbon market is the hottest around,” Patel said. Overall, strong sales of whiskies are contributing to a double-digit increase in liquor sales at East Delaware Pantry.

This c-store isn’t the only one benefitting from today’s whiskey renaissance. According to the NACS State of the Industry Report of 2017 Data, average per-store sales of liquor surged 11.8% to $54,878 from $49,074 in the previous year, representing the greatest year-over-year change of all in-store merchandise categories tracked. While the category still remains small—only 19% of c-stores sell distilled spirits—it’s a profitable one. Average gross profit dollars jumped 9.6% in 2017 to $15,853 from $14,458, second only to perishable grocery in gross profit dollar growth.

Kevin Cooke, senior vice president and chief sales officer at Constellation Brands’ wine and spirits division, believes that c-stores are profiting from the overall boom in liquor sales as well as “the changing demographics of c-store shoppers. We know millennials over-index in this channel and are a big driver behind today’s cocktail culture,” he said. And Dan Butkus, vice president of sales for Campari America, said the “proliferation of premium spirits consumers” is contributing to the category’s growth in the channel and is making operators aware of the opportunities spirits offer. “This has led to better assortment and selection and thus, the strong performance,” Butkus said.

We know millennials over-index in this channel and are a big driver behind today’s cocktail culture.

Outperforming Channel

In 2018, c-store growth trends for liquor generally were twice that of the general market, Butkus and Cooke reported, and strong prospects continue into this year. The two executives noted that subcategory trends mirror that of the overall market, with whiskey and vodka combining to account for the majority of channel sales. “C-store growth trends are very strong for all the major categories, especially vodka,” Cooke said. He noted that Constellation Brands’ Svedka is growing at a 30% rate in c-stores, while Butkus said Campari’s Espolòn Tequila and Wild Turkey Bourbon are “trending exceptionally well.” Sales of small-sized liquor packages remain strong, the marketers agreed.

At Purple Cow convenience store in Slidell, Louisiana, one of the chain’s 21 locations, manager Kimberly Anslum said that with the exception of tequila, all spirits types were performing well. “We sell a lot of New Amsterdam, Tito’s and Absolut vodka, Jack Daniel’s and Fireball,” the retailer said. “And D’Ussé Cognac has been particularly hot.”

Emerging craft spirits—much like craft beer—provide enhanced margin opportunity for convenience stores. “I’m a big supporter of local products,” said East Delaware Pantry’s Patel, pointing to the store’s selection of liquor products from the likes of Chicago Distilling Co. Due to its downtown location, East Delaware attracts many travelers from around the country and abroad, and according to Patel, “They’re looking to try local products.” Indeed, Brandon Joldersma, sales director at Coppercraft Distillery, which opened last year in Holland, Michigan, remarked that c-store operators are increasingly interested in small-batch spirits. While Coppercraft does not sell its products in convenience stores yet, “They are a part of our targeting strategies for 2019,” Joldersma said. He sees particular opportunity in Michigan, as “consumers here are so focused on buying locally produced craft alcohol.”

Consumer Alignment

The changing face of today’s c-store consumer benefits the liquor category. “The c-store shopper has changed over the course of the last 10-plus years,” noted Cooke, “and is likely to continue to change. This shopper is much younger, more ethnically diverse and more likely to be female than in years past. The c-store shopping trip fits very nicely with this shopper’s need for immediate consumption and on-the-go use.” Butkus added that liquor brands also could profit from a shift in the preferences of some consumers. “Millennial consumers, as well as premium-product consumers of all ages, are increasingly choosing spirits over beer,” the Campari America executive said. “These are typically shoppers who are looking for convenience as well, so c-store operators are perfectly positioned to capitalize on this trend.”

With liquor so highly regulated and legalities varying from market to market, it often can be challenging for convenience retailers to market the product effectively to consumers. Many c-stores stock liquor bottles behind the counter, making best-in-class merchandising tactics difficult. For example, Elmwood Convenience Store in Elmwood, Nebraska, merchandises liquor behind the counter, but “when we’re trying to promote or discount a product, we’ll put a display up on the floor,” said Dan Rice, manager. Purple Cow, meanwhile, sometimes extends its “two-for” promotion for packaged beverages and beer to liquor—which also is merchandised behind the counter—offering specials such as two 375-ml. bottles of New Amsterdam vodka for $6, according to Anslum.

“Cross-merchandising spirits with other products that would typically be found in c-stores is a winning idea,” said Butkus with Campari America. “Whether it’s mixers or cocktail-related snacks, this type of merchandising is creating higher basket rings and profit for c-stores.” He added that in-store sampling, where legal, also can drive return on investment. Minit Mart East in Holland, Michigan, often holds spirits tastings with assistance from its liquor vendors, said owner Greg Hill. The store, open just two years, stocks 150 liquor SKUs, and according to Hill, “We’re seeing increased demand.”

Licensing laws and limitations, however, can impede a general awareness among consumers that c-stores stock liquor, Cooke with Constellation Brands said. “One of the largest challenges for c-stores is geographic coverage due to licensing limitations.” Cooke pointed to the 130,000 c-stores that sell beer, the 92,500 c-stores that sell wine, but only 30,000 c-stores that are selling spirits. Another challenge for the category in c-stores, of course, is space. “Because of this, operators need to be very selective with their assortment,” Butkus remarked.

One of the largest challenges for c-stores is geographic coverage due to licensing limitations.

C-store operators, meanwhile, say that while liquor can provide hefty rings and comfortable margins, inventory investment can be much higher than that of other categories. “Some bottles sit for a long time, especially those at the high end,” commented Minit Mart’s Hill. “But we eventually turn everything.” Patel, however, said he doesn’t fret over liquor inventory costs. “We’ll just buy one case at a time, not multiple cases,” explained the Chicago retailer, adding that his markups usually are a little higher than that of local liquor stores “due to our convenience factor.”

Time to Strategize

Liquor marketers advise that for c-stores to make the most of the strong category sales trend, space and assortment strategies are vital. “Explore how to expand the footprint of where spirits are being offered across the store portfolio,” said Cooke. Butkus advised that retailers “partner with the right distributor and suppliers, look to the on-trend cocktail culture as you build your assortment, and dedicate the right amount of space within your stores both on the shelf and in the aisle to capitalize on this high-margin category.”

Both marketers agree that building awareness around the category can go a long way in helping to drive sales. “The key to selling more of this fast-selling, high-margin category is to showcase spirits more prominently to reach millennial consumers whose preference for spirits is incredibly high, as compared with other beverage alcohol categories,” said Cooke. He suggests building awareness via in-store promotion and signage.

Liquor marketers and c-store operators see nothing but opportunity ahead for the category. Campari’s Butkus and Coppercraft’s Joldersma even see accelerated growth for spirits in the channel in the coming years. “Today’s time-starved shopper is always looking for fast, simple solutions that are in the wheelhouse of c-stores,” remarked Cooke. “By offering a well-managed assortment, reasonable pricing and an efficient shopping experience, c-stores can continue to win in the spirits category.”

Neelam Patel is already on board. The Chicago retailer sees enormous opportunity in the “many consumers who haven’t even tried bourbon yet.”