7-Eleven to sell private-label beer

7_11.gi.home.jpgBy Beth Kowitt, writer-reporter

(Fortune) -- The battle over shelf space in the beer industry is about to heat up with the entrance of a new brand to the refrigerators at 7-Eleven. And it's the nearly 6,000-strong convenience store chain that is making the private label brew, called "Game Day."

While big brewers like Anheuser-Busch InBev can usually muscle their way into premium spots, this time around the newbie could give them a run for their money since it can hand-pick prime cooler real-estate to showcase its beer.

7-Eleven might not know a lot about brewing -- it's reportedly leaving that to City Brewing in LaCrosse, Wisconsin -- but it does know beer, given that a huge chunk of industry sales take place at convenience stores.

The company confirmed that the new product is a premium beer selling at a budget price but wouldn't provide further details.

Unfortunately for chains like 7-Eleven, their prime demographic, the key beer-drinking crowd, has been the segment hit among the hardest by the recession, says Beer Marketer's Insights president Benj Steinman. Think male, age 21 to 27, blue-collar workers, and then think about the decline of industrial jobs.

Convenience store beer buys dropped 4% in 2009, according to research firm SymphonyIRI, a steeper decline than seen in other outlets. But sales of below-premium beers have held up and have even seen a slight lift.

Core convenience store shoppers now have less cash, which is likely why 7-Eleven is entering the market at a low price point. "They figure that since brands are weaker at that price segment they can capture the full margin rather than pay a premium to a supplier," says Harry Schuhmacher with Beer Business Daily, which first reported the news. Schuhmacher says the beer is called Game Day, but 7-Eleven wouldn't confirm.

7-Eleven has a history of dabbling in this arena. Remember Santiago? (You probably don't.) The chain launched the brew in 2003 to get a piece of the imported beer craze, but like a lot of private beer labels struggled to get a foothold in the market. "High-end no-name beer is a loser proposition," says Schuhmacher. "Why pay more for a beer nobody's ever heard of?"

Even this time around at a budget price Schuhmacher isn't convinced it will take off. Private labels work for soft drinks, but in the beer world brands still matter. Even at the low-end of the spectrum, consumers often show fierce loyalty to a single label.

The move is one that 7-Eleven has hinted at before. In January amid recent beer price hikes 7-Eleven spokesperson Margaret Chabris told the Wall Street Journal, "We need cost decreases or we think there will be declines in domestic purchases in total," and that the company is "exploring alternative strategies to better satisfy our customers."

Another advantage for the chain is the chance to further push its private label. Consumers have signaled that they're willing to buy products packaged under store brands, which gives supermarkets and convenience stores better margins.

It's not a passing trend spurred by the downturn, says NPD Group's chief industry analyst Harry Balzer. He's found that between 1984 and 2002 of all the products you consumed, 20% were store-brand products. That's now climbed to 27%.

The launch also allows 7-Eleven more control in how it transports its beer to stores.

It will deliver the beer through normal channels in all markets except southern and northern California, the company said, where they'll use combined distribution centers. These centers bring together goods from multiple suppliers in order to trim the number of deliveries to stores.

"7-Eleven's issue is that there are a lot of trucks in their parking lot keeping consumers out," Schuhmacher says.(see editor's note)

Though the beer's name sounds targeted to appeal sports fans, it seems to have a double message: It's about to be 'game day' for 7-Eleven and the recently consolidated beer industry as well. Game on.

Correction: An earlier version of this story stated that the company unsuccessfully tested centralized beer distribution in the Los Angeles area last year. 7-Eleven contacted Fortune and said it hasn't yet started the pilot test. To top of page

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