The still-tiny liquor category is garnering increased attention from convenience retailers and spirits marketers alike, touted as a higher-margin supplement to beer and wine and a key contributor to higher basket rings. Surging sales last year, largely a result of restaurant and bar closures due to the COVID-19 pandemic, are expected to continue in 2021, and some c-store operators are hoping to expand distilled spirits offerings to more stores. The moves could indicate that for liquor products in c-stores, their time has finally come.

“There’s been an increase in the number of c-stores investing in spirits licenses because of the opportunity for incremental sales, compared to just beer and wine alone,” remarked Herb Smith, vice president, customer development, at E. & J. Gallo Winery, marketer of brands like New Amsterdam vodka and Camarena tequila. Sean Eckhardt, senior vice president and managing director of sales at Bacardi North America, added that c-store operators see liquor as an opportunity to upsell their customers. “Spirits yield much higher margins than beer, so it makes sense to want to increase their offerings in this area to drive greater profits,” he said. Dan Butkus, vice president of sales at Campari America, meanwhile, noted that in addition to strong margins, spirits can serve as a “foot-traffic driver” for c-stores.

Liquor marketers and distributors are also helping to fuel the swell by increasingly partnering with c-stores on category-building initiatives. “There’s been a more concerted effort to drive engagement with c-stores, and we anticipate seeing this continue,” said Tara Epps, vice president, off-premise national accounts, at Beam Suntory.

More c-stores are indeed stocking the products. According to the NACS State of the Industry Report of 2019 Data, 30% of c-stores now offer liquor, up from 29% in the year prior. Jayme Gough, NACS research manager, noted that the stake is relatively low due to state and local licensing regulations. Average liquor sales per store declined 10.5% in 2019 to $75,744, accounting for 0.9% of in-store sales. Still, gross margins on the liquor category improved to 26.90% in 2019, resulting in per-store gross profit dollars of $20,391.

In the past, customers purchased pints. Now, they’re purchasing by the half gallon.

Mixology as Info-tainment

While final data for 2020 weren’t available at press time, by all reports, spirits sales in c-stores skyrocketed last year. Pointing to CSX data, Gough said, “Monthly sales started to spike in March in alignment with restaurant and bar closures. They peaked in May and then declined in July and August, though remained higher than previous years.” At this year’s live virtual SOI Summit on April 14, NACS will present full-year data and review how the category turned out overall.

Pantry loading and on-premise closures, of course, drove consumers to c-stores and other channels for their liquor needs. “People still want to celebrate and find ways to connect,” explained Eckhardt. “And just like people were testing out new recipes, they were using mixology as a form of info-tainment.” Moreover, some consumers felt safer shopping in small-format c-stores versus big box stores, he added. For Bacardi, “Convenience stores are the fastest-growing bricks and mortar retail channel since the start of COVID,” Eckhardt reported.

C-store operators confirm the boom in liquor sales last year. According to Matthew Scheetz, COO at the Depot Express chain in Iowa, “We saw 42% growth in the liquor category from 2019 to 2020.” Most of the 13 Depot Express locations offer spirits, with prices ranging from 99 cents to several hundreds of dollars for highly allocated labels. Scheetz projected continued double-digit growth for the category this year, and he plans to add liquor to more locations.

To build liquor sales, cross-merchandise the products with complementary items such as mixers.

Similarly, Mark Whitehead, president of Whitehead Oil, parent of U-Stop convenience stores in Nebraska, said, “Our liquor sales are up substantially. Folks aren’t consuming any less liquor, and U-Stop is getting its fair share of that.” At Wayne’s Food Mart in Montague, Michigan, meanwhile, manager Jessie Hamilton reported a shift toward larger bottle purchases. “In the past, customers purchased pints. Now, they’re purchasing by the half gallon,” the retailer said.

Some liquor subcategories are performing better than others. Whiskey, especially bourbon, is particularly hot. At Rutter’s in Inwood, West Virginia—which added liquor sales last July—“the whiskey subcategory is a driving force,” said Chris Hartman, director of fuels, forecourt and advertising at the Pennsylvania-based chain. Epps and Eckhardt reported that tequila is also advancing in c-stores. “This is particularly true in states like California, Illinois, Louisiana and Missouri, where we see a high index inside convenience stores,” noted the executive from Bacardi, which markets the Patron brand.

Premiumization is a big trend within the spirits segment. “Premiumization of the category is accelerating, even during these uncertain economic times,” remarked Tony Spinelli, vice president, national accounts, at Diageo. “Successful retailers are shifting from budget and value tiers to a more premium-plus assortment.”

Create Awareness

Given the current trends, some c-store operators expressed interest in adding liquor to more stores, where legal. In addition to Depot Express, Rutter’s management “would certainly be interested in adding spirits to more locations,” such as those in Pennsylvania and Maryland, if state law allowed, Hartman said. Just several months after beginning sales of liquor at the West Virginia store, he said, “the investment has been a great success. Our customers and the community have been very supportive.” To allow for sales of the product in the store, Rutter’s modified the shop’s seating area and sales floor, providing for a specially enclosed area, which also features beer and wine. Some 350 different liquor options are offered, Hartman reported.

It’s not unusual for c-stores to merchandise liquor behind the counter for shrinkage purposes. That’s the case at Wayne’s Food Mart, where Hamilton explained, “It’s helpful in that it keeps it from walking out the door.” At most of the Depot Express locations offering spirits, the products are merchandised “behind locking glass doors,” stretching from six to eight feet, Scheetz noted. The stores also feature two- to three-feet sections in the checkout area for miniature bottles.

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Successful retailers are shifting from budget and value tiers to a more premium-plus assortment.

Marketers recommend that when spirits are stocked behind the counter, operators should create awareness that the products are available. Beam Suntory’s Epps suggested offering a menu of available items, as well as stocking small bottles to drive impulse purchases. “Merchandising should also include space at the pump and/or in front of the store,” she said.

At Rutter’s, Hartman noted that the West Virginia store has received a spirits “go-to-market strategy that includes signage on both the interior and exterior of the store, as well as utilization of our loyalty program to communicate the addition of liquor for this location via targeted email blasts.” Direct mailers also have been sent out.

Among other tactics suppliers recommend in building liquor sales are cross-merchandising the products with complementary items such as mixers, where legal. Co-branded displays “invite someone to consider the purchase,” said Eckhardt.

Marketers also see opportunity in continuing to trade up c-store consumers in their spirits purchases. “Don’t be afraid to invest in premium offerings, as today’s spirits consumers continue to look to enhance their at-home cocktail game,” remarked Butkus. And for those operators not yet stocking liquor, Gallo’s Smith encourages them to give it some thought. “They should consider whether it makes sense to look into getting a spirits license to capitalize on this growing category,” he said.

Well-Positioned Channel

While Hamilton expressed caution that the boom in liquor sales will likely abate post pandemic, others expect the trend to continue for some time. “I don’t think the COVID precautions will go away anytime soon,” said U-Stop’s Whitehead. “We expect the liquor category to remain strong.”

Diageo’s Spinelli added that consumers will continue to “go out at home,” as an alternative to traditional on-premise occasions, and “convenience is well positioned to take advantage of that trend. Spirits can play a profitable role in that evolution.”

Liquor marketers said they’re committed to continuing the category’s growth in c-stores. “Spirits have a long runway in convenience stores,” remarked Eckhardt, noting that Bacardi will increase its investment behind c-stores with the goal of doubling the number of stores that its brands are in. “There’s a lot of opportunity to make this a larger, more profitable business for both us and the retailers.”

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