Economy Talk: Experts Express Optimism for Beer at Beer Insights Seminar
The outlook for beer may be more positive than headlines make it seem. That was the message from beer economy experts Monday during Beer Marketer’s Insights’ 2022 Beer Insights Seminar in New York City.
Lester Jones, NBWA chief economist and VP of analytics; Danelle Kosmal, Beer Institute (BI) VP of research; and Bart Watson, Brewers Association (BA) chief economist, laid out the challenges facing beer and how performance trends should be analyzed.
On-Premise Still an Opportunity for Beer to Compete
Prior to the COVID-19 pandemic, about 15% of the industry’s annual beer volume consistently came from the on-premise channel, according to Kosmal. In 2022, beer was about 1.5 share points short of that, with about 13.5% of beer volume coming from the on-premise this summer.
“We’ve come back a lot, but we have just a little bit more to go,” Kosmal said. “And when we see some of the soft trends that are happening in the beer industry, I think a lot of that is due to what’s happening in the on-premise; we’re just not back to where we need to be.”
To see where beer is falling short, Kosmal suggested looking at beer selling locations. Beer has lost about 22,000 beer selling outlets across on- and off-premise channels since 2019, according to Kosmal. Of that, more locations were on-premise retailers, the majority of which were independent locations. The category has been “able to sustain itself” in chains, with a slight increase in off-premise chain locations selling beer.
“That’s just good for us to keep in mind of what’s the universe that we’re looking and working with in terms of where we can sell beer, and on-premise and independent locations definitely took a hit with that,” Kosmal said.
While beer hasn’t returned to previous on-premise performance levels, the channel itself appears to have recovered, Watson said.
“Total restaurant [and] bar sales are back,” Watson said. “You look at the total sales, people are spending as much at bars and restaurants controlling for inflation, controlling for trend. So we’ve got an environment that has bounced back fully in sales, and the beer business hasn’t kept up with it.
“We’ve got an ecosystem of on-premise that is back, that’s healthy, and beer is not capturing the same share that it was,” he continued. “That’s a kind of easy opportunity to say, ‘OK, what’s different and how can we get back to – given if there are fewer stores – getting the stores that are left, selling as much food as they were before? Can we get them to sell as much beer?’”
The opportunity for beer may lie in the category’s price competitiveness in the on-premise compared to spirits.
In October, the Consumer Price Index (CPI) for beer at-home increased +6% year-over-year (YoY), while spirits (+0.5%) and wine (+3.2%) at-home recorded much smaller increases, according to the Bureau of Labor Statistics (BLS). While the CPI for beer away from home increased +7% YoY – the largest price increase ever recorded for the category – price increases were more in line with spirits (+5.7%) and wine (+8%), indicating that the “story where beer is taking price is only in one channel,” Watson said.
Beer’s still “price competitive” compared to cocktails on-premise, providing an opportunity for beer to get “some momentum back” in the channel.
Spirits-Based RTD Battle Could Come Down to Legislation
Spirits-based, ready-to-drink canned cocktails (RTDs) have recorded exponential growth in the past couple years, threatening beer – especially craft – in ways that hard seltzer did not.
RTDs speak to consumer needs for flavor, higher ABV, variety, and branding, which all overlap with the needs craft beer speaks to, Watson said. The similarities make the segment “somewhat of a threat” to beer, especially with large spirits companies entering the category.
However, the fight may only be temporary, Jones suggested. He pointed to economic benefits of spirits companies continuing to focus on 1.75 mL handle bottles and straight spirits – which provide better returns – versus entering the RTD space, which includes competing with malt- and sugar-based offerings that have lower excise tax rates.
“I see the liquor guys going into RTDs like a Mercedes Benz dealer deciding to sell Kias,” Jones said.
