Cider Effects With 166% growth and a bushel of new products, beer subcategory is apple of c-stores eye

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1 While cider is very popular right now, the key is balance. Start with a brand or item you trust and then expand as sales expand. Cider Effects With 166% growth and a bushel of new products, beer subcategory is apple of c-stores eye By Steve Holtz and Abbie Westra sholtz@cspnet.com, awestra@cspnet.com A fter four years as a little cider that could, Crispin Cider was hoping 2012 would be its breakout year, the year it would reach beyond liquor stores and the on-premise channel. And right on schedule, as 2012 neared, the Minneapolis-based cider maker was getting courted by quite a lot of people, many fund-types, privateequity companies, some major beer companies, says Joe Heron, creator and president of Crispin Cider Co. It was MillerCoors that took home the Crispin prize, then the third-largest U.S. hard-cider producer, having grown 200% in 2011, compared with 26% growth posted by the entire cider market. It was one of the few bright spots in the U.S. beer market, according to Chicagobased Technomic s 2012 BeerTAB report released in September. This sale, announced in February 2012, arguably was the launching point of one of the fastest-developing alcohol-beverage CSP D ec ember

2 Know Your Ciders Woodchuck Cider from the Woodchuck Cidery in Middlebury, Vt., and Hornsby s Hard Cider, owned by Ireland s C&C Group, have been the biggest names in hard cider in the United States for a long time, but that s changing as major brewers get into the game. Here s a primer on the new crop of hard ciders coming to convenience stores. Michelob Ultra Light Cider Strongbow Angry Orchard Crisp Apple Crispin Natural Hard Apple Cider Owner: Anheuser-Busch Description: A mellowed, crisp sweetness compared to traditional ciders Packaging: Six-packs of 12-ounce bottles Rollout: Available now in most states Owner: Heineken USA Description: A crisp, premium imported cider from the U.K. with a clean, refreshing taste Packaging: Six-packs of 12-ounce bottles and fourpacks of 16.9-ounce cans. Rollout: First quarter of 2013 Owner: Boston Beer Description: This crisp and refreshing fruit-forward cider mixes the sweetness of the apples with a subtle dryness for a balanced cider taste Packaging: Six- and 12-packs of 12-ounce bottles Rollout: Available nationwide Owner: MillerCoors Description: A lightly sparkling, crisply effervescent cider with traditional English bittersweet cider apples Packaging: For c-stores, four-packs of 16.9-ounce cans. Retailers are encouraged to break into singles. Rollout: Fall 2012 categories in recent memory: hard cider. Among the key dates: November 2011 Irish cider company C&C Group, maker of Magners, Bulmers and Tennent s, purchases Hornsby s Hard Cider brand from Californiabased E. & J. Gallo Winery. January 2012 Alcoholic cider posts 26% growth in the United States. February 2012 MillerCoors buys Crispin Cider. April 2012 Boston Beer introduces Angry Orchard Cider nationwide. May 2012 Anheuser-Busch introduces Michelob Ultra Light Cider. August 2012 Heineken USA adds Strongbow Cider to its portfolio. September 2012 C&C announces plan to acquire of Vermont Hard Cider Co., maker of Woodchuck. And through it all, according to data from Chicago-based SymphonyIRI Group, both dollar and case sales of hard ciders grew 166% in convenience stores to nearly $10 million and 271,690 cases, respectively, for the 52 weeks ending Sept. 9, Cider Goes Big The two-pronged attack the above rollouts have in common: One, capitalize on the growing popularity of ciders; and two, use convenience stores to do it. We were not focused on the channel up until now, says Heron, a South African ( Home to the world s greatest rugby players! ) living in Minneapolis and selling cider brewed in California. It s MillerCoors helping us do that much more forcefully than we were doing. Previously, Heron s Crispin was focused on what he calls variety-seeking retailers, places with a broad selection that drew in more adventurous drinkers. We started in liquor stores, independent grocery, on-premise and the natural channel, he says. We had always planned in 2012 to start expanding the footprint beyond that, into national chain grocery stores and into c-stores. Similarly, Heineken USA parent Heineken N.V. has had Strongbow in its global portfolio for many years. The product maintains nearly 25% global market share in alcoholic cider, according to Monique Acevedo, vice president of innovations for Heineken USA, White 152

