Craft Beer and the Economy…

With massive layoffs, precipitous drops in consumer spending, and a near complete drying up of the credit markets, the American economic scene looks positively dreadful. And while things look bad in the broader economy, beer industry people have been biting their fingernails over how their businesses will fare. In recent months, beer lovers across the country have seen the closure of a small handful of brewpubs and packaging facilities that were unable to meet their day-to-day financial needs. These tough times are testing the old micro-economic maxim that beer is recession proof.

A few months back, the Nielsen Company issued a press release listing its top five recession proof consumer goods. While it was no surprise to see dry pasta and sauce on the list, beer was tucked in the middle amongst the more unusual neighbors of candy and seafood. Thirty or forty years ago, we could understand what such a list meant in terms of defining beer. But today, with the increased presence of craft and imported beers, it’s more difficult to determine whether “beer” is really recession proof.

In another recent press release, the Brewers Association announced that craft brewers managed another strong year in 2008 despite the troubled economy. “Small independent craft brewers” increased their sales 5.8-percent by volume and 10.5-percent in sales over the previous year and reached 4-percent of total U.S. production. While the numbers fall behind the double-digit growth experienced in recent years, it seems to suggest that craft beer has recession legs. Compare that to imported brands, which were down nearly 4-percent from last year.

Industry analysts have a quiver of theories as to why craft beer is performing so well in a down economy. Some posit that high-end wine drinkers are essentially slumming it with less expensive craft brands, while others believe that a “Buy American” nationalism has influenced consumers away from imported brands into the arms of craft brewers. Others caution that craft beer is not recession proof but merely recession resistant.

While things may be stable for craft breweries, the same cannot be said for many consumers, even those who prefer craft beer. The American unemployment rate is presently at its highest level in a quarter-century and cuts across all economic sectors. In one of BeerAdvocate Magazine’s first issues, I wrote an article bemoaning a phenomenon I called “price creep.” After years of stagnant prices and faced with increasing prices for raw materials and shipping, craft breweries started raising their prices. In response, some bar owners saw the opportunity to tack on additional price increases onto otherwise modest cost raises.

Fast forward two years and on-premise accounts across the country are beginning to see greater numbers of empty bar seats and restaurant tables as people choose to do their drinking at home. In response, craft brewers are beginning to alter their thinking about the future. Consumers looking for cost savings but unwilling to trade down have helped twelve-pack sales increase. Even at the higher end of the craft price spectrum, distributors recently convinced Dogfish Head to release a mixed twelve-pack of its 60, 90, and 120 Minute IPA family, at a 20-percent discount over individual pricing. On the other coast, Stone Brewing’s CEO Greg Koch recently told local business students that he wanted to change the company’s expansion model. Instead of selling more than 90,000 barrels of beer in thirty-three states, as Stone will do this year, he’d prefer to save on fuel costs and sell more beer in just five states.

While the craft beer juggernaut has continually chugged along, even surviving some near-death experiences along the way, things will have to change. With no end in sight for the lagging economy, craft brewers will have to continue to develop new ways of serving the now ailing consumers who have treated them so well.

–Article appeared in Issue 27 of BeerAdvocate Magazine.