March 3, 2023
Despite concerns from some industry leaders, a recent Colorado State University study found that since the state began allowing the sale of full-strength beer in grocery stores in 2019, there has been minimal harm to the craft beer industry and a limited impact on liquor stores.
But with the state poised to allow the sale of wine in grocery stores on March 1, CSU researchers say liquor stores could see less foot traffic and be forced to specialize in more niche products in order to survive – something that could create new opportunities for smaller Colorado craft brewers who have had difficulties securing space on grocery store shelves.
“After Colorado approved beer in grocery stores, there was a 5% decrease in foot traffic in liquor stores – which all things considered, wasn’t gigantic,” said Marco Costanigro, a professor of agricultural and resource economics at CSU and one of the study’s co-authors. “But when we add wine to the equation, I expect that more marginal liquor store businesses will have a harder time.”
The sale of full-strength beer – or beer containing more than 3.2% alcohol by volume – in grocery stores mainly benefitted larger craft breweries and macro-brands, according to the study.
However, growth of regional craft brands was counterbalanced by a decline in liquor store sales – which Costanigro said was more pronounced in rural markets where consumers tend to buy beer from national rather than regional brands.
Small breweries, meanwhile, encountered numerous barriers to getting on grocery store shelves, including costly insurance requirements and requests to distribute to a minimum number of stores, which created logistical barriers that many of these small businesses weren’t equipped to handle.
“Consequently, it became easier for these smaller breweries to work with smaller liquor stores that had fewer logistical challenges to get through in terms of distribution,” said study co-author Joe Cannon, a professor of marketing at CSU.
University conducts survey
To collect data for the study, researchers surveyed 76 Colorado craft breweries on total production, packaging practices, distribution strategies and volume sold by market channel in 2017 and in late 2019 (one year after full-strength beer became available in grocery stores). Thus, the study’s data does not include the impacts of the COVID-19 pandemic, which initially led to record sales at liquor stores across the state.
Researchers also utilized cell phone tracking data to analyze liquor store foot traffic.
They found that:
The total volume of craft beer in liquor stores declined by 17,000 barrels (16%), while the volume sold in grocery stores grew by 28,000 barrels.
Half of Colorado’s craft breweries reported having access to distribution in grocery stores, but it only accounted for 5% of their sales by volume.
Regional breweries saw a 19% increase in beer sales in grocery stores (25,000 barrels), but their sales in liquor stores contracted by the same amount.
Cellphone data showed a roughly 5% decline in foot traffic to liquor stores, but there’s no evidence this corresponded with sales.
“I think the sale of wine in grocery stores will further erode the share of liquor store sales that happen in liquor stores,” Cannon said. “However, we’ve seen some smaller liquor stores respond by stocking a greater variety of craft beer, which in turn helps those small brewers.”
The researchers also said that the sale of beer in grocery stores holds benefits for consumers in terms of lowering prices and greater convenience, and that adding wine to the equation could be a further boon for increased competition.
“Things change all the time – and the liquor industry is no exception,” Costanigro said. “These changes do create winners and losers, and that’s why it’s important for businesses to adapt.”
The full study is available at col.st/UtJ3u.
Source: Colorado State University
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