We’re all aware that sales of craft beer are growing. But did you know that India pale ales (IPAs) are well outpacing other craft offerings, growing sales by a whopping 50% last year and accounting for a quarter of all craft beer sales, according to IRI?
This wouldn’t have been welcome news to North Carolina retailers and manufacturers 10 years ago. Back then, it technically wasn’t illegal to sell an IPA in the state—just very difficult, due to its 6% alcohol by volume (ABV) cap. Beer Advocate puts the ABV range for IPAs at 5.5% to 7.5%, with not a single contender on the site’s “Top 10 American IPAs” list coming in below 6%.
It’s one of the reasons trade associations pushed the state to more than double its limit, going from 6% to 15%, in 2005. Tim Kent, executive director of the North Carolina Beer & Wine Wholesalers Association, Raleigh, N.C., told Bloomberg this change has made North Carolina the “undisputed leader in craft beer from Virginia to Texas.”
At the very least, this renaissance led to a lot of happy drinkers and retailers in the Tar Heel State, given a relatively recent trend toward higher-ABV beers throughout the United States. And it’s not just IPAs that are creeping north of the standard 5%. From Sierra Nevada’s Bigfoot Barleywine (9.6% ABV) to the Boston Beer Co.’s Thirteenth Hour Stout (9% ABV), brewers are embracing a boozier-the-better mindset.
But what about consumers? Are domestic-beer drinkers, who tend to be more price-conscious, really willing to pay more for a high-end, high-alcohol craft offering? Vivien Azer, an analyst for New York-based Cowen and Co., says one need look no further than booming IPA, spirit and wine sales to see that, yes, consumers are willing to throw down for what she’s dubbed the “more buzz for your buck” phenomenon.
“You’re maybe spending more per bottle of beer, but the alcohol content is a little bit higher,” she says. “There’s value in that.”
Breaking Down the Buzz
According to the Washington, D.C.-based Distilled Spirits Council of the United States, beer has lost nearly 10% of its market share since 1999, while spirits have gained 7% and wine has gained approximately 3%. Azer points to this decadelong trend as evidence of how consumers are defining value in the category. A bottle of vodka costs more than a six-pack of beer, but not when you break it down on a per-serving basis. Say that six-pack costs $7: That’s roughly $1.15 per serving. A $20, 750-milliliter bottle of vodka will yield 25 1-ounce shots, or 80 cents per serving.
“With the higher ABV, spirits and wine deliver the same amount of alcohol in fewer servings,” says Brian Sudano, managing partner of Beverage Marketing Corp., New York.
The movement toward higher-alcohol beers could easily be interpreted as a reaction to wine and spirits’ growing market share. However, brewers have been experimenting with higher-alcohol suds for some time: Boston Beer Co., Boston, released its first batch of Triple Bock in 1994. At 17.5%, it broke ABV records at the time, says Joe Kaczynski, Boston Beer’s national channel manager for convenience stores.
A more recent phenomenon is that, like wine and spirits, higher-ABV beers have been stealing share from dominant premium and premium light options.
“Light beers offer a 4.2% beverage alcohol content, while craft beers nowadays can go up to 8% to 9%,” Azer says. “When you think about the alcohol impact that you get from any fluid ounce, you can get as much as a 50%-plus benefit (in terms of alcohol) from craft beer.”
And it would seem that at least some consumers are doing the math, willing to spend more money on less beer—but more alcohol.
“While you might see a four-pack priced at parity to a six-pack, from an alcohol-adjusted basis, you’re getting as much—if not more—value,” says Azer.
Going Mainstream?
This movement toward higher-alcohol offerings has not gone unnoticed by major beer manufacturers.
Since 2012, St. Louis-based Anheuser-Busch has introduced three beers with an ABV of 6%: Bud Light Platinum, Budweiser Black Crown and Beck’s Sapphire. In early 2014, MillerCoors, Chicago, released the 6.9% ABV Miller Fortune.
“It has become increasingly obvious to beer marketers that we are in competition in a broader space than beer, in the total beverage alcohol market,” said Andy England, chief marketing officer for MillerCoors, in a New York Times interview. “Spirits has done a good job of getting the hearts and minds of legal-drinking-age millennials, portraying offerings as more sophisticated.”
The strategy makes sense. But is it effective? Sudano believes MillerCoors’ and AB’s higher-alcohol offerings “serve the purpose of moving their overall portfolio mix up in value” but have “had little impact on their beer volume trends.”
