Correction to This Article
This column says that beer shipments increased by more than 1.3 million last year. It should have specified 1.3 million barrels.

Beer: Trickle-Down Economics

By Greg Kitsock
Wednesday, February 25, 2009

Americans are not drinking less in the recession, but they appear to be drinking cheaper stuff.

Shipments of beer, for instance, were up by more than 1.3 million (0.6 percent) last year, according to the Beer Institute. But the so-called premium mainstream brands such as Bud and Miller Lite and major imports Corona and Heineken reported decreases. The big winners: no-frills economy labels such as Pabst Blue Ribbon and Keystone Light, whose 12- or 30-packs often sell for less than a six-pack of some higher-end brands.

"Keystone Light is the hottest brand in the industry," says Benjamin Steinman, publisher and editor of the newsletter Beer Marketer's Insights. "It grew more than 500,000 barrels last year."

Nonetheless, craft beers (fuller-flavored and pricier, from small independent breweries) also fared well, up 5.8 percent in volume last year, according to the Colorado-Based Brewers Association. True, that's only half the torrid 12 percent growth rate that craft beers registered in 2007. But it's still way ahead of the beer industry as a whole.

The explanation? Many believe it reflects a trading down: that craft beer is siphoning off sales from wine and spirits. "The people who bought top-shelf $10 margaritas are now buying Sam Adams for $5," says Jim Koch, chairman of Boston Beer Co.

Sam Calagione, president of the Dogfish Head Craft Brewery in Milton, Del., echoes the theory: "We are up 45 percent so far this year as a result of wine and spirits drinkers discovering that high-end beer is truly an affordable luxury."

Dogfish Head's Web site suggests a wine equivalent for each of the brewery's beers; its 90 Minute IPA, for instance, is compared to a sauvignon blanc. The brewery specializes in strong beers (most are above 7 percent alcohol by volume) brewed with unusual ingredients such as green raisins, chicory, saffron, cacao nibs and chili peppers. Some, like the 18-percent-alcohol World Wide Stout, can retail for more than $10 per 12-ounce bottle. But, Calagione says, "if you wanted to spend $10 for a world-class wine, they'd have to dispense that volume of wine into a Dixie cup."

High-octane imperial-style beers and experimental brews, such as barrel-aged beers, are proliferating. No one keeps separate statistics for those, and their total volume is probably small. But anecdotal evidence suggests that the high end of beer's high end is doing quite well.

Larry Robinson, who heads the beer department at Chevy Chase Wine & Spirits in the District, recently received 10 cases of Hopslam, an aggressively hopped India pale ale from Bell's Brewery in Galesburg, Mich. Despite a price of $15.49 per six-pack, it was gone in a day. "Wine people are trading down," Robinson says, "but not beer people."

This month Greg Engert, beer manager for Rustico restaurant in Alexandria, tapped a rare cask of Ola Dubh, a strong, dark Scottish ale aged in Highland Park whiskey barrels. Although an eight-ounce snifter cost $12, "we flew through it," Engert says. The 10.8-gallon cask was drained in three days.

Much of the demand for extreme beers might come from connoisseurs trading up within the category, maybe to reward themselves for forgoing a much more expensive new car or Caribbean vacation. But David "Bump" Williams, a vice president at the market research firm IRI who quit his job last fall to start a beverage consulting company, estimates that crossover drinkers from wine and spirits might account for as much as 10 percent of craft beer's total volume.

That crossover might not be permanent. Bob Evans, owner of Red Rocks Cafe & Tequila Bar in Centreville, noticed that six months ago, draft beer sales skyrocketed by 50 percent: "It was uncanny. People stopped drinking $7 shots of liquor." He attributed the shift to the high cost of gasoline, which surpassed the $4-a-gallon mark last summer. But when gas prices plummeted, liquor sales returned to normal, Evans says, despite banner headlines proclaiming the collapse of the world financial system.

Not all restaurants report that beer is stealing a market share from wine and liquor. Tracy Finklang of the Rock Bottom restaurant group, which operates Rock Bottom brew pubs in Bethesda and Arlington and the District ChopHouse & Brewery in Washington, says beer traditionally has accounted for about 65 percent of bar sales, and that has been holding steady.

Brisk supermarket sales (IRI reports that case sales of beer were up 8 percent in January) might mean that consumers are opting to drink at home rather than at bars and restaurants. A Nielsen survey conducted in October showed that 56 percent of the respondents were cutting down on out-of-home entertainment, including eating out, to stay within their budgets.

The Rock Bottom group saw revenues from all sales increase about 2 percent last year, even though beer production at the chain's brew pubs was off 2.5 percent. In this economy, that counts for a victory, Finklang insists.

"At the Cheers Beverage Conference in Miami, everyone was saying, 'Flat is the new up,' " she says.

Greg Kitsock can be reached at

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