The Beer Industry Is Not Dying

Brewers are anxious. For the first time in 20 years, failures are way up and many (craft) industry leaders are shrinking. Prices are going down. Tariffs are cutting into profitability. Cannabis circles like a ravenous wolf. And the most existential of all crises—the kids ain’t drinkin’ like they used to.

A 2018 report from Berenberg Research found that respondents in their teens and early 20s were drinking over 20% less per capita than millennials did at their age. And millennials already were known to drink less than baby boomers and Gen Xers did at the same age. Industry leaders, such as AB InBev CEO Carlos Brito, have pointed to millennials' growing interest in health and wellness to explain their move from beer, as well as their growing appreciation for lower-alcohol options. As states across the US legalize weed, Gen Zers and millennials are more likely than older generations to favor marijuana over booze.

Things could definitely be easier. But if we look into the middle future, are things really as bad as all that? Lester Jones, the National Beer Wholesalers Association’s chief economist, musters some fascinating numbers that tell a different story. Jones acknowledges that young drinkers aren’t pulling their weight relative to earlier generations of young drinkers. But when he digs into the BLS’s Consumer Expenditure Survey, he sees reasons to feel hopeful.

Two trends are conspiring to drive consumption down, but they’re demographic, not behavioral. Jones looks at the beer-drinking population by age cohort, and sees two problems. Older people have more disposable income and so spend more on alcohol. Those who are in my age cohort, 45-54, spend twice as much as drinkers aged 21-25. That’s just a reality of life—people at the start of life just earn less. The problem is that my cohort has shrunk 1% over the period of 2010-2017. (This is the legacy of my brief, small generation, which was wee compared to the Baby Boomers who have dominated American society for 50 years—and which are swelling the ranks of the elderly as they age. Americans aged 65-74 grew at a robust 4.5%) The only other cohort to shrink were those youngest drinkers.

This has two effects. First, it means the industry is leaning on big spenders who have shrunk in size—there are just fewer of us than there were big spenders during the brewing industry’s salad days of the late naughties. Second, the post-recession generation of young adults, those who would normally be jumping into booze in a big way, just have less money to do so than earlier generations:

For younger consumers, rent, entertainment, eating out, education, transportation and health care have all taken bigger bites out of their total expenditure budget since 2010. This is a forced budgetary constraint imposed by the marketplace on consumers and their lifestyles.  Moreover, the growth of high-end beverages and a focus on local craft has forced a decline in total volumes while consumers manage to keep their budgets balanced.

But those young people won’t be poor forever. Their spending has been depressed, but Jones thinks they’ll catch up as other generations have. And in the meantime, my anemic little cohort will age and become increasingly irrelevant to the overall industry.

Jones identifies one other super fascinating detail. The BLS breaks expenditures down by category, and it turns out that spending on booze is basically consistent across time—people spend a little less than 1% of their money on alcohol, a figure that has held firm for thirty years. It just so happens that the way the cohorts line up at the moment isn’t great for overall spending.

There is more fine-grained analysis, including a bunch of very interesting tables and graphs, st the link. I will leave you with Jones’ parting words, which might make you feel a bit sunnier about the beer industry’s prospects.

“The economy will see an absolute increase in total spending as every consumer moves into the next stage of their lives. This will translate into an absolute increase in spending on alcohol following a steady 1 percent share of total expenditures. The end is not near for alcohol or beer, it’s the beginning.”