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When retail puts a squeeze on craft breweries

photo by junjie xu

After a podcast on the Best Before Date, I wanted to get back to sales fundamentals and negotiations with retailers. No matter what some craft brewers say — few are for it, but many won’t be able to do without — the democratization of craft beer has passed through the placement on store shelves.

Every year in June, there is a moment that “sales reps” or “key accounts” of your favorite breweries prepare even better than summer: the annual meeting with beer category buyers, whose double-digit growth only swears by Craft (in Europe at least). For how much longer?

The more beers you place, the more you sell. Really?

In the US, the growth of craft beer in off-premise sales (mainly by retailers, in opposition to on-premise sales occurring in bars, restaurants or cafes) has slowed since 2017: -3% of active craft beer references were available on US store shelves that year, compared to 2016*.

In the UK, the value growth was still remarkable until last year (+16% as for June 2019**), although local beer professionals already noticed a significant slow down, as Jim Hopkins, category manager at Marston’s, mentioned:

“I’ve heard buyers saying there is a long trail of SKUs [stock keeping units] where the rate of sale isn’t necessarily that high. Things like BrewDog will be the solid consistent sellers, but once you get past that top 10 it does start to drop off.”

In Switzerland, the growth of craft beer (in value as well as in number of SKU’s) will have lasted until 2020, but it seems that supermarkets feel now more comfortable with the ins and outs of microbreweries. They are becoming more ambitious in personalizing their range and some retailers, such as Coop, are standing out from the competition.

According to Coop (p.62) — a major Swiss retailer and the 46th most powerful player in the world*** — 30% of its annual turnover within the beer category in French-speaking Switzerland came from the sub-segment “local beers” in 2019; in the German-speaking part of Switzerland, the same sub-segment represented less than 15% (!)

The seller’s check-list

How do you prepare for the annual meeting with a buyer? By following the steps of a well-worn magic trick (which doesn’t work every time, beware) :

  • Show your sales performance for each beer article you want to promote with year-to-date figures in volume and value: present “sell in” figures in units and cash values (i.e. amount of bottles 33cl sold + turnover generated for article A, compared to previous period ; etc.) usually provided internally. Calculate the positive — or negative — growth in volume and value (NB: promotion periods may affect growth rate in value if price reduction is financed by the brewery). If you are lucky, you may receive “sell out” figures from your retail partner: they would summarize the sales performance of your beers on the shelf during the same period. The difference between “sell in” and “sell out” gives you an estimation of goods kept out of the shelf, mainly in the retailer’s inventories.
  • Pitch your innovations: the late rise of IPA in Switzerland (in 2016-2017), the placement of 4-bottle packs on store shelves at the same time, Christmas Craft packs (2018) and crafted cans (2019-2020) were new references placed at once.
  • A good pitch is mandatory, not enough though: give your buyer(s) samples of your new beer references, ready for use. This often means a new brew, a new bottle label and a new packaging as if the retailer had to place it on his shelf the next day.
  • Choosing often means giving up: a brewery willing to promote a new reference must be prepared to sacrifice an item already listed… for the best instead of the worst, make your calculations first!
  • Advertising & on-site promotion plan for year N+1: which support did you plan at the point of sales ? Which media support ? Draw an attractive and fundable promotion plan sustaining the introduction of your new product.
  • Service(s) VS Price: make your new product available for retail orders two to four weeks before deadline. And relax about the shelf price: while the retailer sets it, you can almost guess it. Look at competitors and keep in mind the margin you can offer before starting your price estimations, like this:

Estimated Consumer price incl. VAT,
divided by (1+VAT in %),

minus Purchase price excl. VAT
equals the absolute Margin of the retailer ;

then divide the retailer’s Margin by the estimated Consumer price, excl. VAT, applied by the retailer to obtain the Margin in %.

If your calculation gives a result lower than 30 to 35%, you risk being trapped by a price issue. So try again with new assumptions.

Conditions to meet before selling in retail:

I will stick to craft beer, even though following advices may apply to any craft product:

  • Your beer must be stable and provide a minimum consumption period of nine months with its best before date.
  • Most retailers expect DDP (“Delivery Duty Paid”) deliveries of full pallets. As a microbrewery, you should consider to partner with a logistics company, especially if you have exports opportunities but not only: logistics remains a business on its own and has a significant influence on beer quality.
  • No out-of-stock, so plan your brews and packaging sessions well in advance. No exception to this rule, if you want to avoid the risk of delisting. No out-of-stock does not mean no delay: if you are able to deliver your retailer partner the same week, that should be fine.
  • Biggest retailers will contractually oblige smaller suppliers to limit their deliveries to a maximum share (25% in Switzerland ; 15% in EU) of their annual turnover. Anyway, craft brewers do not want to feel dependent of retailers.

What’s coming next?

Among trends visible here and there on the European shelves, I noticed two heavy trends in 2020:

  1. Craft beers in can format (33/44/50) bring higher volumes & lower prices through complementary formats ; the sure value remains the 33cl bottle though.
  2. Non-alcoholic beer, from Pale Ale (i.e. Brewdog Nanny State) to IPA (i.e. Lola IPA Bier), not to mention industrial beers (i.e. Heineken 0.0).

Last but not least, here are two podcasts of my own related to the topic (in French only):

Three brewmasters — David Bonjour from Hoppy People, Kouros Ghavami from La Nébuleuse and Jerome Rebetez from Brasserie BFM — interviewed by @WarcoBrienza take the time to taste 4 beers (‘Saison Surette’ from BFM, ‘Orval’ from Orval Abbey, ‘Speakeasy’ from La Nébuleuse and ‘Vapeur’ from Dry&Bitter) together.
A chat with former Microbrewer Raoul Gendroz (Brasserie du Jorat) about best before dates

@WarcoBrienza is a podcaster with a passion for marketing and sales. After working for the Nestlé Group (2007–2013) on Swiss local market with the most prestigious brands of water, juice and soft drinks, he contributed to an impressive growth at the craft brewery La Nébuleuse (2017–2020) through new business development and product innovation.

Sources:
*Marketwatchmag.com
** The Grocer
*** Deloitte report on worldwide retailers ranking

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