World Class Beverages Indiana

June 22, 2010

Down Economy Helping Craft Beer?

It’s counter-intuitive to say the least. People usually spend less money in slow economic times and craft beer is typically more expensive than the national brand alternatives. So we’d expect people to switch to lower priced brands, right? But spending less doesn’t always mean buying less expensive beer.

We’re well into thesecond year of a sluggish economy and craft beer sales are looking great while the rest of the beer industry struggles. In fact, 2009 saw an increase of 7.2% in the sales of craft beer while the overall beer industry struggled with a 2.2% decline according to the Craft Brewers Association.

Clearly, the economy has not yet hurt the craft beer category, but is the down economy actually helping the sales of craft beer?

The US economy continued to decline from 2008 to 2009 in a variety of measurements including the growth rate of gross domestic product (GDP), one of the key measurements of economic productivity. Craft beer sales, already healthy coming into 2008, grew even faster in 2009. From 2005 to 2009 the US GDP declined in growth rate each year while craft beer sales continued to rise.

Consider that many people are saving money by going out to eat less often. The AC Nielsen company reports on consumers “with nearly half (47%) going to bars or clubs less often than they did before the economic downturn.” That hurts our friends at restaurants and bars to be sure, but some restaurants and bars are fighting lower numbers by adding more craft beers to their menus to help distinguish themselves from their competition. Craft beer attracts new customers! In fact, the National Restaurant Association lists “local wine and beer” as their #5 “Top 20 Trends for 2010” in thier publication “What’s Hot in 2010.”

And for those who are staying at home the purchase of a craft beer six pack instead of a national or bargain brand is still a very affordable luxury. A ten dollar six pack consumed at home may only be the cost of two beers consumed at a restaurant. Craft beer becomes a tasty reward even while spending less money.

What about the concept of trading down? Aren’t people buying cheaper beer across the board to save money? AC Nielsen reports that trading down has occurred in beer and that those who did trade down are likely to stay with their less expensive choices, even after the economy rebounds. Sales of the “bargain brands” of beer are on the rise while many “premium import” and domestic brands are flat or falling. AC Nielsen suggests that those beers that lost ground through “trading down” will suffer permanent damage that a resurgent economy will not repair. That means that those people who have migrated to the craft beer category due to economic conditions are likely to stay there.

But what do consumers trade down from to get to the relatively expensive craft beer category?

Many wine drinkers have been in the habit of purchasing $30, $40 and $50 bottles of wine to drink at home and many of them are looking for less expensive alternatives as well. Some of them are likely finding that a $15 to $20 bottle of wine does pretty well for them but they can also buy six pack of craft beer for around $10 or a wine sized bottle of craft beer for that same $10 or less. So I’m sure that many wine drinkers are finding that craft beer is far better than the beers they might have abandoned in favor of wine years ago.

The poor economy worldwide may also be benefiting craft and specialty brands in other ways. I recently read a press release from Fuller’s (England) recapping their financial performance over the previous 12 months and stumbled onto this passage –

The recession has seen media prices fall and we were able to secure high profile media space at competitive prices. We stepped up our marketing activities during the year to benefit from the lower media prices and invested more than we did last year, running television, cinema and poster advertising campaigns.

Lastly, does success breed success? Even the mainstream media has noticed that craft beer sales are continuing to grow when most businesses are struggling. Media attention has been more focused on craft beer in recent months than ever before as the promise of job creation in the craft beer industry gains more attention. At a time when many businesses are failing, craft brewers continue to expand, pay taxes and contribute to the economy.

National Public Radio (NPR) just did a terrific piece on this topic. You can listen to the audio here:

Craft Beer stats courtesy of the Brewers Association, US GDP stats courtesy of the World Bank, AC Nielsen quotes are from the online “Supermarket News” article “Nielsen: Alcohol Consumers Still Cautious

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