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Bad times brewing? Not for beer

In a weak economy, consumers tend to give up lattes and jeans but not suds. Sales are up 1.4% this year.

September 11, 2008|Ylan Q. Mui | The Washington Post

Life's guilty pleasures usually thrive during tough economic times. Though we may forgo new clothes or fancy dinners out, we have traditionally turned to the three big vice industries -- gambling, smoking and drinking -- to help ease our pain.

But this time around is different. Smoking has fallen into such ill repute that many municipalities ban it. Fuel costs have made driving or flying to a casino a pricey proposition. Now it seems the only acceptable -- and affordable -- sin left is alcohol, namely beer.

"It's really considered a consumer staple kind of industry," said Dan Ahrens, author of the book "Investing in Vice." He put it on par with toothpaste or, say, soap. "People gotta drink no matter what's going on with the economy."

More than 16 million barrels of domestic beer were sold in the United States in July, and annual sales through that month were up 1.4%, the largest increase since 1990, when the economy was headed toward a recession, according to the Beer Institute. (Yes, such a thing exists. It's a trade group.)

The uptick is significant for a mature industry with roughly $50 billion in annual sales, particularly as consumers reduce spending on other discretionary purchases, such as venti lattes and designer jeans. Trade groups for the liquor and wine industries report consumption of those beverages has also increased. But beer is America's most popular alcoholic beverage, claiming more than half the market, and the go-to drink during these times of economic distress.

"The beer industry and the alcohol industry seem to be fairly recession-resistant," said Nick Lake, vice president of beverage and alcohol at Nielsen Co., a market research firm. "Why would you want to cut out beer? You don't want to punish yourself just because the economy's bad."

According to a Nielsen survey this summer, 13% of consumers said the economic downturn had significantly affected how much they spend on beer, the smallest percentage of any category. Nearly half said there had been no effect; they were still swilling the same number of six-packs. At supermarkets and convenience stores, Nielsen research shows, sales of craft and "super-premium" beers such as Michelob and Rolling Rock have jumped by double digits this year.

Economist Donald G. Freeman, a professor at Sam Houston State University in Texas, published a report in 1998 titled "Beer and the Business Cycle" that examined sales from 1955 to 1994 -- through the post-World War II boom and the oil bust, Reaganomics and recession. He factored in income per capita and industrial production, unemployment and the excise tax. Beer held steady.

"No matter which way you test it, it turns out the economy really doesn't have much effect on beer sales," Freeman said.

Economists David Blake and Angelika Nied found in 1997 that beer consumption, unlike other categories of alcoholic beverages, increases with unemployment in Britain. The study also showed that beer is "income inelastic" -- that is, less income does not translate into spending less on beer.

"Beer can be a mini-luxury in difficult economic times. People can commiserate with friends over beers about job losses and high fuel prices," said Jill J. McCluskey, chairwoman of graduate studies at the School of Economic Sciences at Washington State University and a member of the scientific committee for the upcoming Beeronomics convention in Belgium.

Anecdotal evidence suggests beer is benefiting from the downturn in several ways. Jeff Becker, president of the Beer Institute, said "off-premise" sales are increasing as consumers eat out less and cook more meals at home -- and pick up a six-pack to go with dinner. When they do go out, they may forgo the pricey cocktail in favor of less expensive beer.

Rob Sands, chief executive of Constellation Brands -- which includes brands such as Robert Mondavi wine, Corona beer and Schnapps -- said his customers haven't been trading down so much as trading across.

Once, consumers stuck with a signature drink. Now they may have a glass of wine at dinner with friends, a beer during a backyard barbecue and a cocktail at the bar.

Sales of all three categories have remained strong, Sands said. However, he has noticed a shift to mass merchandisers such as Wal-Mart and Costco for alcohol purchases as shoppers seek the best value.

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