Monday, 23 June 2008

Beer Sales Declining in Anglosphere

Coinciding with a longstanding decline in beer sales in the United States, two news stories today show that the same downward trend is occurring elsewhere in the Anglosphere as well.

In the United Kingdom, beer sales have tumbled to their lowest point since 1975 in gross terms. Per capita, the decline should be even more precipitous. The chief executive of the Association of Licensed Multiple Retailers blames the decline on an "economic situation where you have a perfect storm of the smoking ban, credit crisis and loss of consumer confidence," but those factors explain neither the longer term trend nor the similar situations elsewhere. Certainly not helping matters is the new duties on alcohol pushed through this year, which raised the tax on a pint of beer by 4p, resulting in a situation in which "brewers earn just 0.7p profit on each pint they sell, while the Treasury receives 33p."

Meanwhile, in Canada the National Post reports that in the last ten years beer has fallen from 52% to 47% of alcohol consumed, losing ground mostly to wine, and red wine in particular. In the United States, craft and import sales have remained strong while overall beer sales have declined, and in this story we see something similar in Canada, where imports have doubled their market share in the last decade.

Is the economic situation really to blame, as the quoted British lobbyist claims? I think not. Why the simultaneous long-term decline in the UK, US and Canada?

I would hazard a guess that at least part of the puzzle lies in the fact that all three nations were settled primarily by immigrants from north of Europe's "vineyard line," above which grape vines do not grow and beer (or mead, but that's another story) was traditionally the alcoholic beverage of choice. As globalization and economic integration progress, consumers are afforded greater choices from outside their own region and quite understandably they do not always prefer exactly what they had grown accustomed to due to historical happenstance. If this were the case, one would predict an increase in consumption of (both literally and culturally) imported products during times of greater economic integration. Therefore the same theory predicts the increasing popularity of wine and imported beers in the Anglosphere, and increasing beer consumption in, for example, China, where consumption has risen 40% since 1997.

On the flip side, during periods of dis-integration and isolationism, one would expect a return to more traditional and local products. Of course, these variables aren't independent: if you subscribe to the idea that economic integration spurs growth, then there would be a concurrent wealth effect since more expensive (exotic, imported) products would be favored during periods of expansion and cheaper (traditional, local) products during periods of contraction. This related effect would do a better job of explaining the strong growth in craft beer sales.

Any thoughts or historical (counter)examples to this line of argument? Unfortunately Prohibition confounds a study of Great Depression alcohol sales in the U.S., but what happened to relative sales of wine and beer in the U.K. during the same period?


Admiral said...

I agree with your economic analysis. It seems fundamentally solid. I thought I would elaborate on your point about craft beers and their recent popularity.

I think that we can break the effect down further by saying that the promulgation of craft beer across the U.S. (as you type it) market comes from the fact that consumers' marginal utility per dollar is greater for experiencing new brands and/or communicating about them than for any other use of the dollar.

This implies that the internet has been instrumental to the development of this market because it has lowered the costs to communication so much and it develops because suddenly you have a whole community of people who derive rather significant utility just from communicating about beers (above and beyond utility deriving from taste). One need only check out some of your links to prove the point! Ummm... it's 0346, I'm incredibly hungry, and so since I am pretty sure my comment doesn't make sense, I am going to stop here and return later. :)

PS*** I think you should allow for anonymous or Name / URL commenters.

Jeremy said...

I agree with the analysis as well. My employment depends solely on how well the wine industry does, and I've been trying to predict what may happen in a depressing economy. I feel like my job should fundamentally be secure. However, I do believe that this economic situation is different then the bubbles we've seen in the past, and there will be few if any industries immune.

The current recession involves many of the same aspect previous recessions have experienced. There have been housing bubbles, currency collapse, and rising commodity costs. Our current mixture also involves a credit crunch. Consumer economies, especially in American, are driven by the availability of credit, or the ability to pay after you can potentially sell the product. With the current credit crunch, there are concerns among all industries that payrolls cannot be met and inventories are not being replenished. This mean no product to sell. For instance, a winery needs to purchase raw bottles and advertise with a label. These transactions are done through credit, especially with smaller businesses. Most companies simply don't have the liquidity, or cash reserves, to get their product to the consumer while paying cash to get it bottled and on the shelf. The only exception, perhaps being, large, incorporated wineries that may happen to have enough cash on-hand.

I cannot tell what is going to happen, or even how bad the economic situation really is. I think that it will probably lead to most industries being consolidated into a few large corporations, including wineries. So, ultimately, the largest players at the moment will be more secure.

Just my thoughts...