Austin Martin of Mapco reports similar results in his stores. “We don’t see great same-store comps year-over-year,” says Martin, vice president of sales and merchandising for the Brentwood, Tenn.-based retailer. “Every time someone launches one, they do well for a while … until the next one comes out.
“It’s about flavor,” Martin continues. “Customers might buy [a new product] just because of the ABV to start, but it’s got to taste good to make them come back again.”
Or, as Azer sums it up, “What manufacturers have found is higher ABV for the sake of ABV does not work.”
Beyond ABV
Really, it’s a chicken-or-egg situation: Are consumers seeking out higher-alcohol options because of the value proposition, or are they seeking out craft and premium offerings that happen to boast higher ABV?
“ ‘Value for buck’ is a very misleading phrase,” says Sudano. “If consumers want value for buck, they would just drink value malt liquors and flavored malt beverages. Across all beverage alcohol categories, the market is trading up to premium offerings.”
“There’s a premium on flavors and on local brands,” Martin says. “Anything that’s got good flavor or is local has a value to it.”
Take a step back, and the trend isn’t so much about finding value in more alcohol per serving as it is about expanding flavor preferences. “Drinkers today have more sophisticated palates than drinkers generally did years ago, and they’re constantly looking to explore unique, high-quality beers,” says Kaczynski of Boston Beer. “They’re exploring styles brewed with interesting ingredients, ranging from lighter-bodied session beers to bold, barrel-aged beers.”
“I do think consumers are willing to pay more for a lower-alcohol craft,” Azer says when asked about a session beer such as Evil Twin’s Bikini Beer, which clocks in at just 2.7% ABV but typically costs as much as a higher-alcohol IPA.
This somewhat contradicts the “more buzz for your buck” concept, but it comes as welcome news to a retailer such as Terry Messmer who, because of state liquor laws, can’t sell anything above 6.3% ABV at his stores in Tennessee.
“It doesn’t hurt us that bad at this point,” says Messmer, field sales manager for Nashville, Tenn.-based Tri Star Energy LLC, which operates Twice Daily stores.
Even Boston Beer, with its record-shattering 33% ABV Utopia beer series, does not stick to a high-ABV-or-bust mandate.
“We brew a large number of higher-ABV beers, but we really focus on the flavor vs. the alcohol content,” Kaczynski says. “Drinkers are willing to pay more for quality, flavorful craft beers and for unique drinking experiences, [and] higher ABV sometimes occurs as a result of those factors.”
Treat Yourself
This concept Kaczynski hits on is nothing new: In a trend hatched from the Great Recession, today’s consumers are willing to pay a little bit more for what they consider to be an affordable luxury.
Messmer sees this trend when examining Twice Daily’s craft customers’ market baskets, where he’ll typically find other superpremium beers such as a Heineken or superpremium tobacco products such as Santa Fe American Spirits rung up alongside a six-pack of craft beer.
Better gas prices and a recovering economy are also likely causes for this willingness to pay a premium on beer and beyond.
“During the recession, 2008 to 2009, domestic high-end beer growth slowed,” Sudano says. “However, they have more recently grown at a faster rate since 2011 than prior to the recession.”
Azer agrees: “The recovery in 2010 to 2011 probably helped the craft-beer category. The category has grown at a double-digit clip the last five years, and growth accelerated (further) in 2013 and 2014.”
Vikas Saytal, senior director of category development for White Plains, N.Y.-based Heineken USA, argues the idea of affordable luxury is not just an economical shift, but a generational one. “Consumers today, specifically millennials, seek out the best,” he says. “They have a strong appreciation for higher-quality products that elevate their experiences and are willing to spend more on brands that complement their lifestyle.”
Messmer says the $8.99- to $9.99-per-six-pack cost “hasn’t really scared anyone off,” millennial or not.
Azer agrees that craft beer is capturing a broader consumer base: “A couple years ago, it would have materially overindexed to the most affluent consumers. That is not the case anymore, which is how the category has achieved an 11% volume share and a 20% dollar share in 2014.”
“We expect share to continue to improve as more millennial and multicultural consumers reach legal drinking age,” Saytal says. “These consumers are more likely to equate cost with quality.”
Riding the Boozy Wave
The growth of high-end beers—high ABV or not—is interesting, but are c-stores cashing in? Data from CSP’s 2015 Category Management Handbook shows retailers are benefiting from this phenomenon: In 2014, dollar sales of c-store craft grew by 26.6%, with imports up 13.3% and domestic superpremium up 11.4%. By comparison, domestic premium sales decreased 0.1%, with supepremium sales down 3.0%.
