Is Craft Brew Recession Proof After All?

I stumbled across this little tidbit when I was looking for some coverage of Boston Brewing's Q1 report (the essence is business is down at Boston Brewing about 5%). Here is the interesting passage from the Patriot Ledger of Quincy MA:

Craft beer sales appear to be holding up during the recession, boosted by customers strong demographics.

Throughout the U.S. beer industry, overall shipments from brewers have declined 3 percent year-to-date compared with the previous year, said Benj Steinman, president of the trade publication Beer Marketer’s Insights. Import shipments have declined 19.3 percent, with domestic shipments down 1.8 percent.

For the 52 weeks that ended on March 9, craft beer sales rose 12.6 percent from the previous 52-week period, compared with 3 percent for all beer, according to data from market researchers the Nielsen Company.

What is particularly interesting to me is that I had assumed that imports were probably a decent proxy for craft beer sales and I knew sales of imports have been down. But in reality it seems that consumers are very loyal to craft beers and not shifting to macro from craft. In economics terms the cross-price elasticity of craft and macro brews appears to be very inelastic, or that beer drinker do not think of macro lagers as a good substitute for micro brews.

This is good news, I wonder if Oregon brewers are experiencing the same thing? I hear through the grape vine that things have been tough, perhaps this is due to inventory depletion on the part of distributors and retailers (something that would explain the seeming 3 percent down 3 percent up contradiction in the second and third paragraph). If this is the case, inventory depletions rather than sales, we might see a lot of new orders coming in soon as the inventories run out.

But Boston Brewing's recent struggle also suggests that within craft beer the environment is getting more and more competitive and they need to continue to fight off the challenge of all of the new 'it' beers that come along. As I mentioned a few days ago, I think this is precisely why Deschutes is pushing its specialty releases hard.

This is also good news for my brother, who is finishing his master brewer certificate program soon and is looking for work. He has offers in hand, but nothing yet from Oregon. Anyone hiring out there?

Craft Brews and the Recession

Jeff Alworth has a wonderful post on the 25th Anniversary of Widmer Brothers Brewing Co. Well worth a read and congrats to the Brothers Widmer!

Unfortunately, this economic downturn is starting to take its toll on the craft brewing industry in Oregon. The Portland Business Journal is reporting the $33 million loss that the Craft Brewing Alliance, the company created by the Widmer - Redhook merger, suffered in 2008. Trends in the local brewing industry are worrisome as consumers abandon the more expensive craft brews for cheaper substitutes. From the article:

December and January shipments for all Oregon craft brewers fell by 5 percent and 7 percent, respectively. But in January and February, shipments for all beer in Oregon actually rose by 10 and 20 percent, spectively. “It would appear trading down from higher-priced, locally-made beer has already begun in earnest,” said Brian Butenschoen, executive director of the Oregon Brewers Guild.

This substituting cheaper alternatives has always been my concern for the local brewing industry. Just as department stores like Macy's are suffering while Walmart is thriving, during a downturn the purveyors of cheap substitutes tend to do well relative to their more expensive counterparts. This works both ways, however, which is part of the reason why craft brewing did so well during the last boom period. As this recession is going to be long and deep, I wonder how the breweries will fare. This is also a time in which big brewing conglomerates might try and snap up ailing independent brewers so that they have products with which to compete when the recession turns around.