Research

Beer sales research brews up lessons for businesses

New study shows how full-strength beer laws boosted grocery sales through smart product pairings.

2025-05-08

Salt and pepper. Knives and forks. Shoes and Socks. Beer and cheese?

You might not expect that last pairing could be a thing, but it is, according to research conducted by Professor Timothy Richards, the Marvin and June Morrison Chair of Agribusiness.

Richards uncovered this popular duo when examining the impact of changes to Colorado beer distribution laws. His study confirmed the power of complementary product offerings for retailers and other businesses.

The holy ale

"Retailers are always looking for what we call complementarities," things that people pick up at the store that go along with other things they’re buying, such as peanut butter and jelly, Richards says. Retailers also seek destination categories, or groups of items that attract consumers to the store in the first place. These two holy grails of retail success are among the things Richards and his colleague hoped to see in action through their analysis.

Serendipity facilitated this research. Before Jan. 1, 2019, Colorado grocery stores could only sell beer with 3.2% alcohol content, not full-strength beer, which typically contains 4.8% alcohol.

"When policies change, sometimes it creates an opportunity for researchers to compare the environment before and after the change," Richards explains. "This was the case with the liberalization of beer distribution laws in Colorado that allowed full-strength beer in grocery stores for the first time."

The new law essentially created a new kind of product available in the Colorado grocery stores, so it allowed the researchers to see if that new kind of product, full-strength beer, became a destination category that drove traffic to grocers.

"When researchers do analysis like this, we always want to do something beyond the obvious," Richards says. "When they liberalized those beer distribution laws, it was pretty easy to say the grocery stores are going to sell more beer and liquor stores are going to sell less beer. That's fairly obvious."

Sure enough, the data this research team examined showed that liquor stores and grocery stores essentially changed places when it came to how often consumers chose one over the other for beer purchases in the first year after the new laws were in effect. Liquor stores fell from being the store of choice 50.6% of the time before 2019 to 23.8% of the time after. Grocery stores' share of purchase frequency rose from 28.1% to 51.7%.

While Richards says that impact was to be expected, there’s more to consider with the grocery business. "You’ve got this fixed size of a store — generally about 40,000 square feet — and they’ve got about 45,000 products they need to sell in that store," he says. "If they introduce something new, they can’t just create a new add-on space. They need to take something off the shelf." That means the new product must make up for what was lost, preferably by generating as much or more revenue than the item that lost shelf space.

This brings us back to that idea of complementarities, things associated with the item someone intended to buy and therefore get tossed into the shopping cart along with it.

Reason for cheers

Ideally, complementarities work with destination categories to make the latter even more valuable because once in the store, people buy more items.

"That's the mechanism we document in this paper. The retailers actually sold 1.2% more stuff per week after introducing full-strength beer in the store. And remember, they offered 3.2 beer before, so this is not like they weren't selling beer, they just weren't selling full-strength beer," Richards says.

Interestingly, shoppers didn’t increase spending per visit. Instead, they shopped more often. Even though each trip resulted in a smaller purchase amount, the number of days between store visits decreased by 3.4%, which more than made up for the smaller spending per visit.

The households tracked were those with regular beer consumption in Colorado and Minnesota, where 3.2 beer was the grocery store staple before and after 2019, so the North Star State served as a control in the analysis. Overall, those smaller but more frequent purchases led to an 8% rise in total grocery store spending for those beer-consuming households in Colorado.

In addition, the researchers found that three types of buys complemented the beer purchases: snacks, cheese, and carbonated beverages.

"What’s important here is the co-merchandising effect," Richards says. "When you’re selling full-strength beer, it’s not enough to just throw it in the store. You need to be conscious of what people are buying with that beer."

He continues: "We tend to think of complements as hot dogs and mustard, or things that are used together. It’s pretty clear from our data that people tend to pick up some carbonated soft drinks at the same time they buy beer, which tends to be located near the carbonated soft drinks." Perhaps convenience led to complementarity, which led to more profit.

Richards and his colleagues note in their recent paper about this study that their "findings may suggest that complementarity plays a more important role than previously thought" economically. After all, he notes, the average profit margin for retailers in 2023 was 1.4%. "Grocery retailing is incredibly competitive, so anything that generates 1.2% more money is a huge deal."

It could be a big deal for other organizations, too. "People were shocked when Walmart got into food retailing and just cleaned up," Richards says. "Traditional grocery stores had to change the way they were doing things when they saw Walmart selling groceries, clothes, car tires, and garden supplies at the same time."

Along the same vein, he reminds us that Costco is a superstar seller and another place where you can get your wine, furniture, groceries, clothing, hearing aids, insurance, and more in one stop.

Even convenience stores have cashed in on the benefits of selling multiple categories of products. "I remember when a gas station was a gas station and 7/11 was 7/11. Now they’re combined because people are just hanging out while the car is being filled with gas, so they might as well go inside and buy some donuts."

Service companies should think about adding categories, too. As an example, Richards points to banks that offer mortgages, retirement guidance, investing tools, and research, along with their savings and checking accounts. "Bank of America is not constrained by 40,000 square feet of bricks and mortar," he says.

Online, companies can add new product categories without adding office space. Done well, those new categories and their complementarities could deliver significant margin improvement.

"That’s sort of a big-picture takeaway from this research," Richards concludes. "People want one-stop shopping when they buy groceries and just about anything else."