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The Upscale Advantage

Posted on  | September 25, 2013   Bookmark and Share
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Heineken USA unveils restaurant and retailer solutions for maximizing sales of premium imported beer.

It’s the information that every restaurateur and retailer wants to know:
How does one increase sales of upscale products? Armed with consumer behavior insights and new tools for driving traffic, it’s a question that Heineken USA is prepared to answer.

What is “Upscale”?

“Upscale beer is defined as brands that have a price index of 125 versus domestic mainstream brands,” explains Nick Lake, Sr. Director, Category Management, Heineken USA. “And the term typically includes imports, crafts, super-premium and cider.”  

Since 2008, the upscale segment has grown more than twice as fast as mainstream and value brands—combined. “Upscale shoppers shop more frequently, generate larger basket rings during their shopping trips, and provide retailers more true profit than buyers in other segments,” Lake says. And it’s growing faster: In retail outlets where beer is growing, 93% of retailers are driving growth of upscale faster than they are growing mainstream brands (in fact, in 18% of these outlets, mainstream beer is actually declining). In a nutshell, Lake summarizes: “Wherever beer is growing, upscale beer is driving that growth.”

Craft vs. Import

These days craft beer gets most of the attention in the beer world, yet imported beer is still a retailer’s best bet for maximizing profits, Lake asserts: “It’s no secret that the craft movement is among the fastest segments in the alcohol beverage category. The exponential growth is attracting a more discerning beer consumer, however, this influx has driven the craft segment to become very fragmented with thousands of new SKUs added since 2009.” Consumers are also showing more signs of “craft fatigue” with 60% of consumers agreeing with the statement “there are so many different craft brands it is hard to know what is good and what’s worth trying,” according to Heineken’s survey research.

Imports are the winners: The top 10 growth SKUs of upscale imports is more than three times greater than that of the top 10 craft SKUs. Imports generate faster turns and higher return on investment. For retailers, imports offer significant financial advantages—they drive 17% more shopping trips for retailers, 83% more volume, higher basket rings, and they deliver 10% more gross profit with fewer SKUs. Lake’s advice? “Win with upscale imports while optimizing your assortment of crafts.”

Tools of the Trade

When it comes to upscale portfolios, Heineken USA has arguably the strongest position. “Our unique approach to marketing—breakthrough aspirational and experiential campaigns—has put our portfolio back in the black for the first time in five years,” Lake shares. Dos Equis is the company’s fastest growing upscale import (+26%); Heineken is growing again and boasts the “highest lift and reach” of any upscale import. Newcastle has solid franchise growth, appealing to the ‘discovery’ consumer and is bigger than 99% of all craft brands.

Heineken is positioned to help retailers grow their businesses, too. The company’s proprietary GPS (Growth & Profit Solutions) platform is based on exhaustive consumer research involving over 4,500 upscale shoppers. “We surround our shopper insights data with gold standard industry tools—Nielsen suite of scan and panel data, Spectra demographic tools and our EZ Mix assortment tool—and most importantly, we have invested in our people to drive insights,” Lake explains.

A Retailer’s Challenge

In recent years, the number of beer SKUs available has grown by more than 5,000 while the in-store space dedicated to beer has remained relatively stagnant. Beer sections have become cluttered, confusing and difficult to shop—it’s no wonder consumers are overwhelmed. Heineken outlines the retailer’s goal: “optimize assortment to maximize space for faster-turn, higher-margin brands; reduce out-of-stocks; generate a higher return on investment; and present a more friendly and easy to navigate experience to their shoppers.”

There are concrete steps retailers can take to become the beer shopper’s destination of choice, notes Lake. First, retailers should focus on optimizing variety versus duplication to drive “incrementality,” a term which refers to how much an added item truly grows the category, and not by cannibalizing other brands. The more unique and differentiated an item is versus those items that are already on the shelf, the more incremental volume that item will add to the assortment. Next, protect the cold box by merchandising fast-turning brands for the grab-and-go shopper. Heineken also encourages retailers to consider a well-merchandised warm section  to offer variety and occasion-based packs, which helps reduce out-of-stocks on key packages. “Finally,” Lake adds, “lead with high reach, high lift brands and fill in with high growth and regional brands.”

The Most Coveted Consumer

The fundamental building block for any business is understanding the consumer, and today’s beer consumer looks different than even a few years ago. The latest U.S. Census National Population projections indicate that by 2023, millennials will represent nearly 40% of Americans aged 21 and older, and by 2050, the majority of these consumers will be multicultural. In other words, if you aren’t focused on these two demographics, you are losing out.

“Most of the trends that affect the beer category are being driven by the growing and increasingly influential millennial and multicultural consumer base,” says Lake, adding that the multicultural consumer is particularly important in the beer category—estimated to account for 70% of beer growth.
Millennials are a demanding demographic, but they present incredible opportunity for suppliers and retailers who understand what their needs are: “They are willing to sample more types of offerings and expanded flavor profiles, driving demand for innovation,” says Lake. “They equate cost with quality and as they trade up with the improving economy, they will shop the upscale segment.”

The Formula for Success

While it isn’t necessarily news that upscale products, millennials and multi-cultural consumers are the cornerstones of a retailer’s growth, Heineken is offering an in-depth understanding of the marketplace that has never before existed in the beer world. “To win with upscale, a shopper-centric plan is essential,” Lake concludes. “Heineken USA, through GPS, is best positioned to help retailers achieve
this goal.”


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