Cold Comfort In Hard Times
Saturday, September 6, 2008
Life's guilty pleasures usually thrive during tough economic times. Though we may forgo new frocks or fancy dinners out, we have traditionally turned to the three big vice industries -- gambling, smoking and drinking -- to help ease our pain.
But this time around is different. Smoking has fallen into such ill repute that many municipalities ban it. Fuel costs have made driving or flying to a casino a pricey proposition, and gambling has become almost an afterthought at many of the lavish new ones. Now it seems the only acceptable -- and affordable -- sin left is alcohol, namely beer.
"It's really considered a consumer staple kind of industry," said Dan Ahrens, author of the book "Investing in Vice." He put it on par with toothpaste, or, say, soap. "People gotta drink no matter what's going on with the economy."
More than 16 million barrels of domestic beer were sold in the United States in July, and annual sales through that month are up 1.4 percent, the largest increase since 1990, when the economy was headed toward a recession, according to the Beer Institute. (Yes, such a thing exists. It's a trade group.)
The uptick is significant for a mature industry with roughly $50 billion in annual sales, particularly as consumers reduce spending on other discretionary purchases, such as venti lattes and designer jeans. Trade groups for the liquor and wine industries report consumption of those beverages has also increased. But beer is America's most popular alcoholic beverage, claiming more than half the market, and the go-to drink during these times of economic distress.
"The beer industry and the alcohol industry seem to be fairly recession-resistant," said Nick Lake, vice president of beverage and alcohol at the Nielsen Co., a market research firm. "Why would you want to cut out beer? You don't want to punish yourself just because the economy's bad."
According to a Nielsen survey this summer, 13 percent of consumers said the economic downturn had significantly affected how much they spend on beer, the smallest percentage of any category. Nearly half said there had been no impact; they were still swilling the same number of six-packs. At supermarkets and convenience stores, Nielsen research shows, sales of craft and "superpremium" beers such as Michelob and Rolling Rock have jumped by double digits this year.
Economist Donald G. Freeman, a professor at Sam Houston State University in Texas, published a report in 1998 titled "Beer and the business cycle" that examined sales from 1955 to 1994 -- through the post-World War II boom and the oil bust, Reaganomics and recession. He factored in income per capita and industrial production, unemployment and the excise tax. Beer held steady.
"No matter which way you test it, it turns out the economy really doesn't have much effect on beer sales," Freeman said of his four-page study. "That's why it's not a longer paper."
Economists David Blake and Angelika Nied found in 1997 that beer consumption, unlike other categories of alcoholic beverages, increases with unemployment in the United Kingdom. The study also showed that beer is "income inelastic" -- that is, less income does not translate into spending less on beer.
"Beer can be a mini luxury in difficult economic times. People can commiserate with friends over beers about job losses and high fuel prices," said Jill J. McCluskey, chairwoman of graduate studies at the School of Economic Sciences at Washington State University and a member of the scientific committee for the upcoming Beeronomics convention in Belgium.
Anecdotal evidence suggests beer is benefiting from the downturn in several ways. Becker, the Beer Institute president, said "off-premise" sales are increasing as consumers eat out less and cook more meals at home -- and pick up a six-pack to go with dinner. When they do go out, they may forgo the pricey cocktail in favor of less expensive beer.
Rob Sands, chief executive officer of Constellation Brands, which includes brands such as Robert Mondavi wine, Corona beer and Schnapps, said his customers haven't been trading down so much as trading across. Once, consumers stuck with a signature drink. Now they may have a glass of wine at dinner with friends, a beer during a backyard barbecue and a cocktail at the bar.
Sales of all three categories have remained strong, Sands said. However, he has noticed a shift to mass merchandisers such as Wal-Mart and Costco for alcohol purchases as shoppers seek the best value.
At Total Wine & More, which is based in Potomac and has 54 stores in 10 states, sales of both wine and beer are up about 6 percent this year. The chain carries 1,000 varieties of beer and sells about 5 million cases annually.
"You can stay home and entertain and have a high-quality beer for a fraction of the price of going out with your friends," said Ben Sibley, manager of the company's store in Chantilly.
That's why Trevor Langrehr keeps a keg at home. Each keg usually lasts a few months, and his buddies can enjoy a fresh, ice cold beer when they visit his new house in Fredericktown, Va. He even converted an old fridge into a "kegerator."
On a recent afternoon, he returned an empty barrel of Dominion Lager to the Total Wine & More in Chantilly and picked out a keg of Sam Adams Oktoberfest for $149.99. His beer-buying habits haven't changed, though he cut his monthly gasoline bill from $500 to $250 by getting a Volkswagen that runs on diesel. If the economy got really bad, he knows he would have to cut back.
"I'd certainly chose food over beer," he said. "But I hope that never happens."
Even sales of cheap beers are on the rise. According to data from Nielsen, convenience store sales of "below premium" beers -- which account for nearly a quarter of the market -- were up 3.3 percent by volume this year compared to last. Budget beers jumped 4.8 percent. At 7-Eleven, beers sold by the cases of 18 or 24 have been particularly popular, said Tom Gerrity, the company's director for processed foods.
Although consumer demand remains strong, the beer industry is suffering from the high cost of grains and fuel, increasing production and distribution costs. Prices of beer have increased as much as 7 percent in some categories, according to Nielsen.
And still, we drink. Beer historian Maureen Ogle, author of "Ambitious Brew: The Story of American Beer," said even in economic times so bleak that a black market existed for food and commodities, beer remained in demand.
As she put it: "Beer will get you through times of no money better than money will get you through times of no beer."