The spirits category has attempted to fight this discrepancy by lowering excise tax rates for spirits-based RTDs at the state level, but efforts have so far been defeated or stalled in Alabama, Arizona, Hawaii, Kentucky, Maryland, Washington and West Virginia. Should those efforts fail and beer wins the tax fight, the “economics will win,” and the trend of RTDs will “fade fast, if not faster than we watched the seltzer craze burn out,” Jones said.
Core Beer Still ‘Very Much Alive’
Boston Beer Company founder and chairman Jim Koch has repeatedly said this year that traditional beer will likely not grow again in our lifetime. Panelists questioned this statement.
“Saying beer is not going to grow misses that there’s big historical waves in beer,” Watson said. “So hopefully beer is going to ride one of those up again. … I think beer can certainly turn around and grow again, but some of the big structural factors that have led to a declining need to be addressed before it’s going to.”
“We talk to consumers and say, ‘What type of alcohol across beer, wine, spirits or FMB are you drinking on a monthly basis?” [and] beer is No. 1,” Kosmal said. “I think core beer is very much alive.”
The “window of opportunity” spirits have over beer is its ability to reach a diverse set of drinkers.
“Beer has had a little bit of a different role,” Kosmal said. “So when we think about, especially Gen Z-ers and younger millennials, the diversity that comes with each of those drinkers, beer needs to find a way to speak to each of those generations and really engage those generations and get them excited about beer.”
One strategy to remind retailers of beer’s strength: feather dusters. Which is to say, beer moves fast, while trendier or “shiny new objects” like RTDs may not have the same velocity, Jones said.
“There’s a reason they have feather dusters in wine stores and liquor stores,” Jones said. “You don’t have feather dusters in a beer store.”
Panelists’ Key Takeaways
All three panelists shared one key takeaway industry members should remember going into 2023.
Bart Watson: ‘CONTEXT, CONTEXT, CONTEXT’
“One of my pet peeves right now is that people talk about dollar sales too much and kind of ignore all the inflation that’s happened,” Watson said. “Like, ‘Dollar sales are up against 2019.’ Of course they are, because price is up 12% since then, so if your dollar sales aren’t up, everything’s sucky.”
If brewers want to be “clear sighted” on performance, he suggested they focus on volume rather than dollar sales. If dollar sales have to be analyzed, control for inflation.
“Context, context, context,” Watson added. “Whatever number you’re looking at, give it context.
“The unemployment rate doesn’t matter: the unemployment rate of your location and your customers matter. The inflation rate doesn’t really matter. … The inflation rate is going to be different as it affects that person who’s buying gas and was going in to buy a beer with the money in their pocket versus, frankly, the people in this room or somebody who the inflation doesn’t affect as much.
“The media is really bad at this: headline number [and] a big broad conclusion that really has very little relevance to the various parts of the economy. I urge everyone, whatever number it is, dig in a little bit more, think a little bit longer about what it means and try to contextualize it for your business.”
Lester Jones: Remember, beer is still ‘the preferred beverage of choice’
“We’re heading into the most anticipated recession we’ve ever had,” Jones said. “Everyone’s sitting on pins and needles worried about recession and the reality is that beer is resilient.
“I think we need to back off a lot of the angst and the fear and start pushing forward with some confidence that we are a preferred beverage of choice. We have a lot of strength. We have a lot of opportunity, and we can grow these occasions. … [We have to] lift our heads up and look around instead of being very myopic in our focus.”
Jones spoke to this during an episode of the Brewbound podcast in August. The episode is available here.
Danelle Kosmal: Don’t ‘Just Look at One Trend or Data Set’
“We actually can’t just look at one trend or one data set because we work in an industry where there isn’t one magical source of information and data,” Kosmal said.
From taproom and craft performance, to distributor and retailer data, to national economic trends and beer shipments and depletions, each data set is important to determining the actual landscape of the industry and its health, Kosmal said.
“What makes it fun to work in this industry is it’s so dynamic that I would say we probably can’t just look at one trend or one set of data because it’s so complex,” she continued. “It’s an interesting and complex industry, and we need to really look at all of the sources and put it in context.”