The beer industry has followed the Consumer Price Index (CPI) for decades to understand increases in the price of goods and services that impact consumer spending. It is a statistical estimate constructed from the prices of a sample of representative items. The CPI measures changes in the price level of consumer goods and services that are purchased on a daily basis. The Bureau of Labor Statistics has classified all expenditure items into more than 200 categories, arranged into eight major groups:
- Food and beverage
- Medical care
- Education and communication
- Other goods and services
The top three things to consider in leveraging market data:
- Understand your true cost of goods sold (raw materials, overhead, labor) before you establish your pricing strategy and structure.
- Develop a pricing strategy that positions your brand(s) relationship as intended at retail. Pricing should always start from the ground up. What price point do you want to see in the typical chain grocery store or in an independent package liquor store? From there you work backwards to identify the recommended Price to Retailer (PTR) and discount strategies, then back into your FOB and include any state and local taxes as well as freight.
- Utilize retail surveys and syndicated data to help you index your brands across the market. Be sure to capture across multiple sales channels to get the full picture. Mobile surveys are easy to use, analyze and recap and eliminate the step of data entry, but this can also be accomplished using hard copies or an excel spreadsheet and is still worth the exercise.
Every brewery has their own pricing strategy for each SKU. Knowing where your competition is and achieving the right price points along with the added complexities of a dynamic retail landscape including chains, independents, large and small format stores can be difficult to navigate. When your competition adjusts pricing, your strategy and relationship to them changed without you moving. These unexpected adjustments can cause pricing compression or expansion of your relative price index which can lead consumers to trade up or down. If you do not have a brand or package in the consumer “sweet spot”, you may be giving up sales or margin to competition. Below is a visualization of a current and potential relative brand index on 12 packs. The chart on the left demonstrates the current index, the chart on the right shows how those indices change when the macro premium brands adjust the pricing on their 12 packs + $1.00. If all stays the same, the brands priced above that 12pk have now compressed, and the brands below have widened. This can result in creating volatility in the market as other suppliers make adjustments to adapt to the new competitive pricing relationships to their brands. This may encourage macro premium consumers to trade up to a national craft brand or down to a more affordable sub premium brand if they are price sensitive.
Each year brewers adjust their pricing strategy based on market data to capture incremental revenue and tweak their overall market strategy. Think of it this way … McDonald's and Starbucks are well known for their market research on consumer traffic patterns. This enables them to figure out the optimal location for each of their stores. Do you think it’s a coincidence that others build next to them? They did their research. I’m not suggesting that you didn’t, but where there is smoke … you get the point. Understanding your market using good market research can be the difference in increasing your market share and profitability.
For more information on this topic, or to learn how Baker Tilly food and beverage specialists can help, contact our team.