When a grocery store starts selling beer, its sales grow beyond just six-packs and cases: Households, and beer-purchasing households in particular, visit the store more frequently and increase their total monthly grocery expenditures, according to new Cornell research.
The finding has important implications for the intensely competitive grocery business, which operates on razor-thin profit margins between 1 and 3%, well below other retail sectors. One approach to boosting profits is employing "loss leader," specific products sold below cost to attract customers to a store and encourage them to buy other, more profitable items. Another strategy is focusing on "destination categories," product categories so important that customers will resolutely choose a particular store to purchase them, making them the main reason consumers visit the store.
But do these destination categories really drive sales? They are hard to study because seldom do supermarkets make sweeping category changes.
The paper, "Destination Categories, Store Choice and Beer Distribution Laws," published in December in the American Journal of Agricultural Economics, takes advantage of Colorado's changing laws around beer sales to prove that, indeed, beer serves as an attractor, driving more people to a store and increasing sales in other categories including snacks, cheese, deli meat, and soda.
"Our results show that the relaxation of laws that would allow alcoholic beverages to be sold in grocery stores can lead to fundamental changes in how people shop, where they shop and what they buy," said Bradley J. Rickard, professor of food and agricultural economics in the Charles H. Dyson School of Applied Economics and Management, in the SC Johnson College of Business.
Co-authors are Timothy J. Richards, business professor at Arizona State University, and Anna Malinovskaya, Ph.D. '24.
Using nationally representative data at the store level and at the household level, the authors found that the introduction of full-strength beer into grocery stores in Colorado - which allowed grocery stores to sell full-strength beer in 2019 - led to a net increase in total sales, and a relative increase in expenditures for some complementary categories.
It's a rare case of a natural experiment in category introduction as a way of testing whether destination categories really work. Beer does: The study found that beer-purchasing households visited a grocery store 3.6% more often and increased their grocery store expenditures by 8% per month. Focusing on the top 10 categories in shoppers' grocery baskets, the researchers found that consumers increased their spending on related categories (items they described as likely to be purchased with beer, such as fresh produce, snacks, cheese, deli products and soda) by 17%.
This is good news for grocers but has broader implications, Rickard said. When Prohibition ended in 1933, states were given authority over how alcohol was sold. In all states, beer, wine and liquor sales involved a three-tier system of producers, distributors and retailers - these last are often separate from supermarkets and sometimes controlled by the state itself.
"In recent years, the trend has been to privatize alcohol sales, moving beer into grocery stores, often followed by wine and liquor," Rickard said. For instance, he says as of this year, 42 states and Washington, D.C., allow wine sales in grocery stores. The remaining states, including New York, do not. But it's changing: On Dec. 11, Maryland governor Wes Moore announced support for changing his state's laws to allow for beer and wine sales in grocery stores.
Kansas, Oklahoma and Utah, states with historically restrictive alcohol policies, have recently introduced the sale of full-strength beer in supermarkets. Washington state now allows beer, wine and liquor sales in supermarkets, as does California.
The expansion of alcohol sales in grocery and convenience stores is a debate with important considerations on both sides, Rickard says. While grocery stores want to sell beer and wine and liquor, temperance groups and lobbies representing wine and liquor store owners are fighting to keep these products out of supermarkets and convenience stores.
This has been a perennial issue in the state of New York, Rickard said, with some people saying they'd like to see wine sales in grocery stores, and that it might help the burgeoning wine industry in the state. While owners of the state's wine and spirit shops, which require a special license, say it would kill hundreds of small businesses and would not benefit local wineries.
"There has been a cultural change in U.S. alcohol policy concerning where and when alcoholic beverages can be sold, with regulatory change looming for years," he said.
