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Wednesday, October 15, 2008

Beeronomics: More Potatoes and Less Meat

The Dow saw it's largest second-largest single-day fall on record today, but what about beer? The good professor has our backs in his periodic beeronomics series.
Wow, sales are up 11%! One could possibly infer from this that craft beer, like macrobrews, are an inferior good (in the economics sense, not in the real sense). This means that as incomes fall, you actually consumer more. The classic example of this are the potatoes in the aforementioned meat and potatoes meal. As incomes get tight the plate becomes more potatoes and less meat (and vice versa when people are flush). Perhaps craft brew becomes a substitute for fine wine, scotch and the like. Of course it is more likely that demand just continues to rise as more and more people wake up to the fact that beer doesn't have to taste like crap (pardon me - that is an economic term of art for "Bud"). Oh and what about those macros? Sales are flat, just like the keg the day after the frat party. Anyway, read the WSJ article, as it addresses how brewers are coping with hops shortages and increasing input prices.
It's a weird paradox, isn't it? The Wall Street Journal article Patrick quotes says that craft beer is "one of the cheaper luxury items people can buy." So for those of you who were thinking your double-fermented, dry hopped, barrel aged barleywines were a little hoity toity, take heart. They're still a bargain for luxury items.

15 comments:

Anonymous said...

Actually, if I'm not mistaken, the Dow saw it's _second_ largest single-day fall on record today; the largest was on September 29th. Small consolation though. I thinks it's time for one of those double-fermented, dry-hopped, barrel-aged barleywines you mentioned. ;-)

Jeff Alworth said...

AP: "The market's despair propelled the Dow Jones industrials down 733 points to their second-largest point loss ever, and the major indexes all lost at least 7 percent."

I stand corrected.

iggir said...

don't people tend to drink more during crisis? my buddy says bars are recession proof...you might stop paying for your cell phone, but you'll keep buying drinks.

dr wort said...

Interesting topic!

I wonder where the numbers will fall at the end of the year?

While beer is recession proof... I wonder how long high end beer will stay on the rise? If people start feeling the crunch, will they economize by buying cheaper beer? We might see "Crap" sales go up.

It's already hitting the coffee biz...

One can never tell what the public will do.

Personally, when it comes to crunch time, I will go to the bottle.... of booze!

A 750 milliliter bottle of Jim Beam is about $15. That equals 25.36 ounces of 80 proof (40%) alcohol which equals about 17 (1.5 oz) cocktails.

If you compare that to the price of quality beer at $8-9 bucks for a six pack, which we are to assume one beer equals a 1.5 oz. shot of booze... We come up with an equal cost on alcohol of almost 3 six packs of beer for every one 750 ml bottle of booze!

If you do the math, the equals $24-27 bucks for beer vs. $15 bucks for the booze. That's quite a savings for the same buzz... ;-}

Maybe, we should be investing in Jack, Jim and Jose!!! :-O

I'd rather drink with those friends rather than Budmilloors... ;-}

high end

Maureen Ogle said...

Jeff, who is the "good professor"? I clicked on the link, but it led to a dead-end.

Maureen

Jeff Alworth said...

Iggi, beer is recession-proof (actually, sales increase during down times), but the question about micros is an open one. They're twice as expensive or more--are they also recession-proof? So far, looks like the answer's yes.

Maureen, he is Patrick Emerson, econ prof at Oregon State U. I have fixed the link. Thanks for the heads up.

D wort, I also wonder if we'll see an increase in sales of high-gravity beers like IPAs, which cost the same as low-gravity beers. If you run the numbers looking at cost per alcohol percent, a sixer of IPA might begin to look relatively cheap compared with a sixer of Bud. Or so close that the marginal luxury cost for the IPA looks like a deal when compared against an insipid can of crap.

dr wort said...

Exactly, Jeff.

Thinking about the age demographic's is an interesting twist too.

