Supermarkets Could Lose $4 billion in Alcohol Sales Annually | Rabobank

Supermarkets Could Lose $4 billion in Alcohol Sales Annually

by Bourcard Nesin

As I wrote in a recent progressive grocer article, “Something strange is happening when consumers move their grocery spending online: They don’t buy alcohol.”

To be more precise, if a consumer shops in a physical supermarket, alcohol represents 4.6% of their total purchases, according to data from Progressive Grocer. When consumers shop online, however, alcohol sales fall to 0.7% of total spending. If we project that disparity into the future, supermarkets could lose $3.9 billion in annual alcohol sales by 2022. Put another way, alcohol’s share of spending falls by 85% when consumers shop for groceries online.

Interestingly, this problem has little to do with consumers. Most indicators suggest consumers should be buying more alcohol when they shop for groceries online, not less. Online shoppers are more urban, wealthier, and more educated – characteristics associated with higher rates of alcohol consumption. These same characteristics are also linked to more responsible, safer alcohol use.

So, if we can’t blame consumers – or the much maligned millennial – for the poor performance of alcohol in online grocery, what is going on?

The shortest possible answer is that supermarkets themselves are responsible. We’ve performed a thorough analysis of supermarkets’ online beverage alcohol programs, and we’ve spoken extensively with industry leaders in both beverage alcohol and grocery. It turns out there are four primary contributors to the woes of beer, wine and spirits on supermarket websites.

1. They’re not even trying…

Many supermarkets and warehouse clubs just don’t sell alcohol online. Costco is the largest wine retailer in the United States and has seen online sales overall grow in the mid double-digits YOY. Yet, they do not sell any alcohol through their website.

Alcohol, admittedly, is more heavily regulated than other grocery categories, and some states (like New York) have fairly strict laws pertaining to alcohol delivery, but states with strict limits on delivery are in the minority. Problems with remote age-verification have long been addressed by start-ups with relatively simple technology. So, it would appear that priorities not regulation are behind the slow roll out of online alcohol programs.

Supermarkets’ are not only losing alcohol sales if they fail to offer alcohol online. If a consumer buys wine, for example, they spend nearly 60% more per check-out, with half of that additional spending coming from non-alcohol items. If we add these lost sales opportunities, the total impact of poor online performance surpasses $5 billion per year by 2022.

2. Over-Prioritizing Marketing Revenues

As online sales grow, so does the opportunity to get promotional revenues from food and beverage companies. The KPIs for marketing teams prioritizes these promotional revenues at the expense of more wholistic goals around profit maximization and consumer satisfaction.

How does this play out in real life? Regulations forbid alcohol suppliers from paying retailers to promote their products. So when a consumer buys a steak, the retailer suggest they buy a steak sauce for $2.99 instead of a red wine for $29.99. That does make a lot of sense for consumers nor a retailer’s bottom line.

3. Lack of Search Criteria, Poor SEO and General Disorganization

In our research into supermarket websites, one thing became immediately clear. It is really, really hard to find the right product. Out of the 11 websites we investigated, only one retailer allowed consumers to filter results by price. Another national supermarket chain website had four categories for wine: red, white, kosher, and vegan.

There aren’t a lot of excuses for this poor management. With the amount of data available one each individual shopper (where they click, what they bought in the past, etc.) and long-term knowledge on how to manage an alcohol aisle, the online shopping experience should be better than the in-store shopping experience, not worse. Perhaps supermarket chains should work with suppliers to leverage this data to optimize consumer experience. Category captains work in-store, they could also work online.

4. Unattractive Product Pages.

This is a two-fold problem. First, product pages typically contain a stock photo and a very dull and generic description. Retailers should have videos, tasting notes, third-party reviews, description of wine-producing regions and varieties. In other words, they should make it fun to buy wine, beer, and spirits online. 

Second, it should not be the responsibility of retailers to manage these product pages. Instead, they should create an avenue through which suppliers can populate product pages with their own content. Unfortunately giving power to suppliers to do what they do best – manage the image of their brand – is not the industry norm.

What Does All This Mean?

If retailers can’t offer consumers a better online experience, there are only two possible outcomes: consumers buy their alcohol outside of supermarkets or they don’t buy alcohol at all. For grocery retailers, neither is particularly desirable.

The good news is that retailers are not working alone. Suppliers have long worked with their retailer partners to manage the alcohol aisle. With category captains and more experience operating in an online environment, suppliers are the best asset in the grocery retailers’ push to create a seamless and enjoyable user experience.