Wal-Mart Wants You to Drink More Beer!
Sep 18th 2013 5:34PM
Updated Sep 18th 2013 5:36PM
Retail king Wal-Mart is no teetotaler. It wants to double its sales of alcohol by 2016 and take more market share from the corner packaged goods store. To do that, it's selling beer virtually at cost to draw consumers into its stores.
A recent Bloomberg article said typically undisclosed internal documents it viewed last month showed a 36-pack of Coors Light was marked up just 0.6% while a 20-ounce bottle of Coca-Cola carried a near-30% premium. The article pointed to an "adult beverage summit" the retailer held with alcohol industry executives where it advised them of its willingness to discount alcohol as a means of gaining share.
At a Goldman Sachs conference last week, Wal-Mart CEO Bill Simon said the discount retailer is continuing "to move prices lower on (alcohol) and seeing returns in the form of market share gains on that category." Considering how weak the beer market has been for brewers, with sales falling 4.3% over the past five years, moving greater volumes of suds could be just what the industry needs to get it back on track.
According to the Beverage Information Group, alcohol is the second-biggest beverage category in the U.S., with 9.4 billion gallons consumed in 2012, behind soft drinks at 13.5 billion gallons, and generating $197.8 billion in retail sales. Of that amount, beer represents 87% of the total, or $96.8 billion worth, almost half of the total retail dollars spent on alcohol last year.
Second-quarter earnings for Anheuser-Busch InBev saw revenues grow almost 6% to $9.8 billion, but volumes were down around 1% year over year. However, its focus-brand category, which includes its flagship Budweiser brand, enjoyed a 0.6% increase in volumes. Similarly, Molson Coors' MillerCoors joint venture, which distributes the Coors brand in the U.S., suffered a 4.4% decline in sales to retailers and a 5% drop in sales to wholesalers.
One of the jokes people make about beer is that you don't buy it, you rent it, and that provides a retailer like Wal-Mart with a unique opportunity because it generates a lot of repeat business. It will also give it the chance to make inroads against some of its rivals, like Costco , which has long sold alcohol in its stores.
Beer and liquor is part of a segment the warehouse club calls sundries that comprise more than a fifth of its sales. Costco says sales of alcoholic beverages are 8% higher over the first three quarters of 2013, and it expects them to rise by 10% by the time the fiscal year ends, though beer sales haven't been as strong as they otherwise could be.
The Bloomberg report says brewers are scrambling to accommodate Wal-Mart's new unquenchable thirst for alcoholic beverages, with some like Heineken even expanding into Arkansas around the retailer's headquarters to cozy up to it.
Having doubled the number of buyers focused on alcohol, cleared more shelf space for beer, and expanded the discount program to even craft beer, it's clear Wal-Mart wants its shoppers to belly up to the bar. Investors don't even have to put on their beer goggles to see this could be an attractive opportunity for its stock.
More companies better than a keg stand
Wal-Mart may see some heady growth from this foray into discounted beer sales, but it may still have to flex its beer muscles to head off advances being made by two formidable competitors. To learn how these two retailers are beating Wal-Mart at its own game, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.
The article Wal-Mart Wants You to Drink More Beer! originally appeared on Fool.com.Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs and Molson Coors Brewing Company. It recommends and owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.