Alcoholic Beverages: Common Headwinds, Unique Challenges

Alcoholic Beverages: Common Headwinds, Unique Challenges

The common refrain for observers of the CPG retail industry is change, change, change. In a previous article, we’ve looked at how changing shopper preferences have fundamentally transformed the Dairy cooler, a traditional grocery store powerhouse. Change is occurring throughout the store and across channels as a result of shifts in shopper preferences.

The Alcoholic Beverages industry is facing many of the same headwinds as other CPG retail categories, but due to its history and regulatory landscape, it also faces unique challenges not seen in other categories.

The most obvious difference between Alcoholic Beverages and other categories is the additional regulations that retailers and distributors must follow. Each state has its own set of laws regulating the sale of alcohol, creating a regulatory patchwork that affects each store cluster differently.

The general trend, however, has been for states to loosen regulations, allowing more types of stores to sell more types of alcoholic beverages, leading to increased competition between channels. As an extreme example of recent rapid change, VideoMining’s home state of Pennsylvania has recently loosened some of its antiquated alcohol laws, and some of our retailer partners have had to drastically redesign their stores now that they are allowed to sell beer and wine.

This has naturally changed shopper behavior in these stores, but it has also changed the trip missions that each store is able to fulfill. Where previously, Pennsylvanians had to go to different stores depending on whether they wanted a six-pack of beer, a multipack of beer or a bottle of wine, now they are able to purchase any of these options from a variety of channels. So now, beer distributors, convenience stores, grocery stores and liquor stores all can satisfy the same trip missions and are more directly competing with each other.

Another complication is the three-tier system, present in most states since the repeal of Prohibition, which requires a middleman distributor between retailers and manufacturers/importers. This creates an environment that makes it more difficult for manufacturers to directly collaborate with retailers and puts an extra stakeholder in the category management process.

But with all these complications, one thing remains true for Alcoholic Beverages as well as every CPG retail category: it all revolves around the shopper.

Serving the Shopper

 
All the regulations, distribution partners and complications do not matter to shoppers when they are at the shelf. So manufacturers, distributors and retailers must ultimately come together to serve shoppers the right assortment at the right price to meet their needs.

Alcoholic Beverages manufacturers know a lot about their consumers, and the big companies are doing their best to build portfolios that serve a variety of shopper needs. Like all of CPG retail, preferences are changing, and companies that do not respond to those changes will be left in the dust.

For example, many consumers, including younger consumers, are shifting away from Beer toward Wine and Spirits. But even within Beer, there has been an explosion in popularity of Craft Beer, Flavored Malt Beverages and Cider. All this comes at the expense of the stalwart Domestic powerhouses, but those big name brands still are responsible for the bulk of total Beer sales.

This creates to a complicated set of priorities shared among complex relationships between the manufacturers, distributors and retailers. These priorities include:

  • Balancing high-volume, big-name SKUs with low-volume, premium selections
  • Understanding seasonality, shopper occasions and promotional activities that lead to different purchase behavior
  • Utilizing cold and warm shelf space to optimize the aisle as a whole
  • Displaying the right products in secondary locations to drive sales and/or primary aisle traffic

 

Optimizing the Experience

 
In order to address these priorities and better serve the shopper, retailers and their partners must optimize the shopping experience based on real-world shopper behaviors. How shoppers interact with the shelf and make their purchase decisions in-store define the success of the department.

A common concern with Alcoholic Beverages is the complexity of shopping these categories. Beer, Wine and Spirits all have a large number of SKUs that can be difficult to browse for new products to try. Regardless of whether a shopper is at a convenience store, a grocery store or a liquor store, Alcoholic Beverages tends to cram a lot of options in a limited space, which can be a frustrating experience. Therefore, retailers, distributors and manufacturers must study shopper behavior to be able to improve the shoppability of these categories.

In some cases, that may require a fundamental reinvention of the aisle, while in other cases, retailers may just need to streamline their selection or merchandising. Either way, it takes a continued commitment to improving the experience in order to make the changes necessary to keep up with shopper preferences in today’s retail environment. Retailers, distributors and manufacturers must use fact-based insights and testing to ensure that the changes they are making are actually generating the intended results, and all partners must be on the same page to make each initiative as successful as possible.

While changing shopper preferences are a constant reality for Alcoholic Beverages as well as the rest of the CPG retail industry, with the right tools and insights, brands will be able to adapt to change and succeed in today’s complicated environment.

If you are interested in learning more about your shoppers’ behavior at the shelf, in Alcoholic Beverages or any other department or category in CPG retail, contact us to learn more about VideoMining’s ShopperImpact platform for fact-based insights via in-store behavior analytics.