THE GIST
The craft beer industry’s long battle against category management, one of the most influential yet largely hidden alcohol retail practices, is heating up. At stake is the prevailing model for how most beer, wine, and spirits are sold in the U.S., with the potential to throw grocery stores’ and large retailers’ alcohol shelves into chaos.
The Brewers Association (BA), a trade group representing breweries it defines as “small and independent,” is explicit about wanting to curtail category management, and is taking aim at the sales data that supports it. Category management is a strategy by which an alcohol wholesaler or supplier provides a retailer with guidance—often in the form of visual plans—on how to stock, display, price, and promote products. For example, a distributor or large beer company may influence where a six-pack sits on shelves and for how long. A grocery store, which has thousands of products to stock and track, may happily allow that company to make these decisions, as it’s one less task for staff to handle.
A change to how those shelves are stocked, let alone one as major as what the BA is proposing, could shift billions of dollars in sales. The trade organization plans to submit comments ahead of a June 7 deadline to the U.S. Alcohol and Tobacco Tax and Trade Bureau (TTB), the regulatory agency that governs such matters. The BA, however, has not offered other options and declined to offer context for what they’d like to replace or complement current category management practices to make things more equitable for small companies.
In his legislative affairs update at Craft Brewers Conference in early May, BA general counsel Marc Sorini previewed the BA’s comments to the TTB. Sorini said the organization will urge the TTB to “enhance enforcement” of illegal trade practices.
He specifically called for an end to category captains and for the indirect sale of data from retailers to breweries or distributors.
He also noted that the BA will call for “significant reform” of what the TTB considered legal.
Chiefly, the BA will urge regulators to examine whether it’s legal under exceptions to tied house prohibitions for large breweries’ category managers to provide expensive data and analytics to retailers to inform their shelf plans.
Ashley Brandt, a Chicago-based alcohol regulatory attorney and partner at Tucker Ellis, says the odds are “pretty good” that the TTB is listening. “The TTB doesn’t like to be called out on the idea that they’re doing something wrong, so I think that they would stop and think about investigating something like this,” Brandt says.
What’s not clear, however, is how decisions about what brands to stock on shelves would be made in the absence of retailer-supplied sales data. Third-party data from market research companies can cost tens or hundreds of thousands of dollars, and analyzing it to inform retail strategy requires skills, expertise, and staffing. While some industry watchers expect the TTB to take action on the matter, no one can say what could fill the sizable vacuum that removing such data would leave.
WHY IT MATTERS
Shelf schematics—the visual plans that category managers provide to retailers to show how products would be optimally arranged on their shelves—are standard practice for alcohol and other consumer goods across the country’s largest grocery, convenience, and big-box stores. Convenience and grocery stores combined represent 54% of all beer sales in the U.S., according to the Beer Institute data.
Kyle Fisher, a category management consultant who worked in the alcohol industry for a decade, says large breweries spend millions of dollars annually on data and analytical tools to inform their shelf schematics. He says that most retailers aren’t spending money on the trained employees and granular, market-level data required to create those shelf plans.
“Some retailers have invested in that, but they still rely heavily on their largest suppliers and distributors,” Fisher says. “Retailers look at what they’re given [by category managers] with a grain of salt, but it’s still valued.”
That grain of salt is necessary, he says, because while data purports to be objective, there are still ways for suppliers to cherry pick what data they provide to retailers in a way that favors their portfolio of products. “You can tell a good story with data,” Fisher says.
But James Aldape, a category management lead for Silver Eagle Beverages—an Anheuser-Busch InBev-aligned wholesaler in Texas—says his data is fair and honest, and without specialists like him, beer shelves would become the Wild West. He maintains that good category management, which Aldape extols on his TikTok, makes more money for the retailer because shoppers are presented with the most successful brands.
“When you walk through the aisle, everything’s placed for a reason. If there are five six-packs of Bud Light, there’s a reason why there are five and not two,” Adalpe says.
And those reasons have everything to do with data. A massive part of category management is analyzing a retailer’s data—alongside other market-level data sources—to help the store buyers identify which beers (or other alcohol) are worth keeping on the shelf. It’s not just a list of best-selling items, Aldape explains, but most profitable items, fastest-selling items, and more.
“We call it paying rent: Is an item making you enough money to keep it on the shelf?” he says. If it’s not, a category manager might suggest the retailer replace that item with a new one. “[Retailers] just like our help. We take a lot of work off of their hands.”
Fisher says that category management, when done fairly and properly, does grow the beer category in the ways Adalpe suggests: It ensures retailers are stocking products and types of alcohol that drinkers want, and not letting underperforming brands languish on the shelf.
But the BA argues that the very fact that large breweries provide this much data, manpower, and assistance to a retailer is itself a trade practice violation. In the comments Sorini previewed, the BA will ask the TTB to “codify restrictions on services associated with category management, such as data processing.” Third-party sales data—from Nielsen, Circana, or other companies—is expensive. Even analyzing a store’s own sales data takes technological sophistication, expertise, and significant time. The Brewers Association, for its part, does have a chief economist, Bart Watson, who regularly updates the group’s brewery members and public on sales trends and economic forecasts that indicate what is and isn’t selling in craft beer. But for all the insight Watson offers, it’s still typically a big picture view and not the intimate details category managers can provide to stores.
The TTB has in the past attempted to clarify what is and is not permissible for shelf schematics, particularly in the data realm. In 2016, the agency clarified that certain actions related to category management would be subject to TTB scrutiny and investigation, including: “furnishing to the retailer items of value, including market data from third-party vendors.” Brandt says it’s common practice for breweries to provide this type of data to retailers, despite what appears to be a clear TTB regulation prohibiting it.
“How could you possibly do your analysis and then justify it to a retailer if you can’t supply them with the factual backup from [data provider] IRI?” Brandt says. “Many of the practices the BA is hoping to stop, the TTB has already itself said, in 2016, should stop.”
Supposing the TTB does crack down on category management practices by large breweries, though, who would step in to fill that void? Retailers have generally not invested in the data or staff to do the sophisticated analysis required; nor are small breweries equipped to provide such rich data themselves. Both Brandt and Fisher wonder whether the BA could develop its own category management services.
“Maybe craft brewers say: We can’t beat the big guys one-on-one, but that’s what the BA’s for. Maybe they bring on category management expertise to represent them regionally,” Fisher says. “Now you’d have a category manager who represents these 20 regional beer brands to help them with their business.”
The BA declined to answer questions about what would fill the void left by category management, saying it is not speaking further about its comments to the TTB at this time. Brandt says that if the BA is going to put category management under the regulatory microscope, the trade organization should consider an alternative solution that it thinks would benefit its members. (This is a complex question, as some of the BA’s largest member breweries employ their own category managers.)
“It would be really cool if they proposed an alternate method,” Brandt says. “Bring me a solution, not a problem, right?”
Words by Kate Bernot