The data also suggests c-stores stand to benefit even further. Saytal says c-store shoppers drink and purchase beer more frequently than other consumers; 30% drink beer daily and 22% purchase daily, according to Envirosell’s off-premise shopper research.
And c-stores overindex on premium-enthusiast millennials. (Spectra research shows 41% of c-store beer shoppers are millennials.)
“We’re trying to appeal to professional females and a higher-income clientele along with our everyday clientele,” says Messmer. “By having craft available, it helps distinguish that you’re in that type of business and serious about it by providing variety beyond the standard premium options.”
Sudano, however, says the continued growth of craft and imports indicates this trend casts a wider net than any single consumer subset. “The macro trends within beer filter throughout the industry and different socioeconomic groups,” he says.
To attract those traditional and nontraditional customers over to the craft side, Kaczynski suggests an outside-in mentality to drive awareness. “Signage letting drinkers know that you offer craft beer is key,” he says. “Front windows, in-store and most important at the point of purchase at the cold vault.”
Trial-friendly options are another useful tool for retailers. “The best way to play superpremium crafts and high-ABV beer is through the sale of single bottles with some variety to attract consumers looking to try something new,” Sudano says.
Messmer says this strategy has worked well in his stores. Twice Daily’s Pick Six mix-and-match six-pack option is a top-five beer SKU. An abundance of single-serving craft can options has grown the category and encouraged trial. New 16-ounce can offerings are featured on suction-cup displays every two months, with successful brands getting placement in the cooler or the Pick Six rack.
A trial-friendly strategy can help sway even the most unexpected customers to dabble in a higher-end purchase, netting a larger market basket and ring for retailers.
“We’re not switching a Bud Light drinker to a six-pack craft-beer drinker,” Martin says. “They’re still buying their Bud Light but maybe getting an additional craft six-pack along with that; it’s an add-on.”
And it’s a win-win for retailers. “You can convert existing beer customers to a higher gross-profit dollar product and potentially draw more traffic in with new beer customers who wouldn’t have necessarily bought their beer in the c-store channel,” says Azer.
And what about “more buzz for your buck”? Perhaps some of craft’s growth can be attributed to consumers caring about ABV per dollar. But more likely, it’s about the “buzz” of higher-end, more flavorful and local beers.
“Craft beer trends in c-stores continue to grow at a blistering pace, outpacing all other channels,” Kaczynski says. “More drinkers are looking for craft beers that first and foremost deliver a great drinking experience. Higher-ABV offerings are part of the growth.”
A Story of Growth
Though still a relatively small piece of total c-store beer sales, craft, domestic superpremium and import sales have been on the upswing for more than three years. While overall beer sales grew by just 3.1% in 2014, all three subsegments grew by double digits last year.
Craft
| YEAR | C-STORE SALES ($ MILLIONS) | PCYA* | CASE SALES (MILLIONS) | PCYA |
| 2014 | $622.6 | 26.6% | 16.4 | 23.4% |
| 2013 | $446.7 | 24.6% | 12.0 | 20.7% |
| 2012 | $357.2 | 21.7% | 9.9 | 16.9% |
Domestic Superpremium
| YEAR | C-STORE SALES ($ MILLIONS) | PCYA | CASE SALES (MILLIONS) | PCYA |
| 2014 | $1,392.7 | 11.4% | 47.3 | 8.9% |
| 2013 | $1,230.9 | 6.6% | 44.0 | 3.3% |
| 2012 | $1,155.3 | 42.6% | 42.6 | 38.9% |
Imports
| YEAR | C-STORE SALES ($ MILLIONS) | PCYA | CASE SALES (MILLIONS) | PCYA |
| 2014 | $2,207.3 | 13.3% | 71.4 | 10.9% |
| 2013 | $1,1929.3 | 8.0% | 65.4 | 5.7% |
| 2012 | $1,786.9 | 9.5% | 61.8 | 7.6% |
Beer Market Share by Type
| SUBCATEGORY | C-STORE DOLLAR SHARE |
| Domestic Premium | 49.2% |
| Domestic subpremium | 18.3% |
| Import | 12.6% |
| Domestic superpremium | 7.9% |
| Progressive adult beverages | 5.4% |
| Craft | 3.5% |
| Domestic malt liquor | 2.4% |
| Cider | 0.6% |
| Nonalcohol | 01.% |
Source: IRI, 52 weeks ending Dec. 28, 2014 | * Percent change from a year ago
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