Revenue Management has become a key tool for businesses to maximise revenue growth through analytics that predict consumer behaviour at the micro market level, particularly those impacting product availability and price. In the first of a series of articles about the applications and benefits of revenue management in the liquor sector, we’re going to start off with the beer category.
Revenue management is about creating, capturing, and retaining sustainable value for consumers, shoppers, retailers and manufacturers. Typically, its scope includes all trade facing investment across the marketing mix including brands, products, packs, channels, consumption, and shopping occasions; investment required to execute such as trading terms, promotional displays, sales force; and pricing architecture.
Revenue management enables incremental volume, revenue and margin growth, range optimization, and improved promotional planning, among other things, through the systemic application of analytics.
No and low (‘nolo’) alcoholic beers, according to a Shout report from early February1, now constitute 5 per cent of beer brands on the Kaddy platform’s register of 250+ beer suppliers. CUB believes non-alcohol beers can be worth up to 2 per cent of the market in the medium term, with the category growing twelvefold since launch of Carlton Zero2 . The growth of nolo beers, including super premium versions such as Peroni, in revenue management terms is an example of how it is crucial to leverage emerging category segments. New segments can mean new price points for singles, 3packs, 6packs and 24pack formats that blur price points and enhance margins for all. Single pack formats in particular are an opportunity for high margins as consumers choose singles in new beer styles for trial, rather than risk a $25-$50 outlay for a 4pack or 6pack of something they may not enjoy.
Conversely, there is also an Australian preference for stronger beers with higher ABVs. According to a Statista January 2021 craft beer report3 Australians annually consume more than 64 litres per capita of full or high strength beer versus around 18 litres per capita of mid-strength beer. This can justify higher retail price points due to higher cost of goods (COGS) such as hops, which is understood by craft beer consumers. An example is Quiet Deeds Survivor Hazy Triple IPA, which at time of writing (mid-February) was retailing at Beer Cartel online for $18.50 for a single 500ml can.
The same Statista report also cites pale ale/XPA, which typically have lower ABVs, as the currently most consumed craft beer style in Australia. The lesser COGS of pale ales compared to those of a double or triple IPA means a typical retail price ceiling of $25 for a 4pack. So, packaged craft beer portfolio and price management means taking into account not only pack size – whether 330ml, 375ml, 440ml or 500ml cans – but also COGS (including format, e.g., cost for glass versus can) and ABV, as well as style. Craft beer consumers generally understand that they will be paying more for a niche or new style than an abundantly available one.
Premiumisation, or the justification of higher or premium price points, in beer comes not only because of the consumer shift to craft beer but also to consumer demand for sustainable manufacturing processes, low carbon footprints, and eco-friendly packaging.
Likewise, the post-bushfire and pandemic consumer shift toward support of local and hyperlocal brands means consumers in many instances are willing to pay a little more to support local. This was confirmed in Beer Cartel’s 2020 craft beer survey conducted in November4 showing a net 30 per cent increase in purchasing of craft beers ‘local to my city or state’. So local brands ranged in their local area theoretically don’t need to be discounted heavily, if at all.
Overall beer category margins are increasing with the consumer shift to craft. As consumers experiment and develop larger repertoires, taste variety becomes important. The rise of craft in both the physical and online channels, including direct fulfillment by craft breweries, is seeing a shift into smaller pack formats which require little or no price discount and have more attractive margins to both retailers and manufacturers. As opposed to mainstream beer, where case sales of mainstream beers in many instances exceed 80 per cent of revenue.
However, the growth of ecommerce, accelerated by the pandemic, comes with a high cost-to-serve. It’s critical to manage the online versus physical portfolio footprint. This means juggling maintenance of a fair balance in promotional programs, profitability across the customer mix, and market-wide level pricing.
The challenge remains around how to grow margin faster than sales but remain price competitive, in an environment where the big chains put mainstream beers and some premium lines on promotion 26 weeks of the year; effectively week on/week off. This promotion behaviour resets consumers’ category price anchor perceptions lower, and trains them to only buy on promotion, thus eroding both margin and baseline sales. So, despite premiumization and the shift to craft, there has been little actual price realization in beer in the past five years. Suppliers taking CPI twice a year on average further eats into margins and profit.
New product development is therefore key to growth for suppliers, as different margins can be applied. And from a retailer standpoint, as trade promotional spend by suppliers moves away from traditional gifts with purchase (GWPs) and win-in-store (WIS) mechanics and gradually becomes more targeted, there is an opportunity for banner groups to optimize trade spend.
Key to revenue management in the beer category in the medium term are: