Hard Seltzer: The Planogram Destroyer

September 3, 2020 in Retail

Hard Seltzer: The Planogram Destroyer

In last week’s edition of the New Normal Newsletter, we discussed the movie Moneyball, which traces the introduction of “business intelligence” by the Oakland A’s to evaluate players and build their roster. Using better statistics, the A’s were able to identify undervalued players and assemble the historic 2002 team that broke the American League winning streak record and went on to win the American League West after starting the season 10 games back. They accomplished all of this after losing their 3 best players and the A’s budget was less than a third the Yankee’s. The A’s focus on analytics was so successful that many other teams adopted it, transforming the game of baseball.

Large chains in the convenience store market have been using advanced analytics for a decade to crunch the numbers on the products in their stores and gain an advantage in the market. Using these systems, the large chains determine the optimal mix of product placement, shelf space and pricing to maximize their profitability and capitalize on new market trends. These systems create advantages across the board. Large chains average 11 times greater EBITDA and double in-store sales per square foot ($66.15 vs $32.23) when compared with independents. Taiga’s StoreKeep levels the playing field for Independent c-store operators by providing the same type of analytics used by the big chains at prices affordable for independents.

Using Business Intelligence to Maximize the Hard Seltzer Opportunity

In 2020, there have been many rapid changes that made planograms obsolete overnight, but Hard Seltzer has been the champion “planogram destroyer,” causing headaches for purchasing departments across the country.

The hard seltzer trend has been so big that, in June, Nielsen published an article titled “Hard Seltzer Defies Categorization and Limits as the Most Resilient Alcohol Segment in the U.S.” The complete article can be found at this link, however, the key points are as follows:

  • The industry classifies hard seltzer as a Flavored Malt Beverage. However, consumers believe hard seltzer is its own type of beverage.
  • Hard seltzer growth has cannibalized other alcoholic beverage sales because a consumer’s alcohol budget and consumption level tends to be fixed. Although alcoholic beverage sales have been up across the board during the pandemic, sell through rates of hard seltzers have increased at the expense of other alcohol categories. Without adjusting inventory to account for the popularity of this new beverage category, operators will continue to lose profits due to stockouts of the hard seltzers and overstocking of alternative items.
  • When Nielsen published their article, White Claw and Truly combined for 75% of the hard seltzer market share. At the same time, the growing popularity of this category attracted an array of additional brands. Entering the summer of 2020, there were more than 65 labels, ruining more planograms as purchasing departments scrambled to determine what to stock.
  • Hard seltzer sales have been the most resilient alcoholic beverage category during the pandemic. Retail sales of hard seltzer totaled $3 billion for the 52 week period ending July 3, 2020, up 243% from a year earlier according to Bump Williams Consulting Co.

If you are an independent operator, the story of the hard seltzer “planogram destroyer” no doubt rings true, because you have experienced it. But did you ever consider that this “disaster” wasn’t a big problem for the big chains – that actually they found the hard seltzer to be a great opportunity to make more profit? The rest of this newsletter will describe examples of how StoreKeep has helped some independents keep up with the big chains by delivering real-time localized data analysis to guide their stocking decisions:

Detection of New Trends – The spike in consumption of hard seltzer was identified by StoreKeep in the spring of 2020, allowing adjustments to be made prior to the summer season. StoreKeep also identified increases in craft beer consumption and premium wine sales as traditional grocery store shoppers began to frequent convenience stores.

Inventory Alerts – Storekeep sends out alerts when it detects a significant change in a product’s sell through rate so managers can anticipate and prevent stock outs. In the example below, StoreKeep is sending out alerts because it has detected a major decline in a product’s sell through rate. As you can see, the daily volume is way below the expected number of sales.

Identifying the Market Basket – StoreKeep discovers what other products the hard seltzer customer buys. Managers can strategically place items in the store to increase sales to this customer type and adjust pricing and promotions to increase profitability. StoreKeep’s data suggests that the average basket size of the White Claw buyer is over $20 – these customers represent a tremendous opportunity, not only to sell today’s products, but to serve them the mix of products that will keep them coming back as a permanent new customer type.

Identifying Localized Demand – Manufacturers provide planograms to help operators place orders (especially of their own products). The data in these planograms is typically based on national averages and is often outdated by months if not years. StoreKeep generates localized planograms for each unique store, showing actual sales (not national averages) at that store, in real time. Nielsen’s data indicates that a significant majority of the hard seltzer consumers are millennials. Hypothetically, one store may serve primarily an older demographic with an established favorite beer preference. Another store might include a large millennial demographic whose tastes change with the seasons depending on social media buzz/advertising. A real time, localized planogram allows real-time identification of the unique aspects of each store, allowing immediate adjustment of promotions, pricing, inventory and shelf space accordingly.

Testing New Products – In an article published on July 30, The Wall Street Journal announced that Coca Cola will be launching a hard seltzer beverage under its Topo Chico brand. Coke has not sold alcohol in the United States since closing its wine company in 1983, so this launch indicates Coke’s judgement that seltzers have great ongoing potential. Coke plans to pilot the drink in Latin America later this year before launching in the United States. When the lemon-lime seltzer comes to market, StoreKeep will be able to track the new product’s success and immediately determine how to adjust orders, inventory and shelf space. Those without StoreKeep will have to depend on their own intuition about millennial buying habits (good luck) or on a supplier’s planogram. The big chains won’t have any problem adjusting and taking market share from the independents who lack the insight – the game is rigged.

Evaluation of Promotions – On August 14, 2020 USA Today reported that Spiked Slushies have become the summer’s biggest drink trend. The article reports that both restaurants and home bartenders are combining boozy bases like hard seltzers and beer with mixers and ice to create a variety of new alcoholic slushies. Well, maybe an independent c-store chain might experiment by promoting, in a single store, a combination of products to make a Mango White Claw Slushie to increase the market basket size of the hard seltzer consumer. StoreKeep could capture real-time data to test the performance of this promotion so it could be rolled out to other stores, or quietly discarded at low cost.

Each of these examples illustrate how Storekeep can inform decision making within an independent chain to improve bottom line performance. Prior to the introduction of StoreKeep, installing a system to generate these types of insights was impractical because the diversity of data sources within independent chains would have made costs so high they would have been out of reach for independent operators. In developing Storekeep, Taiga has focused on developing a system that is easy to install, capable of handling all data sources, intuitive to use and affordable for the independent operator. StoreKeep can level the playing field with the big chains, generating real ROI for independent operators.