When Grocery Store Chains Go Macro

Last week, Duke Geren posted the picture you see above on the Beervana Blog facebook page. In case it's not immediately obvious what's going on, he added the following description.

“This is a grocery reset in progress. When done about 1/4 of the beer in this set will be craft. Was closer to 3/4 when this store opened.”

This is a Fred Meyer, the dominant grocery store chain in Oregon, one owned by Cincinnati-based Kroger, a giant concern that has snapped up regional players like Freddy's nationwide. It has 3,000 outlets, but that understates its influence; in markets like Portland's, it controls a large percentage of the entire grocery retail business. Fred Meyer was founded in the 1920s and is a local fixture, one Kroger has done a pretty good job leaving alone. Oregonians are hugely parochial, and dictating decisions that would work in the Southern Ohio retail environment would have turned Freddy's into an also-ran in the Beaver State. 

An example of that hands-off approach was the beer aisle, which always reflected a selection appropriate the neighborhood. The blend of mass market, local craft, national craft, and imports varied substantially store to store, and at certain outlets the selection was as good as many specialty bottle shops. In Oregon, somewhere between a quarter and a third of the beer sold is in the craft segment, and that number is substantially higher in Portland. In certain neighborhoods in Portland, it would shock me to learn that craft is not the majority seller. When you talk dollar share of sales, these figures become even more stark.

I spent the past week trying to get someone to go on the record to talk about what's happening and who's dictating this change--to no avail. Clearly, it's a big loser for local Fred Meyer stores. Portland now has a number of Freddy-alternatives, including a local chain called New Seasons that has wonderful beer aisles. Not only will receipts decline as a result of this decision, but it may cost Kroger loyal shoppers. Perhaps the decision to move away from local craft may make some sense in the aggregate. It allows Kroger to control set placements and make national pricing (and discounting) decisions, and reduces the number of distributors they have to screw around with--not to mention the thousands of small brewery SKUs. But less diversity is obviously terrible for breweries.

It will definitely affect beer sales in the country's most diverse market, though perhaps less than in other places. Portlanders are a beery lot, and they're not about to skip their Gigantic IPA because Kroger wants an extra ten feet to hawk Goose Island and Golden Road. In smaller communities with fewer options, it will be more pronounced. It will affect small and less-established breweries who want to enter the market, and smaller distributors who depend on sales of local products. Outside Oregon, the effect could be much larger. In places where local craft is not as strong, where distribution choices and retail outlets are fewer, and where people are quicker to shrug and buy that Goose Island instead, it could have a big effect.

Everyone started chattering when craft growth dipped from double digits to 6% in 2016. It doesn't take much of a change in the market to chip off a point or three of sales, and if more grocery store chains follow Kroger's lead, that growth could stall altogether.

Stay tuned--this is all going to get worse before it gets better.