7-Eleven's new beer hits the cooler

Convenience store's 'Game Day' brand could further erode sales of bigger brewers.

By InvestorPlace Apr 18, 2010 10:10PM

beer sales stocksTight consumer spending has hurt all areas of the economy -- including the beer business. Once thought of as recession-proof, alcohol sales have suffered along with just about everything else. 

 

But 7-Eleven is defying the sales slump with the launch of its own private-label beer called "Game Day," produced by City Brewing of Wisconsin. Privately held 7-Eleven is mum on the details aside to say the beer is a premium offering with a budget price.

 

So will consumers pop the top, or is this a venture that's doomed to fall flat as beer sales have suffered in the last year?

 

7-Eleven has visited private-label beers before. The company launched Santiago beer in 2003, but the drink was positioned as a high-end beer and it flopped because consumers were reluctant to shell out big bucks for a brand they hadn’t heard of. If the convenience store is smart, it won’t make that mistake again.


A private label beer allows 7-Eleven to control the supply chain from normal distribution centers and will surely be able to cut out some costs that way -- savings that should be passed on to the consumer via lower prices.

The move is sure to shake things up in the brewing industry -- and for hard-hit stocks like Molson Coors (TAP), Anheuser Busch InBev (BUD) and Heineken (HINKY), this could be one more reason the industry is just about tapped out. Post continues after video:

Take Molson Coors, the fifth-largest brewer, sold 4% less beer by volume worldwide in 2009 compared with 2008. Or Heineken, which has seen sales of its pricey lager slump along with other imported beer -- U.S. import sales were down almost 10% last year. And while Anheuser Busch InBev reported a rise in full-year 2009 profits compared with 2008, the brewing giant warned in forecasts that beer markets are weak right now and expected to stay rocky in 2010. TAP and BUD are both in the red since January 1, while HINKY is up about 3% -- less than half the gains posted by the S&P 500 year to date.

Conventional wisdom holds that "sin stocks" perform well when times are tough. With less money to spend on a new car or a big vacation, small pleasures tend to provide relief. But as with so many things in the Great Recession, beer sales didn’t follow conventional wisdom.

 

But it appears that 7-Eleven is willing to bank on the resurgence of beer sales now that consumer spending appears to be firming up. And as a frequent destination for shoppers looking to grab a six-pack and go, 7-Eleven is playing to its strengths.

It’s also worth noting that while most major brands saw sales drop, “craft beer” sales jumped 12% in 2009. Flavorful beers made in smaller batches by regional microbreweries seemed to win over consumers even during the depths of the recession. Even larger-scale premium brands like Sam Adams saw traction -- Boston Beer (SAM) saw full-year profit quadruple in 2009, and SAM stock is up over 130% in the last year.

It’s doubtful that 7-Eleven will be able to achieve that level of quality -- the label "Game Day" sounds more like the store is targeting football fans than foodies. But this trend shows that there is still alcohol spending out there to be tapped into. Ubiquitous 7-Eleven stores are sure to get some oomph from this trend with a private-label beer.

 

But whatever the price or positioning, the bottom line is that beer drinkers are loyal to their brands and have more sophisticated palates than ever before. So in short, Game Day had better be please taste buds for 7-Eleven to succeed.

 

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