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Thursday, October 27, 2011

The Coming Craft Beer Boom

Have a look at the graph below, provided by the Economist magazine. It reflects the spending habits* of people during the current "little depression," and the results are predictable. Where people can avoid spending, they do (click to enlarge):

This includes, of course, alcohol, which is down more than 15% in real terms. Those who follow the craft beer market may understand instinctively that this is good news for the industry. Craft sales have continued to enjoy double-digit growth right through a recession in which beer sales fell. The Economist characterizes it this way:
During the good times of 2003-06 consumer spending rose by 8.2%. In that time, Americans boozed more and bought more cushions: spending on alcohol and household furnishings increased by 19% and 13% respectively. Contrast that with 2007-10 when spending on these items fell by over 16%.
So, when the economy comes back and people start spending more on alcohol, sales should spike even more.

I think it's even better news. I have no reason to think that the trend observed by the Economist didn't affect buyers of craft beer. True, they may be wealthier, and their spending may not have fallen as steeply as the population as a whole. Still, during hard times, people spend less when they can. So why did the craft segment continue to grow? Because it was adding more customers. Individually, people were buying less; as a group, they were keeping growth humming along.

That two-fold effect should result in an impressive and more stable bump when the economy comes back--which is yet another reason I'm not particularly worried that there are too many new breweries coming on line. If anything, the health of the craft market may be understated. (Input from real economists welcomed.)

*The Economist: "Between 2007 and 2010, average annual consumer spending per unit—defined as a family/shared household or single/financially independent person—fell by 3.1% to $48,109. Average prices over this period have risen by 5.2%, so real consumer spending has fallen by almost 8%."

1 comment:

  1. Some feel craft beer benefits during current downturn b/c it is an affordable luxury. If good times return, people may go to more conventional unaffordable luxuries.

    Not saying I agree with this point of view, but it does seem a viable counter argument.