The Value of Darkness

Sales Data for the Independent Liquor Channel

November 27, 2017 In Industry Trends

For years, the beverage alcohol business has been defined by measurement that tracked the speed of products moving through the three-tier structure of importer or producers, distributors, and retailers. Innovation and product development remained more art than science.

Inventories were gauged at each tier to determine which products were moving best in different markets, albeit with significant delays. Case depletion played a critical role in product strategy at the largest end of the market (big box stores like Costco or Total Wine and multi-state grocery chains), providing the means to manage margin against smaller sets of SKUs. These metrics were – and still are – taken by many as the official indicators of industry performance.

However, in conference rooms of manufacturers, and at sales meetings of distributors, the same recognition still bubbles to the surface in side conversations: The lower end of the market – the independent retailers – is dark.

What is coming to light now is the value hidden within that darkness. Though current measurement practices may treat the lower end of the market as an extension of depletion and shopper insights from big box and other high-volume stores, many industry experts recognize the unique qualities of independent beverage alcohol retailers and their consumers that make this segment different: they are places where new products are tested, that have customers who buy differently than customers in the rest of the market.

For the independent retailer, distributor and manufacturer alike, insight into store performance can provide early warning of shifting trends and provide data to support decisions regarding pricing, product selection, promotions and customer engagement.

These analytics also enable the store owner to optimize product coverage without carrying brands that sit on shelves collecting dust and consuming cash. For example, one retail partner of ours had data that shed light on the detailed sales performance of vodka in its store. For this retailer, the data revealed interesting shifts in demand within the category at a time when Tito’s was continuing to dominate the broader market.

Vodka Sales in the Independent Channel

In the chart above, both low-priced and premium vodka brands continue gently accelerating growth in cumulative sales despite Tito’s Handmade Vodka dominating sales performance in absolute dollar terms at 3.5 times the sales of Absolut 80pf, the next best-selling brand. Interestingly, for this retailer Tito’s success is taking a toll on mid-range vodkas, which are declining in sales, while both high-end and low-end remain resilient.

Vodka Trends Independent Liquor Channel

For a retailer with access to daily transaction data, a closer look provides context. The charts above compare year-over-year differences for three vodka price points and Tito’s for the first half of the year. Darker shades show differences in sales between 2016 and 2017, while lighter shades reveal variance between 2015 and 2016. Consistent with the data above, sales performance of mid-range vodka ($26-31 per bottle) continues to slide in both period comparisons. Premium vodkas like Belvedere, Grey Goose and Ketel One remain strong, with sales contracting only seasonally.

The analysis gets more interesting with a closer look at relative sales for Tito’s and low-end vodkas. In both cases, demand could be starting into an extended decline. Year-over-year performance in 2016 showed continued growth. In 2017, year-over-year period sales showed a rapid decrease moving into the second quarter. These kinds of insights help retailers act early on emerging trends and avoid lost opportunities.

Similarly, data about the independent retailer can reveal interesting patterns in buying behavior. For example, this same retailer could see significant differences in customers’ buying habits within the mid-range vodkas.

Vodka Sales Basket Adjacencies

The higher-priced end of this niche delivered both higher values in customers’ baskets and more items on average, shown in orange above. With a couple of outliers from Absolut, the lower-priced items in this niche demonstrated greater variance and lower overall results for both basket value and size. One conclusion the retailer could test: Running promotions based on the increased sales performance from the higher-priced and mid-priced brands could act as buffers to the decline in other vodka niches by replacing lost margins.

Most independent retailers are deeply knowledgeable about the workings of their businesses. But even in the best-run stores, the data hidden in this dark corner of the independent market (often buried in the recesses of impenetrable register systems) produce great insights into the performance of products and the nature of customer decision-making in this segment, which have largely escaped the industry’s view until now.

Our mission at 3×3 Insights tackles this challenge, helping all three tiers of the beverage alcohol industry better understand what, how, why and when customers buy in the [now well-lit] independent market. Welcome to a new way to understand the business – and consumer — of beverage alcohol.