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After a pandemic-driven storm of new product innovation and increased customer demand, c-stores are seeing alcoholic beverage sets stabilize, but out-of-stocks still pose challenges in some areas of the country.

At the end of last summer, the alcoholic beverage category at convenience stores was seeing a surge of new product innovation, shoppers were stocking up on big packs of beer and hard seltzer to drink at home, and retailers were combating out-of-stocks due to supply chain issues caused by the COVID-19 pandemic. A year later, pandemic lockdowns are over, new product launches have slowed, but the disruption still lingers. Various areas of the country are seeing differences in supply challenges and customer demands when it comes to the alcoholic beverage segment.

“I think the word I would use for what I’m currently seeing in my beer sets is ‘stable,’” said Kim Cuellar, category manager for beer, wine and packaged beverage at Stillwater, Okla.-based OnCue Marketing LLC, which operates 70 c-store locations in Oklahoma and Texas. “It seems like at this point we are not seeing tons and tons of new innovations constantly being introduced. Customers have their favorite brands they purchase and are really becoming brand loyal, especially within seltzers.”

Meanwhile, in the Chicagoland area, shifting supply challenges are the biggest difference Mario Spina, owner & CEO of The PRIDE Stores, has seen in the category compared to last year.

“This time last year, the skinny cans were unavailable, and the distributors had issues supplying them,” he said.

By contrast, today, supply issues are impacting bottles as well as every shape of can at the chain’s 15 Chicagoland sites and one Indiana location. “With bars opening, bottles are harder to stock, where before it was (just) cans,” Spina said.

The PRIDE Stores is making daily changes to its alcoholic beverage sets to offset out-of-stocks.

“One-offs have helped keep some of the holes filled, but we still are having the everyday beers not available, which discourages customers,” he said. “These issues create a need for the managers to hand-sell products and learn more about alcoholic beverages than the previous year.”

In Oklahoma, beer supply at OnCue stores this summer has proved much more consistent compared to summer of 2020.

“I know some bigger beer brands have recently announced they are retiring some slower-moving SKUs to allow for the packaging to be used for higher-velocity brands, which will help a lot,” Cuellar said. “For retailers, it’s key to work with distributors on figuring out similar-style packages to replace potential out-of-stocks with to ensure brand continuity — especially if you have a beer cave store where you may see a gaping hole from an out-of-stock.”

The good news is consumption has been similar vs. the initial lockdown last year, with customers stocking up on beer and other alcoholic beverages to drink at home, Spina noted.

Beer Boost

Despite any lingering supply challenges, beer continues to be a major draw for customers at The PRIDE Stores, with an increase in purchases as product is available.

“While people are willing to spend a little more on craft beer, they also want the lower-priced macros. Customers are still pulling through the dry-hopped, fruited and New England IPAs the most, in regard to craft,” Spina said. “The days of over-hopping beer in the boil to make them bitter are over, while fresh local is the trend.”

Nine of The PRIDE’s locations feature beer caves. “We try to keep primarily craft in the accessible doors and the macros in the beer cave to a ratio of about 75% craft (including the large craft) to 25% seltzers and others,” Spina said.

But each location is different. At a few PRIDE Stores, craft is less popular as the customer base gravitates toward imports. What falls under the “craft” designation today is also evolving with the trend.

“Craft beer is becoming more of a sales word, as our favorite craft breweries have grown above the license/production specs that aren’t recognized as craft by some people — I believe in Illinois it is 120,000 BBL (beer barrels),” Spina said. “Look at Lagunitas, Revolution and many others around our area that sell incredibly well who are local but passed the threshold to be considered craft.”

OnCue strongly supports local craft beer, and 48 of its sites feature beer caves. Overall beer sales have grown for the chain year over year, Cuellar noted.

“Almost all of our 70 locations have extra space in a standalone cooler dedicated to local craft,” she said. “When it comes to your overall craft selection, demographics are key. We have some locations where we carry two to three choices, and others where we have close to 100 selections.”

Imports and super-premium beers have also been major growth drivers for OnCue.

Overall, 2021 has been “a wild year” for the chain’s alcoholic beverage category.

“We had the largest beer category release for us ever with the Sonic Drive-In/COOP Ale Works Hard Seltzer. Customer were waiting for deliveries and trying to call and reserve the product. I’ve never seen anything like that before,” Cuellar said.

Also on the hard seltzer front, full-flavored seltzers like Truly Punch and Truly Lemonade have seen strong sales at OnCue, as has variety pack No. 3 from White Claw. While hard seltzer sales growth is currently strong, Cuellar expects demand to start to level off in seltzer. For one, there are fewer new entries vying for space in the category compared to a year ago. 

“I think the major supplier players are in the market, and there’s very little room for new entrants (except Mountain Dew and Sonic). I don’t foresee a surge of new consumers to the category moving from beer or wine,” she said. “The consumer base is now developed and stable.”

RTD Cocktails & Wine

Hard seltzer and ready-to-drink (RTD) cocktails skyrocketed as trends during the early days of the pandemic. Nearly a year and a half later, OnCue is watching RTD cocktails evolve.

“Now that the seltzers have really shook out on what brands are winning and losing, RTD cocktails have become a huge focus for me,” Cuellar said. “It is definitely a tricky segment as well for states that don’t have liquor in convenience because it blends that line between singles, flavored malt beverage (FMB) and wine. Do you put them in the beer doors? Wine section? It really could go so many places.”

RTD cocktails are considered part of the wine segment for OnCue because the cocktails they serve are technically wine-based. Top sellers include flavored margaritas, which are expanding into tetra packages.

“I foresee the next RTD trend to be ‘zero sugar’ RTD cocktails, which could bring some of those seltzer drinkers back to the wine category,” she said. 

At The PRIDE Stores, RTD cocktail customers fit into one of two groups: those seeking handcrafted beverages and those looking for low-calorie.

“As the price on the crafted cocktails went up, the low-calorie has seemed to flatten along with alcoholic seltzers,” Spina said. “Keeping a variety of both options has proved to be necessary.”

But, like Cuellar, he noted that liquor laws can cause challenges for the retailers in this segment.

“In order to sell either of these in Illinois, you have to have a liquor license that sells hard alcohol,” Spina said. “That alone has caused this category to not be a top product for The PRIDE. One smart brand created an agave wine and made margaritas. All of our locations have the ability to sell wine in 750-milliliter bottles, and this brand, Flybird, has excelled.”

On the wine front, sparkling wine and champagne are growing the most, according to National Retail Solutions (NRS) scan data of approximately 6,000 stores from May 1, 2021, to Aug. 1, 2021, vs. the same period in 2020. Total French Champagne is up 21.3%, and total other sparkling wine was up 15.9%.

“The past few summers, they say rosé is going to be the hot new wine trend, and it has definitely grown with the introduction of some more relatable wine brands like 19 Crimes Cali Rosé with Snoop Dogg on the label,” Cuellar said.

For The PRIDE Stores, California Cabernet has been the big seller this summer. During the pandemic, when restraurants closed, The PRIDE began selling wine usually meant for restaurants. “Now that we are allowed to sell wines we weren’t able to before COVID,” Spina said, “customers are used to grabbing them from our locations, and they are not slowing down.”

Source: Balancing Alcoholic Beverage Sets – CStore Decisions