The introduction of beer sales in grocery stores not only enhances the sale of beer itself but also significantly boosts overall store revenue by increasing both the frequency of visits and total monthly expenditure by customers, particularly those purchasing beer. New research from Cornell University illuminated this phenomenon, which underscores its potential to invigorate the highly competitive grocery sector. Operating on narrow profit margins ranging from 1% to 3%—a stark contrast to other retail sectors—grocery businesses are continually seeking methods to augment profits. Among these strategies is “loss leaders,” products sold at a loss to attract customers and stimulate sales of other, higher-margin items. Another tactic involves focusing on “destination categories,” which are so essential to consumers that they specifically choose a store for these items, thus driving footfall and boosting overall sales.

While compelling, this concept of destination categories presents challenges in empirical study due to the rarity of significant category alterations within supermarkets. However, a study published in the American Journal of Agricultural Economics leverages changes in Colorado’s beer sales regulations to demonstrate that beer draws shoppers and increases sales in ancillary categories such as snacks, cheese, deli meats, and soft drinks.

The research, led by Bradley J. Rickard, a professor of food and agricultural economics at Cornell University, utilised national data across both store and household levels to examine the impact of introducing beer sales in Colorado grocery stores. This state began permitting the sale of full-strength beer in 2019. The findings revealed a net rise in total sales and a marked increase in spending on complementary goods. Specifically, households purchasing beer frequented grocery stores 3.6% more often and enhanced their monthly expenditure by 8%. Additionally, spending in the top 10 categories most commonly found in shoppers’ baskets increased by 17%, encompassing items frequently bought alongside beer.

These findings signal a boon for grocery retailers and have broader implications for economic and regulatory considerations regarding alcohol sales. Rickard highlighted the recent trend towards privatising alcohol sales in the United States, with an increasing number of states allowing the sale of beer, wine and spirits in grocery and convenience stores. Currently, 42 states, along with Washington, D.C., permit the sale of wine in these venues. The remaining states, such as New York, still restrict such sales.

The expansion of alcohol sales in these stores continues to be a contentious issue, balancing between the commercial interests of grocery and convenience store chains and the concerns of temperance groups and speciality liquor retailers. In New York, for example, there is ongoing debate about whether allowing wine sales in grocery stores could benefit the state’s growing wine industry or harm small, licensed liquor stores, potentially affecting local wineries negatively.

Rickard also noted a significant cultural shift in U.S. alcohol policies, indicating that regulatory changes concerning the sale of alcoholic beverages have been brewing for years. This shift reflects a broader change in consumer behavior and market dynamics, suggesting that the inclusion of alcohol sales in grocery stores could continue to reshape shopping patterns and significantly influence the retail landscape.

More information: Bradley J. Rickard et al, Destination categories, channel choice, and beer distribution laws, American Journal of Agricultural Economics. DOI: 10.1111/ajae.12516

Journal information: American Journal of Agricultural Economics Provided by Cornell University