The beer industry continues to develop in both unexpected and revolutionary ways as we close out 2018. For the unexpected, unemployment has fallen from a high of 10 percent at the peak of the recession to 3.9 percent as of August 2018. Over the same period, the United States has gained 17 million additional legal drinking age consumers – almost the size of New York Metro Area. Despite these two strong beer demand indicators that should help grow volumes, the industry is selling 8 million less barrels than it did in 2008. For the current economic expansion, beer volumes are “counter-cyclical” to a period of expanding economic activity.
On the revolutionary side, the segment mix of the industry has changed dramatically. Over the past 10 years, the high-end beer market has grown share from 25 to 40 percent, primarily at the expense of premium priced beer volumes that have fallen from 50 to 38 percent share. This same period has seen the “rise and fall” of hard sodas and the “rise and fall and rise again” of ciders. In addition, there are new craft brands and styles from thousands of small brewers. The import segment has grown from 13 to 17 percent share with Mexican brands accounting for two-thirds of all imports. In fact, Mexican imports added 9.4 million barrels since 2008 while the balance of the import category lost 3.6 million barrels.
The Revolution does have a price, and it is clearly documented in the Consumer Price Index (CPI) for beer sold for “At Home” consumption. In this example, beer, wine and liquor CPI are benchmarked to 100 starting with January 2008, and each monthly change is tracked from this starting date. As beer has grown high-end share from 25 to 40 percent, the relative cost to 2008 has also grown with beer now priced 20 percent higher than in 2008. The price relationship to wine and liquor has changed dramatically as well. Starting in January 2010, the beer CPI followed a radically different trend relative to wine and liquor. After almost 10 years of trading up consumers and premiumization, the overall beer category is now 20 percent more expensive for the average consumer than it was in 2008 and 15 percent more than wine and liquor.
The combined impacts of shifting segment shares, changes in relative prices and demographics have all fundamentally and permanently changed the marketplace. All this translates directly into significant share changes in total alcohol consumption across the three major categories of beer, wine and liquor. Measured in per capita total ethanol consumption,
consumers consistently purchase about 2.5 gallons of alcohol per person each year. For the beer category, the per capita consumption metric has fallen from 1.37 to 1.27 gallons for a 7.7 percent drop in consumption. Meanwhile, the liquor has grown from .77 gallons to .89 gallons for a 14.6 percent gain. Finally, wine has grown from .37 to .39 gallons for a 7 percent increase.
While alcohol beverage market forces and macro-economic challenges are beyond the scope of beer distributor’s influence there is still opportunity. The industry should be optimistic that it can overcome its demographic challenges found in the consumer preferences across generations and between the genders. The following two charts use Nielsen Scarborough data collected from more than 200,000 consumer surveys from June 2016 to November 2017. The vertical axis is presented as an index with population base set to 100 and variations on the survey results indicating above or below average responses. In the 21-24 age category of consumers, the liquor index is 119, 104 for beer and 81 for wine. While liquor wins consumers in the 21-34 cohorts, the gap closes in at the 25-34 cohort, and beer actually wins against liquor in the 35-54 category. The basic attributes of “sessionabilty” and lower ABV for beers has always differentiated beer as a beverage of moderation against liquor.
The second chart demonstrates the difference across segments for male vs. female consumers. In this chart, the craft segment faces the greatest challenge for bridging the gender gap, the index of 142 shows males are 68.9 percent of the respondents who reported drinking a craft beer in past 30 days compared to male’s 48.4 percent share of the total population. The gender gap is also noted in imported beers and light beers while the gap closes with liquor, cider, FMBs and wine. The 2018 growth in hard seltzers and ciders certainly will help close the gender gap in drinking preference; however, the challenges for craft, imports and light beer are actionable by brewers, importers and their retailer partners.
As we close 2018, the challenges facing the industry are not all insurmountable and opportunities for growth are available. A drive to improve category health among brewers, importers and distributors has the potential to shift consumer preferences to favor beer. Time is actually on the industry’s side this time, as a younger generation of drinkers mature into young working adults and the largest generation ever to retire in the United States look for the best adult beverages to match their active lifestyles.