3 Hard Cider Brands C-store sales, 52 weeks ending Sept. 9, 2012 Brand Dollar sales PCYA* Case sales PCYA* Woodchuck $5.15 million 74% 141,049 72% Angry Orchard $2.42 million NA 68,693 NA Michelob Ultra Light Cider $685,250 NA 22,019 NA Hornsby s $524,725 14% 14,009 5% Crispin $407,491 1,155% 6,705 1,188% McKenzie s $164,248 1,355% 4,637 1,325% Magners $156,674 23% 3,325 20% Spire Mountain $84,301 5,867% 2,166 6,862% Harpoon $78,140 2,156% 2,209 2,173% Strongbow $51,123 38% 1,207 26% Source: InfoScan Reviews, SymphonyIRI Group data * Percent change from a year ago Plains, N.Y. The U.K. import was previously distributed in the United States through the Vermont Hard Cider Co., but the recent attention to hard cider led Heineken USA to bring it into its larger system. Strongbow now complements our existing upscale portfolio in the U.S., adding a new flavor profile, Acevedo says. Convenience stores can capitalize on the growing popularity of cider through increased distribution and promotion of the category. Meanwhile, The Boston Beer Co. began distribution of ciders from its new subsidiary Angry Orchard Cider Co. earlier this year, with c-stores as one of its retail targets. In the fall of 2011, we released Angry Orchard to a few select states, and based on the response from our drinkers, we decided to release our cider nationally in the spring of 2012, says David Sipes, cider maker for The Boston Beer Co., which now has dedicated cider makers and facilities reserved for producing its three main varietals as well as two limited releases in the Cider House Collection. The most recent cider news of C&C s planned acquisition of Vermont Hard Cider Co. indicates the European giant has its sights set on the U.S. market, which is not nearly as developed as it is across the Atlantic. And then there s Gregory Hall, founder of Virtue Brands cider in Chicago and former brewmaster for Goose Island Beer Co. for 20 years. While he doesn t expect to see his ciders in c-stores any time soon, Hall can envision up to six slots dedicated to ciders in the typical c-store cold vault and pretty quickly. Right now there are really good brands that were set up to do convenience, says Hall, whose cider can be found only on tap at restaurants and bars in Chicago. The company plans to expand to New York and Michigan by the end of the year. One major difference between cider s growth and craft beer s trajectory is how quickly the major players got into the game which triggered the big sales growth. Hall expects cider to continue to grow like crazy until it gets to 1% to 2% of total beer sales, then taper off to a low double-digit growth. It ll never get to the 15% you ve got in England or 10% in Ireland, but if you get to 5% where it is in most of the rest of Europe that s almost as big as craft beers now [in the U.S.]. That s a lot of growth. Tracking the Cider Consumer So why is cider hitting new heights with American consumers? While he didn t expect such fast growth, Hall believes it s long overdue. If you look at the growth in the last 10 to 20 years in every other drink water, coffee, wine, spirits, beer, craft beer everything has increased both in terms of the number of suppliers out there, varieties have increased, and price points have gone up, he says. Cider is kind of the last one left. Cider folds nicely into the local/ regional and farm-to-table trends found across food and beverage categories. It offers a less-intense flavor than many of the hop-blasted craft beers on the market. And cider is naturally gluten-free, thus swept up in the growing tsunami of gluten-free products. Cider is the ultimate bridge category. It sits right there in the middle between better beer and wine, and that s very unique, says Heron. It represents drinking variety. It has an adult profile that is unique in terms of its ability to refresh. Unlike beer, hard cider is uniquely gender neutral, he says. Acevedo agrees: Strongbow appeals to both men and women who like to explore modern and exciting drinks, and are looking for great-tasting and refreshing alternatives. Sulu Jaffer, owner of Intown Market and Midtown Market in Atlanta, esti- 154

