The U.S. economy continues to grow into the fourth quarter of 2015 with many positive signs pointing to a strong year end for the economy and potential gains for the beer industry as well. Yes, we have seen setbacks, including bad weather, global uncertainty and significant market adjustments along the way. However, the beer industry is driven by a growing population, an expanding economy and innovation that keeps beer consumers coming back to America’s stores, restaurants and bars.
The demographic trends impacting the beer market and corresponding per capita consumption are relatively predictable in a mature industry. The country is getting older on average and there is no turning the tide on the graying of America in the short run. The share of the total population over age 21 has risen from 70 percent in 2000 to 72.9 percent in 2014. A continuation of the trend suggests the legal drinking age (LDA) population ratio will grow to 73.2 percent in 2015. With almost 80 percent of the millennial generation now of legal drinking age, the LDA population ratio is expected to continue to rise with no hint of a millennial generation echo boom on the horizon to change this trend.
Today’s beer market can be summed up as different people, drinking different beers, in different places. Industry volumes have seen a significant shift into high-end craft, imports and FMB brands as economics and demographics have changed the marketplace. The demand side of the market, driven primarily by changing demographics, suggests that total U.S. per capita consumption will continue to decline slightly in 2015. The total 2015 LDA population will grow by 1.1 percent, to approximately 234.9 million people. A per capita consumption model for the industry suggests 2015 will end the year at 27.4 gallons per person (based on TTB-domestic tax paid and Commerce-imported beer volumes). This per capita model predicts a 0.5 percent increase in volumes with the industry delivering 2.86 billion cases of malt beverages (excluding cider) in 2015.
The general economy continues to grow with each month. As of August 2015, the economy has added 1.6 million jobs in 2015, for a total of 3.9 million new jobs since the pre-recession peak of 2008. The job market has indeed recovered; however, not in the way many have expected. The employment growth rate leaders – categorized as states that have year-over-year gains of more than 3 percent – include Utah, Oregon, Nevada, Florida, Washington, California and South Carolina. These states alone have added more than 1 million jobs since last year and are performing better than average when it comes to beer sales. However, there are still many states that have not posted significant job gains and continue to perform below the national average.
The recovery in jobs has begun to push wages higher. Total wage growth through the second quarter of 2015 is estimated at 2 percent on a 12-month (not seasonally adjusted) basis. However, it is difficult to determine the true impact of inflation on real wage growth. With falling energy prices, the Consumer Price Index (CPI) for all goods and services is roughly flat (0.2 percent) over the past 12 months. But, after removing food and energy from the CPI, the adjusted inflation rate rises to 1.8 percent and roughly matches reported wage increases. How much better off consumers are in 2015 compared to previous years is still debatable.
There is no doubt our economy and our industry is changing every day. The basic structure of U.S employment has shifted since the Great Recession. The majority of job gains we have seen are in service providing industries. Since 2010, the service sector has contributed 85 percent of job growth for the economy, and this translates into significant change for beer distributors. Where people live and work in this new economy is changing the types of beer they prefer and places they choose to buy beer as well. Once again, we see the evolution of the beer market as different people, drinking different beers, in different places.
More than five years after the official end of the Great Recession, we see a new and exciting beer market emerging. Successful independent beer distributors will be on the forefront of their local market changes and will be ready to deliver the right beer, to the right places for the right consumers.
For additional information, please contact NBWA Chief Economist Lester Jones at firstname.lastname@example.org.