Retailer Profile: Spec's Speaks on Beer Trends

FILED AUGUST 31, 2011

Dear Client:

In Texas, Spec's Wines, Spirits, and Fine Foods is a dominating force in the beer, wine, and spirits trade. Based in Houston, Spec's has expanded throughout the state and has become a destination for consumers seeking unique flavors in beer, wine and spirits. Your editor had the pleasure of catching up with Spec's beer category manager, Justin Cody, to ask him a few questions about his beer business, and I think a few things will surprise you. You, my good friends, are a fly on the wall.

BBD: Which beers are really moving lately in your stores?

JUSTIN CODY: I will break this question up into three parts and answer it by category, style and brand. Texas craft beer is our fastest growing beer category and has been for over a year now. About three years ago I could count the number of Texas breweries releasing packaged beer one hand. Today, there are twelve with more coming online all the time. This is a great thing for all craft brewers. The emergence of more Texas craft breweries has helped change the mindset of restaurants, bars and off-premise retailers to focus more on the entire craft category.

Regarding a style, Texas has really become a hop centric state. IPAs, pale ales and aggressively hopped beers of all styles tend to do pretty well. Couple that with any of these being available in cans, and you have a winner. [Ed. Note: I can attest to this after my night at the Draught House in Austin last night for a New Belgium tasting].


As for a particular brewery that is doing great things in Texas right now, Lagunitas really stands out in my mind. I think the perfect environment has been created for them in Texas. As I just mentioned, Texas is a hop centric state; Lagunitas is a hop centric brewery. The price points on their year-round items are also very attractive which is extremely helpful. But, I think the largest factor in their success actually came from the attention Dogfish Head received due to their nation-wide exposure on the Discovery Channel [Ed. Note: Thank you telegenic Sam Calagione). Following the TV series, every account across the state experienced major out of stock issues that still haven't been rectified. Slowly, the distributor, retailers and customers began filling those voids with similar products. Lagunitas gained vacant draft lines, shelf space and customer loyalty due to the fact that they could actually get their products in.


BBD: Looking to your next reset, what trends do you see lately that would affect shifts in space?


JUSTIN: The performance of the craft beer category in our stores will typically determine any shift in space due to the fact that we draw our sets around the craft segment. We do this store by store based on the needs of the individual store by taking into account demographics, proximity to local craft breweries and the how developed the local market is. Once we have allocated sufficient space to craft beer, we then allocate space for imports and finally for the premium and budget categories. [Ed. Note: Wow. Remember when sets were centered around Bud Light? This is quite revolutionary].


BBD: Justin, there's a deluge of new SKUs, particularly from the craft guys. How do you balance keeping enough days of supply for your larger brands while still maintaining a diverse assortment?


JUSTIN: To be quite honest, this isn't easy. But, we committed ourselves to the craft and import segments while still offering the largest selection possible. Regarding the large brands, fortunately, we can throw days of supply out the window as we have dedicated staff to continuously fill our shelves. This allows us to offer a competitive selection of Bud/Miller/Coors products while still limiting their space in the cold box. Doing so opens up the majority of our cold boxes for craft and import products. There are also other more complicated practices that allow us to maintain our selections. One example would be placing SKU limits on non-focus beer segments such as the Flavored Malt Beverage category. This allows us to still grow the category in terms of dollar sales and volume, but limits the amount of SKUs our stores handle. Another practice would be the elimination or reduction of redundant packages. Even for the craft and import brands, if a 22oz bottle, 6-pack and 12-pack area all available, we have to decide what we want to run with and stick to it. [Ed. Note: Again, wow. Assigning staff to restock is something a lot of chains aren't willing to do.]


BBD: What can brewers and/or distributors do better to make you happier?


JUSTIN: I am a beer geek with an accounting background. I like looking at numbers and being able to see what we have on our shelves and where. With seasonals becoming a bigger player year after year, determining what seasonals we have on the shelf has become rather difficult. I would like to see each seasonal with a different UPC code. I know this is not popular amongst wholesalers and large national accounts, but it would allow us to manage seasonal transitions more efficiently, forecast for small breweries more effectively and reduce out of code issues.

Just as an FYI, not yet sure all the ramifications of this or its feasibility; we have discussed with a few brewers the possibility of going to a two UPC package. Each seasonal would have two UPCs; one would remain the same and satisfy accounts and wholesalers who like that system. The other would allow accounts like us to use the second UPC to differentiate between seasonals and manage them appropriately.


BBD: A-B is fronting another big price increase soon, particularly in Texas where your stores are. In your opinion is it too much for the brands to bear?

JUSTIN: It is literally becoming an annual tradition for A-B to take a price increase before the busiest season of the year in Texas. In a down economy with sluggish sales, it is hard not to think the increase is more than the brands can bear.

