Selling Out the Bottom SKUs

Dear Client:

It’s simple math. If there are going to be some 800-plus new breweries coming online in the next couple years, shelf space is gonna get even tighter. And craft already gets an inordinate amount of space relative to its volume share.

Not so when you look at profit share. CM Profit Group’s Tom Fox estimates that higher end beer comprises about half of the average retailer’s profit for the category. Retailers don’t necessarily realize this, especially smaller chains. So any supplier looking to influence their schematics is going to have to convey this and other facts to expand – even keep – their space. Sometimes that will involve ratting out the bottom SKUs.

Oskar Blues and industry veteran John Bryant explained it with a baseball metaphor at Monday’s intimate Brewbound conference in Santa Monica. “If you take a snapshot of a cooler at a grocery store, it’s like a family photo, or financials – it’s a piece of history,” he says. And history needs context. So if you can pair that picture with syndicated data for a region close to the chain you’re working with, work backward to segment strategically. “Then you can see that there’s this bottom 25% doing nothing. You can probably pick through national brands and trends to figure out what those brands are. That’s the Mendoza Line: You hit below 200, you’re probably going to the minors. You get a red line on the scan sheet, they’re gonna go away – and guess what, that’s your opportunity.”

SHOW AND TELL. The litmus for shelf space is an ROI equation involving how you improve retailer schematics’ value. That’s old news. Playing into that equation with the right metrics and expressing it in the right terms is becoming more important in a crowded, competitive space. Ask Tom – he works on retailer satisfaction with suppliers, and helps the latter close the gap.

Luckily craft gives great basket ring. When you look at what’s in the craft beer buyer’s basket (besides the liquid), craft is in a leadership position, says Tom. In fact, it “could be on the total side of $10-$15 more per basket, an almost a 30% increase in [average] basket size,” which would blow away many retailers basket growth goals.

Bring those economics down to your brand level, and you can influence a retailer’s assortment decisions. That requires hard forecast numbers based on sales history at like stores. The forecast must outsell something they currently carry. Three metrics are especially effective: First, convey your relative profit benefit compared to another brand, and express it in terms of absolute dollars and percentage. Do the same for your relative ring benefit and velocity measures, both detectable via a little syndicated data from your distributors and some extrapolations. For example, if you can get reports that include information on dollars per point ACV, a velocity measure, comparing that to the penetration measure of average weekly ACV paints a pretty powerful picture. Sometimes it can show retailers their inadvertent choice to feature a product with half the velocity of a craft.

For proving your space’s worth is the new norm, and there are outlets who still don’t do it, even as bigger brewers (including crafts) work strategically with retailers on schematics.


The “King of Basket Ring,” as John Bryant calls Bump Williams, sent out his latest update earlier this week with good news on craft’s room to grow. The No. 1 issue he’s been working on with clients from the three tiers to the investment world? How far craft can go. The prospect of 20 share is particularly interesting.

Bump theorizes it can indeed hit 20, and for five reasons: underdevelopment in C-stores; underdevelopment in large beer volume states like Texas, California, Arizona and more; underdevelopment in large marketplaces like LA [hello Golden Road Brewing]; large retailer chains who don’t yet understand craft but soon will; and work toward eliminating out-of-stocks and merchandizing/shelf support.

He charted the top 20 markets for craft dollar share in grocery and noted that each has increased that metric in the channel over last year. Moreover, craft increased its share of total beer in every single food market in the U.S., except for Little Rock, Arkansas.


CRAFT-SAVVY ASHEVILLE IS GETTING ITS FIRST CRAFT CANS. Asheville Brewing started canning its IPA yesterday with the new line. It’s the first commercial beer canning line in Buncombe County, home to 10 craft breweries, according to the Citizen-Times. In other Asheville news, New Belgium’s Kim Jordan and Sierra Nevada’s Terrence Sullivan are expected to do more due diligence on the market this week for their pending production facilities.

A SIZABLE PORTION OF NEW BREWERY OWNERS SEEM TO BE COMING FROM THE UPPER DECKS OF FAMED EXISTING ONES. The latest in the trend is Pizza Port’s longtime brewer Jeff Bagby, head of brewing operations. He’s scouting locations in North County for his brewery, according to Sign On San Diego. His last day at the pizzeria brewpub chain will be Dec. 31.

STARBUCKS PLANS TO OPEN AS MANY AS SEVEN NEW LOCATIONS THAT SELL BEER AND WINE IN THE CHICAGO AREA BY THE END OF NEXT YEAR, according to the Chicago Tribune. A company spokesperson said they’re trying to expand the evening daypart. The company already has six such stores in the Pacific Northwest; these will be the first stores of this kind outside that area.

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