While sales growth of beer in convenience stores was flat this past year, retailers and marketers are optimistic that better days are ahead, thanks to trading up among customers, the growing opportunity to sell beer in more stores and increasing consumer demand for expedient retail transactions.

According to the NACS State of the Industry Report of 2018 Data, average per-store sales of beer increased just 1.4% last year to $175,760, representing 6.35% of in-store sales. While beer remains in the top 10 in-store categories in terms of sales and gross margin contribution, the category’s performance last year paled in comparison to liquor (+22%) and wine (+25%), albeit sales for the two categories make up a much smaller percentage of overall c-store sales.

Indeed, beer remains a huge and profitable category for the channel. C-stores account for 56% of all beer off-premise sales, with the food channel representing 38% of retail sales. And with margins of 19.5%, beer brought in $34,272 in gross profit dollars per store last year, and accounted for 3.5% of in-store gross margins, according to NACS State of the Industry (SOI) data.

Fortunately, the factors potentially impacting beer’s listless performance are generally external and not related to moves by c-store operators, Jayme Gough, NACS analyst, remarked. For starters, competition for beer sales has swelled, with dollar stores and drugstores aggressively pursuing increased market share. "C-stores remain a top channel of choice for beer purchases, but competition has sprung up, particularly in the dollar channel," Gough explained. "It's important for retailers to keep them in mind in terms of competition within the beer category." (See page 48 for more on dollar store competition.)

Jason Norton, owner of Iowa Street Market in Dubuque, said he’s seen the increased competition firsthand. “I used to be the only store in a one-mile radius selling beer, wine and liquor,” he said. But in the past five years, at least four more merchants have sprung up, including drugstores. “I guess they saw the profit opportunity,” said Norton, noting, however, that the increased competition hasn’t affected Iowa Street’s beer sales. “Our beer sales are very good,” the retailer reported. “We’re in a convenient location and known for carrying a big variety.”

Consumer demographic shifts also may be affecting beer sales in c-stores. “Younger millennials have shown a predilection for spirits over beer,” Gough said, a preference evident in bars and nightclubs in recent years. With members of the emerging Generation Z starting to reach legal drinking age, it’s not known yet whether they will follow suit.

Another area to keep an eye on, according to Gough, is the growth in cold beer delivery services, including voice ordering through AI technology. (7-Eleven’s 7Now app, which delivers beer and other products to customers’ doors, is one c-store retailer’s response to alcohol delivery providers like Drizly.) Jenny Odom, vice president, national accounts, convenience, at Constellation Brands’ beer division—the supplier of brands such as Corona Extra and Modelo Especial—cautioned, “The consumer’s definition of ‘convenience’ is rapidly changing,” particularly when “other trade channels begin to offer comparable convenience and supplement with emerging omnichannel capabilities such as rush delivery or click-n-collect.”

There is still significant opportunity to grow high-end beer.

Market Changes

In some markets, though, the opportunity for beer in c-stores has become increasingly promising. Last year, Oklahoma moved to allow for the sale of strong beer and wine in c-stores and grocery stores, while this year Kansas loosened restrictions on strong beer sales in those outlets. Those changes have been “great for QuikTrip,” remarked Mike Thornbrugh, manager of public and government affairs. In Oklahoma, the chain is now selling higher strength beer in 78 stores, and according to Thornbrugh, “It’s been very successful.” In Kansas, QuikTrip has introduced stronger beer in 58 locations, and sales “have surpassed our expectations,” he said. The QuikTrip executive noted that preparing for the changes in both states required educating customers about the expanded offerings. “If you allow competition, consumers will always choose convenience,” said Thornbrugh, adding that in Kansas, the stores have attracted new customers—those who previously shopped in liquor stores for beer. “And they’re also purchasing other items. We flipped the buying patterns of consumers,” he remarked.