When we see reports regarding A-B's quarterly volume being down, yet profits remain up, it can be quite frustrating. With the competitive nature of the premium beer market in Texas, retailers already have very little margin built into Bud/Miller/Coors packages. We rely on the volume to generate profits for this category. Unlike A-B, it is impossible for a retailer's volume to be down and profits up with every grocery store, drug store, convenience store, gas station and liquor store competing for the premium domestic volume we depend on.

Another side effect that I think a lot of people do not realize is that in order for these brewery price increases to take hold, wholesalers must maintain the price gap between their brick and mortar brands and the craft and import categories. Long story short, continuous price increases by the big brewers force price increases on craft and import brands. Squeeze out tactics? I'm not an economist but when I see a $1.45 frontline increase on a 24-pack of Bud Light cans [in Texas]; seems to me that outpaces the inflation rate.

BBD: Thanks for your time, Justin.


NON-ALC BEER ON FIRE IN EUROPE. CAN IT COME HERE?

Sharp's. O'Doul's. Kaliber. These are brands that we've peddled for years with very little traction, except in the mid-1990s when we introduced them. Americans like beer, no doubt, but they like their ethanol in their beer even more. Overseas, it's not that way. Europeans love their Shandy's and Radlers -- their beer mixed with lemonade that typically has half the alcohol of regular beer. And in Spain, they love their non-alc beer as well, so says the WSJ. "Nonalcohol beer is still a small segment in the West, accounting for under 2% of all beer consumption in most markets." But in Spain, about 13% of the beer consumed there is nonalcohol. Spain is the world's biggest per-capita consumer of nonalcohol beer, even more than Muslim countries that shun demon alcohol.

"Nonalcohol beer gained visibility on Spain's shelves in the 1980s and then took off about a decade ago, around when the government and brewers started advertising campaigns to curb drunk driving by reminding people about nonalcohol beer." They even have it on tap at bars, and nearly every restaurant carries it.

I was in a bar in Austin about two months ago when a Guardian UK reporter called me on my cell phone (not sure how he got the number, but no matter) about that new big interest in Shandy's and non-alc beers in Europe with sports enthusiasts. He asked, "Will this big trend spill over into the US?" At the time, I told him, "Ah, I don't think so. Americans drink beer for the flavor and the ethanol. And non-alc beers provide neither," thinking of all the dusty six packs of Sharp's and O'Douls in the shelves at my local HEB.

But with sagging sales of premium big beers, will the big brewers start pushing non-alcs more aggressively here? No sign of that yet. And our culture is very different here. But it's something to keep our collective eye on. Mahou, Spain's largest beer maker, spends about 20% of its marketing budget on non-alcohol beers, up from 10%-15% in 2005. That's huge. Let's see if Spain starts a global trend.


MORE BREWERS HAVE BIG EXEC DEPARTURES

It's been a big couple of weeks for senior departures at our breweries: Grant Leech, Jeff Colbert, Evan Athanas. Now, Heineken announced internally that Michiel Herkemij is leaving CM to become CEO of Sara Lee's international coffee and tea division. Michiel has been Managing Director of Cuauhtémoc Moctezuma (CM) since last March and was instrumental in merging that company into Heineken. He leaves November 30 and leaves a hole in Heineken's senior management in Mexico at a crucial time. "We are, of course, actively engaged in finding the right replacement and will make an announcement regarding this as soon as we have news," says Heineken's Americas president in a memo, John Nicolson.

MILLERCOORS HAS ANNOUNCED that their director of media relations, Julian Green, is leaving the company to accept a position as the new vp communications for the Chicago Cubs. "This is a great opportunity for Julian and matches up well with his deep roots in the Chicago community, his love of sports and his demonstrated expertise in communications," said his boss Nehl Horton. Pete Marino will be taking over media relations until a replacement for Julian is found. On a personal note, I have worked with Julian for five years and have enjoyed getting to know him, and wish him well over at the Cubs. (Julian, if you thought folks asked you for tickets working for MC, you ain't seen nothing yet).


GAMBRINUS IS LOSING Mark King as its national sales director, to seek out new opportunities. So lots of senior beer folks making big moves. It could be an opportunity for craft brewers to snatch them up.

BREWPIC: New Belgium filmed their latest Beer Confidence Module, training videos for distributors to teach them about their beers, in Austin. Your editor was invited to view a filming session. Here, New Belgium's Bryan Simpson is filming our very own Jenn Litz, editor of Craft Business Daily, who offers her opinion on a pint of 1554 at the Draught House. -BrewPic of the Day on Facebook: http://www.facebook.com/pages/Beer-Business-Daily/189913234369698

Until tomorrow, Harry

"Television is for appearing on - not for looking at".
-Noel Coward



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