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It was a historic March for the off-premise portion of the beer industry as the country found itself under dire circumstances due to the COVID-19 pandemic. And as chain store sales flatten heading into April, the kinds of jumps seen due to pantry-loading may not yet be over for some parts of the country.
This offers increased opportunity for the largest breweries who can shift focus to markets around the country that face peaks of the coronavirus at different times. However, this would be another blow to local and regional producers who haven't yet faced the worst part of the virus' spread. In short order, these changes will be realized in a state-by-state strategy through mass retail and a potential return to seasonals as the hot, new thing in a rapidly simplifying market.
According to analyses by researchers and the New York Times, the South—and more specifically Southeast—could soon face regional peaks of COVID-19. This could presumably create additional runs on groceries and beer as state-mandated self-isolation orders move past April and into late spring.
Georgia, for example, is expected to see a peak in the third week of April, and also saw dollar sales for beer in IRI's grocery, convenience, and chain MULC channel start a bit later (week two of March) and hold on stronger at the end of the month.
Additionally, a state like Alabama shows an extreme of how spending has shifted nationally. While IRI reported strong growth for lower-cost, high-volume brands, dollar growth for IRI-defined "craft" actually went negative in the week ending March 22 compared to 2019. Just about everything else skyrocketed: "Premium Light" (Bud Light, Miller Lite, Coors Light) and Premium Plus (Michelob Ultra) grew significantly, and "Value Light" (Busch Light, Keystone Light, etc.) stayed at the same levels as the week before, and about a third more in dollars than the same sales week in 2019.
Florida, Louisiana, North Carolina, South Carolina, Tennessee, and others are estimated to start hitting peaks of confirmed COVID-19 cases soon.
With the South expected to be hit harder in late April and early May, the shifts in beer buying behavior may mimic what we've already seen, but with fewer peaks like what we’ve had so far. In lieu of pantry-loading, things have already turned more toward pantry-maintenance.
An analysis by Bank of America showed that spending across grocery shopping started a decline around March 21, mimicking other industries as well. "Total card spending" reported by the bank showed continued double-digit declines compared to last year starting on March 16, with steepest drop-offs coming toward the end of March.
Why It Matters: It’s worth considering that the Fourth of July sales levels seen in March won’t return, and a state-by-state process may play out as shoppers consider when and what to buy again. As unemployment rates boom, Axios says states like Louisiana, New Jersey, and Texas are seeing jobless numbers that are "like a natural disaster slamming every state at the same time."
Considering how the continued rise of unemployment may impact spending (already price-sensitive) and how COVID-19 moves across the U.S., buying behaviors are likely to move from nationwide stocking seen in mid-March to more regional versions of pantry-maintenance. This will continue to support the largest brands that have the most visibility and consumer-friendly prices, something that’s already played out.
So far, the closure of on-premise locations and forced shift to off-premise chains has overwhelmingly favored the largest brewers. Macro brands are seeing a rare surge, while the largest craft players are taking full advantage. We've covered this here in Sightlines, but Beer Marketer's Insights also reported this week that the 30 largest craft brands gained an additional 1.1 share of the segment in the four weeks ending March 22. "That’s reversal from last 52 wks when same brands collectively lost 0.1 share of craft cases," the outlet shared on Twitter.
To put this in context, the trio of Sierra Nevada, Sameul Adams, and New Belgium sold $16 million more in product in IRI-tracked stores in March 2020 than March 2019. The three averaged 16.4% of all IRI-tracked craft dollar sales last month, up 2.6% from the previous year. This included three of the largest swings in four-week share in March from Sierra's Hazy Little Thing, New Belgium's Voodoo Ranger Imperial IPA, and Sam Adams' Seasonal SKU.
Another big winner was Constellation Brands' import portfolio, which has been responsible for just about all growth in that category, as tracked by IRI. Brands like Corona and Modelo helped Constellation gain $76.5 million more in March 2020 vs. 19, garnering about two-thirds of the entire IRI "import" category, up 3% from last year.
In case you were wondering, the COVID-19 coronavirus did not hurt sales for the Corona portfolio, which grew 20% in March 2020 against the same time last year. And, a temporary suspension of Corona production in Mexico isn't worrying U.S. importer Constellation with CEO Bill Newlands noting that the company has "ample supply to meet consumer demand" and doesn't expect shortages.
Brewers Association chief economist Bart Watson put it plainly this week, noting that "while there likely is a bump for the overall [BA-defined "craft"] category in off-premise, this isn’t helping the smallest micros, taprooms, and brewpubs that much, since much of the bump is concentrated in bigger retailers and larger package sizes.”
Why It Matters: The push toward concentration of SKUs based on what’s available and what distributors are stocking, as highlighted in last week’s Sightlines Premium. As pantry-loading slows, there may be a hope that less need for large quantities of beer could prompt a shift toward higher-priced, lower-volume craft options, but the economic anxiety that has already settled in—and continued to worsen as we may or may not already be in recession—has the potential to make affordable beer options even more attractive. Consider it a perfect storm for large producers during broader turbulent times: distributors are stocking what they can find most easily, and that happens to be the biggest brewers who can also offer more cost-efficient pricing.
So with all this concentration on tried and true brands, what's to become of the "newness" that has defined craft beer in recent years? With the change in production volumes and lack of outlines for many small breweries, it's a massive structural shift as new beers aren't released for weekend lines or to fill up sprawling tap lists.
That prompted members of the Sightlines Premium community to recently talk about the seasonal shelf space in stores becoming the next battle ground, going back to 10 years ago when the Seasonal SKU was the new and exciting brand for beer drinkers. All of a sudden, a seasonal brand gets to be the most new thing shoppers see and could help drive excitement over the next six-to-12 months.
And it's already happening.
In 2019, the seasonal category for all of IRI-tracked beer declined about 7% in volume, and lost 31.5% of volume in chain stores from 2015-2019. These are crazy times, so it's more apples-to-oranges, but the category grew 10.7% in March 2020 vs. March 2019, ahead of Pale Ale and just behind the American Lager categories. On a week-to-week basis, "Seasonal" has shown some of the strongest growth compared to last March.
Why It Matters: In recent years, the beer drinking population has become more of a bell curve. As craft beer options have become plentiful, the large middle has more easily become exposed and has helped lift that segment while beer as a whole has slightly declined. Is the new way to reach the middle happening now, and are seasonal beers a way to approach the "new" that was overwhelming for most just a few months ago?
If distributors are looking to shed SKUs, leaving flagships and little room for other brands, the quarterly releases of Seasonal beers all of a sudden become pivotal to engaging audiences. If trips to the grocery store are few and far between, finding a way to catch someone’s eye with this kind of release may bring additional value, especially when reminders of “spring” and “summer” become a more personal and isolated experience at home.
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