Colorado’s move earlier this year to allow c-stores and groceries to sell beer prompted QuikTrip, in part, to announce it would enter the state. “It made the decision a lot easier,” Thornbrugh said. Indeed, according to Kati Dickson, manager of County Line convenience store in Wiley, Colorado, “people are a lot happier now that they can buy their beer here. It’s one-stop shopping.” Since adding beer on January 1, County Line has attracted new customers who will often purchase additional items, Dickson said.

Craft beer sales in c-stores still under-index that of other outlets, but craft brewers are leaning into the channel.

And out east, Pennsylvania has been working to ease restrictions on the sale of beer and wine in c-stores for several years, and among the retailers benefitting is Rutter’s. According to Robert Perkins, vice president of marketing, the chain began selling beer in the state about three years ago, and today, 31 of its Pennsylvania locations offer the products. “It’s been a big win for us,” he remarked. “We’re seeing a healthy increase year over year. Now customers at those stores have found that we can be a one-stop shop for them.” This spring the chain rolled out malt-beverage-based “Adult Slushies” at the locations (which you can read about in the September 2019 issue of NACS Magazine).

Trading-Up Potential

Additional opportunity to increase beer sales in c-stores lies in trading customers up to more premium brands, some marketers said. “Consumers have shown a preference for premiumization,” Odom remarked, and the Constellation Brands executive believes “there is still significant opportunity to grow high-end beer,” defined as $25 and above a case, in c-stores. “As an industry, we need to ask ourselves if we are holding back the high-end in c-stores by not shifting quickly enough to where today’s shoppers are.” Coolers, caves and merchandising should reflect the demand for high-end beers, continued Odom, noting that “early-adopter retailers who get in front of this are seeing better overall category and margin trends.”

Craft beer sales in c-stores still under-index that of other outlets, including grocery, but craft brewers are leaning into the channel. According to Bobby Dykstra, vice president, sales, at Kansas City, Missouri-based Boulevard Brewing Co., “craft is doing a better job listening to c-stores,” by providing the right package offerings, programming and retail support tools than in the past. Due to its increased emphasis on c-stores, Boulevard was seeing its strongest trends year to date in the channel, reported Dykstra, adding, “We will continue to prioritize resources.”

Malt-beverage-based hard seltzers, meanwhile, have been on fire in c-stores and other venues in recent years. “The flavored malt subcategory, which includes ciders, spiked seltzers and the like, saw notable growth in 2018 in both sales and gross profit dollars,” remarked Gough. Rutter’s Perkins agreed, noting that “hard seltzers are doing very well for us and attract a female demographic.”

Preferred Packages

Both Odom and Dykstra pointed to the important and growing roles that beer singles and cans are playing in c-stores. “Singles are almost a quarter of beer category dollars, and over the past four years, singles have grown dollar sales more than two times faster than the overall convenience beer category,” said the Constellation Brands executive. “This growth is fully being driven by the high-end.” Odom added that Constellation Brands has responded to increased demand for singles with the recent introductions of 24-ounce can versions of Pacifico, Modelo Negra and Modelo Chelada Limon y Sal.

Indeed, cans—whether sold as singles or in multipacks—are driving a lot of craft beer sales these days. “C-stores have embraced craft cans,” said Dykstra, noting that Boulevard’s can business is up 60% through July, compared with the year-ago period. Retailers tout the functionality of cans. “It’s easier to stock a 12-pack of cans than a six-pack of bottles,” remarked Thornbrugh, and the ring is higher.

While overall beer sales may be somewhat stagnant these days, there are still steps c-store operators can take to ensure they are best positioned. “Keep beer stocked, especially in the cold vault,” advised Gough. “Make sure there is easy access to the cooler and that stores are clean and clutter free.” She also recommended that retailers manage the category. “There is no one-size-fits-all for c-stores when it comes to beer. Know your market.” Finally, Gough suggested that operators “listen to your associates. They have their boots on the ground and know what customers are talking about and asking for.”

Dykstra, for one, is optimistic that with the right attention, beer sales in c-stores will thrive. “Trends are cyclical,” the craft brewer said. “Beer will trend back up.”