4 Like craft-beer drinkers, we see that cider drinkers have a genuine interest in quality and discovery. mates he sees three female cider customers to one male customer, and that the majority of all his cider customers are older than 35. And they re not necessarily brand-loyal. Given the variety available, the regional ciders popping up and the limited releases by everyone from Angry Orchard to Crispin, cider drinkers, like their craft-beer brethren, like to explore. Jaffer has added nine cider SKUs since the beginning of the summer to his already robust beer and wine program. The lineup includes top sellers Original Sin and Ace Pear, Crispin which is doing very well Magners Original and Pear, Sir Perry, Crown Valley, Strongbow and Woodchuck. The cider drinkers will venture away from their particular cider into new ciders, Jaffer says. A-B, meanwhile, is aiming to bring a wider and longer-term audience to the cider category. While the popularity of ciders has increased recently, we found that a large percentage of consumers still viewed them as either too heavy, too sweet or both, limiting the category s potential to a seasonal beverage for the fall and winter, says Tony Gaines, vice president of small format for Anheuser-Busch. We believe the category has true year-round potential as an alternative to flavored malt beverages, white wine and champagne, and these insights led to the development of Michelob Ultra Light Cider. Some credit should also be given to the growth in craft beer varieties and sales perpetuating consumers desire to experiment. Cider makers and drinkers alike are looking for a sophisticated, versatile beverage and are exploring new flavors and experiences that cider provides, says Sipes. Like craft-beer drinkers, we see that cider drinkers have a genuine interest in quality and discovery. Wait and See The past year s rollouts and acquisitions have indeed expanded the spectrum of ciders on the market. Hall sees Michelob Ultra Light Cider appealing to the flavored-malt-beverage customer, while brands such as Crispin and Angry Orchard will attract craft-beer drinkers and consumers who ve experienced the cider-drinking culture of England and Ireland. With most of these hard-cider entries coming to convenience stores with a craft-beer-level price, A-B saw an opportunity to expand into the category with a familiar brand name and a lower price. While cider is very popular right now, the key is balance, Gaines says. As with any new category, start with a brand or item you trust and then expand as sales expand. Other manufacturers generally agree, encouraging retailers to consider each brand s attributes and price point, as well as a store s customer demographics. In fact, Heron openly admits Crispin Cider isn t right for every retailer. We re not going to be sold at a very low-income c-store, he says. That s not an environment that would be conducive for either us or the store owner. We re looking at the slightly more adventurous drinker and his store universe. So far, many retailers who have expanded their cider offering 156

5 are in wait-and-see mode. It s almost too early to tell, says Scott Castle, vice president of retail operations for Boyett Petroleum, a 42-store chain based in Modesto, Calif., with a healthy craft-beer business. He added three SKUs from Angry Orchard in July and is watching sales through the rest of the year. Sales are increasing, he explains, but they re starting from zero so growth needs to be taken with a grain of salt. Cider currently makes up about 0.07% of the total beer category for Boyett. Erwin Oil Co., Durham, N.C., which also has a strong craft-beer program, is watching cider sales carefully, too. Richard Shortt, retail sales operation manager, added Michelob Ultra Cider, Magners, Crispin and Angry Orchard this year in select stores after watching cider s growth at restaurants and bars. It s too early to tell how sales are, but he d guess it s a fairly small percentage: Even talking with our beer reps, it seems like the growing segment seems a lot more on-premise than retail right now. I m hoping that will topple over to us. Retailers in the right market, such as Jaffer, may go gangbusters with cider. Cider s share of alcohol beverage sales at Jaffer s stores is still below 10%, just because my selection is huge, he says. I have 200 different craft beers and 10 to 15 different cider [SKUs]. I m around 8%, 9% in sales, without looking at any concrete numbers. But it s grown from last year where it was around half that number. A convenience store housing 200 SKUs of any one subcategory, let alone 10 to 15 sub-subcategories, is indicative of the changing market. Everybody is so willing to try something new now. The manufacturers are willing to do it, the customers are willing to do it, the retailers are willing to do it, says Shortt. It just means you have to set your whole category more often because nothing lasts a year! n 157