Last September, 500 representatives from the alcohol industry gathered at the Sam’s Club auditorium in Bentonville, Arkansas, for an “adult beverage summit.”
Attendees, some of whom had never been to Wal-Mart Stores Inc. (WMT:US)’s headquarters, learned how serious the retailer was about selling more alcohol. Executives, who included Chief Merchandising Officer Duncan Mac Naughton, told the gathering they wanted to double sales by 2016.
In the year since, the world’s largest retailer has focused as never before on beer -- a U.S. category worth about $45 billion -- and has moved aggressively to grab market share. The company has doubled the number of alcohol buyers to 12 and offered discounts on a range of brands, from mainstream Coors to such craft beers as Deschutes. It ditched slow-selling products to make way for beer and is even selling it in garden centers. New stores are designed to put the suds front and center.
“We’re seeing dramatic increases in sales,” said Steve Bailey, who attended the summit as vice president of chain accounts for Columbia Distributing, which supplies beer to about 90 Wal-Mart stores in Washington and Oregon. That “has pushed us to pay more attention to Wal-Mart.”
Founder Sam Walton frowned on drinking to excess, and Wal-Mart has said little publicly about its latest ambitions. Unlike initiatives to expand produce or steak sales, the beer push has been so discreet that some analysts who cover Wal-Mart haven’t even heard about it. Inside the company, attitudes are changing. Wal-Mart now promotes alcohol in its circulars, reversing a previous ban. Two Walton grandsons even spearheaded a successful campaign to overturn a ban on retail alcohol sales last year in Wal-Mart’s home county of Benton.
“Focusing on adult beverage is a decision we made this year,” said Deisha Barnett, a Wal-Mart spokeswoman. “Feedback has been very positive” and the relationship with distributors “has been very collaborative.”
Historically, Wal-Mart’s business model has involved buying massive quantities of products directly from suppliers. With alcohol, the company in most cases must instead buy products from a network of third-party distributors -- one of a variety of state and local regulations retailers face.
Yet beer is a good fit for Wal-Mart. Most states allow it in grocery stores. Shoppers buy it regularly and often purchase other products at the same time. Repeat visits are crucial for Wal-Mart, which in May forecast fiscal second-quarter profit that was less than analysts estimated. The company will report results on Aug. 15. The shares fell 0.2 percent to $77.25 at the close in New York and have gained 13 percent this year, compared with a 19 percent advance for the Standard & Poor’s 500 Index.
Beer is “a traffic-driving category,” said Colin McGranahan, an analyst at Sanford C. Bernstein & Co. in New York. “High-frequency consumables can help them with their traffic problem. Beer fits that.”
Wal-Mart’s push into alcohol will put pressure on entrenched players, from Costco Wholesale Corp. (COST:US) and the dollar-store chains to convenience and grocery stores. Three months before Wal-Mart’s summit, a Dollar General Corp. (DG:US) executive told investors the chain would boost the number of stores selling alcohol to more than 5,000 from about 3,700. This year the company plans to sell alcohol as many as 6,600 of its almost 11,000 locations. Family Dollar Stores Inc. (FDO:US) also has touted plans to expand in the wine and beer market.
While Wal-Mart has been selling wine, beer and spirits since its first supercenters opened in the late 1980s, executives at September’s summit said the chain’s share of the alcohol market lagged behind that of the grocery market.
Mac Naughton and two other executives laid out a three-prong plan to remedy that: devote more shelf space to alcohol and do a better job promoting it; discount wherever possible; hire more alcohol buyers and reduce the size of their territories so they can interact more often with distributors.
“In the past, the Wal-Mart buyer didn’t know us,” Bailey said. “Now they’re just an e-mail or a phone call away. We can interact daily.”
Better communication helped generate more sales, said Bailey, who noted that craft beer sales at his Wal-Mart stores in Washington and Oregon have been especially robust.
“They’re adapting to what’s popular in a local market,” he said. “They have a willingness to expand to brands that aren’t nationally recognized.”
In his territory, Wal-Mart dropped prices on 50 of the top-selling adult beverages, including Deschutes six-packs, Heineken 12-packs, Coors 24-packs and Keystone 30-packs.
“It got people’s attention,” he said.
Ron Newsad, a distributor for Dayton, Ohio-based Heidelberg Distributing Co., said state regulations prevent Wal-Mart from discounting alcohol in his territory. Instead, the retailer has offered mail-in rebates and $10 store gift cards -- paid by the beer companies -- when shoppers buy beer with cross-promoted merchandise such as grills or lawn chairs, he said.
At the 14 Wal-Mart stores in Newsad’s territory, he has seen a new “dedication to finding space for beer at any opportunity.” During a Fourth of July promotion, one of his stores featured a 16-foot display of beer in the middle of an aisle. The retailer also has added new products such as Lime-A-Rita and Straw-Ber-Rita Bud Light malt beverages and is cross-promoting beer with other items such as chips or nuts, he said.
While Wal-Mart recently has struggled to keep shelves at many of its more than 4,000 stores stocked with a variety of merchandise, this has not been an issue with beer, Newsad said.
“The orders come from Wal-Mart corporate: If we don’t have it, we can’t sell it,” he said.
Amy Baldwin, a marketing director for Mobile, Alabama-based Gulf Distributing Holdings LLC, said Wal-Mart is designing new stores to highlight beer.
“They’re redesigning stores to have adult beverage in a more appealing position in the front of the store near produce,” said Baldwin, whose company distributes Diageo Plc (DGE), Heineken NV (HEIA) and MillerCoors LLC products.
Alcohol manufacturers, including Heineken, are scrambling to expand their operations in Bentonville in response to the retailer’s efforts, said Cameron Smith, president of Cameron Smith & Associates, a Rogers, Arkansas-based executive search firm that works closely with Wal-Mart’s supplier network.
“They’ve said they want to be the number-one beer seller in the world,” Smith said. “They’re getting there quick. Everyone in the supplier community is on cloud nine, riding high and adding to their staff.”
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