Channel Wars Challenge Operators

Here’s a little “name that channel” exercise:

Beyond the sushi station, soft drink fountain area and the large merchandiser filled with prepared salads and sandwiches, adjacent to the take-and-bake pizza display, stands a six-shelf unit filled with wine. Four shelves hold red and white wine bottles, two hold sparklers, including six-packs; bottles of sangria are also available. Is it a specialty food market? Maybe a large-format convenience store? Neither: It’s a drugstore, specifically a Duane Reade in midtown Manhattan.

Let’s try another: Pedestrians walking on a busy downtown Chicago street quickly register brands such as Fireball, Captain Morgan, Absolut and other popular spirits products merchandised on shelving units positioned against a large plate glass window; just beyond the shelves, wine displays are visible. Even the quickest glance conveys “alcohol is sold here.” Is this a high-end wine and spirits shop? Might one find a wine or whiskey expert inside, ready to assist in selecting just the right bottle? It’s a Walgreens drugstore, and, yes, you might just be helped by a knowledgeable staffer or find guidance via a Virtual Bartender kiosk.

Retail channel lines are increasingly blurred, and the proliferation of retail operators looking to tap into adult beverages is ramping up. Case in point is drugstore chains. Walgreens includes extensive wine, spirits and beer offerings in several flagship locations in major cities including Chicago and Los Angeles. In New York and other markets where wine and spirits sales are prohibited in grocery and drug outlets, the retailer offers low-alcohol wine beverages, such as those seen at the Duane Reade location (Walgreens acquired Duane Reade in 2010).

CVS, which removed tobacco products from its stores in a headline-making move early last year, continues to sell wine and beer where legal; company executives point to the health benefits of moderate alcohol consumption when queried by the press about the seeming contradiction.

Embracing adult beverages is part of drugstore operators’ quest to create a one-stop-shopping scenario with a broader product mix. Two-thirds of consumers (64%) visit drug stores once a month or more often, and one quarter (26%) do so once a week or more. However, fewer than one in 10 consumers (8%) report purchasing alcohol on every or nearly every visit in 2014, which is a slight decline from 10% who said the same in 2013, according to our Trends in Adult Beverage (TAB) survey.

Limited availability is likely a factor stalling wine and spirits purchases in drugstores; wine sales are permitted in about 40 states and spirits are allowed in about 25. Given that beer sales are permitted in drugstores in almost every state, that frequency level appears low. Never fear: Many drugstore operators are expanding craft beer offerings and some are even highlighting the category with growler bars, typically in downtown or urban locations.

What’s more, despite the high cost, most drugstore retailers now aggressively pursue wine and spirits licenses when opening new stores, pointing to the category as a strategic imperative, likely driven by the fact that those 8% of consumers who buy alcohol in drugstores skew Millennial.

For suppliers, non-traditional retailers pushing further in to the adult beverage space is likely welcome news—what marketer would scoff at increased points of distribution?

But the trend highlights an even more challenging environment for operators, one in which retailers and on-premise professionals need to remove any blinders and quickly understand how all channels are pursing drink sales.

To assist in better understanding inter-channel dynamics and opportunities, Technomic has expanded our tracking of off-premise metrics to deepen our insights around the path to purchase and the connection between on- and off-premise behaviors. Because in 2015—and beyond—every licensee is competing for adult beverage occasions and purchases.


Donna Hood Crecca

A veteran of the foodservice industry, Donna Hood Crecca leads the firm’s Convenience Store Practice and is active in its Adult Beverage Practice. She develops research-based insights and recommendations for leading and emerging supplier and operator companies to enhance their go-to-market and product development programs and strategies.

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