Thursday, November 20, 2008

Will Beer Be the Next Casualty of the Crisis?

The downturn could hurt high-end brewers

The beer industry is often described as immune to economic downturns. After all, when people get laid off, they want to nurse their sorrows with a cold one, right?

It turns out that, as the beer industry has gone increasingly upscale, the answer to that question is no longer simple. In recent years, beer sales have been relatively flat except in one category—craft beers, which are made by small, independent brewers. Amy Mittelman, author of Brewing Battles: A History of American Beer, says that the heyday for such high-end, specialty beers could soon be over as consumers look to cut costs. Mittelman spoke to U.S. News about the future—and history—of the American beer industry. Excerpts:

Amy Mittelman, author of Brewing Battles.
Amy Mittelman, author of Brewing Battles.
Over the past several years, why have the more expensive beers taken off while sales of mainstream beer have been flat?
It has to do with the wider trends in American society. As you've seen things become more commoditized, people seek authenticity and realness in those commodities. You see it with coffee, too.

In general, craft beer is seen as being more locally produced with more of a real face. It's not as big and doesn't feel like an anonymous corporation. [Craft brewers'] hallmark is making beer the classic way with no additives. It harkens back to the early years in America, where there were local breweries and saloons.

Do you think that will continue or reverse if the economy undergoes an extended slowdown?
It's hard to say. We've been hearing about comparisons between what we're in now and the Great Depression. [Back then], one of the first things [Franklin] Roosevelt did was legalize beer. He saw beer as a [morale] booster and part of the economic recovery package. He knew that legalizing the industry would bring jobs and production and rev up the economy.

In bad times, do people seek relatively inexpensive comforts? Probably yes. If times get really bad, they may look for the lowest price points. But relatively speaking, even expensive beer isn't that expensive.

Is it a myth that people drink more beer when the economy is going badly?
It depends. Throughout the 1990s, beer sales were kind of flat because of tax increases. When economic times are frightening, people do turn to alcohol to help with that, depending on how curtailed people's spending becomes. But in general, people do turn to alcohol.

Why do you think beer—mostly in the form of references to "Joe Six-pack "—plays such a big role in political debates?
That gets at why beer is so central to American culture, going back to the beginning of the beer industry. In America, it was really centered around working-class life. The great heyday of the brewing industry, before Prohibition, was in the late 19th century. Cities all across America would have many brewers and saloons. Beer was cheap compared with wine or hard spirits, so it became the working-class choice. . . . Now, it's ingrained that regular guys drink beer.

Is that stereotype true—are there lots of "Joe Six-packs" out there?
I don't know what [that term] means. It's silly. It's an advertising concept. It's not real. Beer is a very popular product, and by some estimates, more people drink beer than drink milk. All kinds of people drink beer.

What are the biggest challenges you think the beer industry will face over the next century?
As a whole, it will be increasing competitiveness and consolidation—who will be able to survive on that global level. In general, our societies go through swings in personal behavior. We might put restrictive measures around people's personal autonomy and pleasure-seeking behavior.

Do you think we could go back to Prohibition?
The myths and negative impression of Prohibition are a pretty big deterrent, but you might see a bigger emphasis around drunk driving. College presidents recently spoke out about the drinking age. You might see greater taxes. In the past, the government has sought money from "sin taxes" to deal with economic downturns.

Are people price sensitive—do they buy less if taxes go up?
The theory behind those sumptuary taxes is that the demand is inelastic [meaning people aren't greatly affected by price changes], but I think you could see some shifting. If there's going to be a reduction in consumption, the bigger companies that have more placement in more stores are better able to withstand that. So, we might see people seeking lower-priced products.

Wednesday, November 5, 2008