20 somethings may be drinking Craft Brews to look HIP and don't really care about hops and malt, but know that this "Craft Beer Stuff," as one of my 20 something co-workers call it, gives them a decent buzz. So, alcohol may be the selling point for this age group. They're out their in droves and drinking! If it's chic, looks like the HIP thing and gives ya a buzz.... It's great stuff! Look at the PBR consumption in our town! It's not Craft, but it's cheap....and gives ya a buzz, AND exceptable by the HIP. Why, I don't know!? Maybe Mad Dog 20/20 will be Hip next year! It's kind of scary! ;-}

I have a young co-worker who's been trying to pick my brains for beer knowledge.... to impress his friends! What a frickin POSER!

Back to age related consumers... 30 year old's are probably married and might have kids. This age group becomes dicey with the money they spend. They may want to keep up with the Jones and try to look "30 something" HIP and buy craft beer to impress Biff and Buffy next door, but when they leave the weekend BBQ party, the Coors Light flows free with the shades pulled down and they recycle the cans at work or in the basement.

40 and up. They either have the money to buy what they want and like, or not. They'll drink what they can afford. Whether that's a $9-$12 dollar bottle of Rochefort 10 or a $2.50 bottle of Colt 45. At times, it might go back PARTLY to the 20 something mentality with a smarter economical edge. What's the biggest BUZZ for the buck? ;-}

It's mostly about the BUZZ for the moral majority of drinkers... I always think that term is an oxymoron! "MORAL MAJORITY" should be renamed as Major Dumb Asses! ;-}

But we all need a ying and a yang!

In regard to your comment on High Gravity Beers. Yes, absolutely! More bang for your buck! When times are hard a lot of people want that BUZZ BANG for a cheap buck.

Plus, since hops have tripled in price. Maybe we'll see lower hopped beers with more alcohol. That might knock a few sense off the ol' six pack. ;-} That could bring us back to a Schlitz Malt Liquor mentality!! Oh no!!

Remember.... I sixer of Schlitz Malt Liquor (The BULL) barely cost anymore than the regular Schlitz. Plus, at 7% for the Malt Liquor verses the 3.8% alcohol for the regular, the best bang for a buzz people would go to the malt liquor.

It's really is all still happening, just in the lower income and ghetto areas, where the Old English 800 and King Cobra flow free.

I have a bad feeling that the craft brew pubs, breweries and like are going to a major hit if we continue into a recession. I hope I'm wrong.

It's all kind of interesting to think about....

DA Beers said...

Man, all these years I've been drinking craft brew cause I thought it was delicious, come to find out like every other kid in his 20's I'm just doing it to be hip, thanks Dr. W!

Now I'm off to the Plaid Pantry to pick up some 40's of Hurricane Ice to weather this storm.

Joe said...

Could it be right that Old English 800 got 3rd at the GABF for whatever category it entered? $2 bucks for a 40, hard to beat if all your looking for is an alcohol delivery system.

Æsop said...

The last 40 of malt liquor I bought ran about ten bucks.

- Æ

Anonymous said...

Why is Dr. Wort so angry?

DA Beers said...

cause all them young 20-somethings are drinking up all his brew.

dr wort said...

I'm not angry, unless I have to drink Malt Liquor.... ;-}

DaBeers:

You need to read with a little better comprehension! Re-read my post. I said, "20 somethings "MAY" be drinking Craft Brews to look HIP...."

It's a bar room and pub observation. One would be stupid to think that there couldn't be 20 Somethings that do appreciate a decent quality beer...

If you enjoy craft brews for the taste, congratulations, you "MAY" be at the top of your generational class... ;-}

DA Beers said...

I'm just giving you grief.

The best idea i've seen was when the Green Dragon had the "Schlitz" tap. Very few people got the joke and so many people missed out on the fun.

dr wort said...

DEBEERS:

Sorry, I'm used to defending my humor. Apparently, a lot of people don't get my comical cynisism and satirical humor. I guess most people didn't grow up in my 'hood.... ;-}

I saw the Schlitz tap! I instantly got the joke, but they're were people who didn't get it and I heard a couple "Morons" (probably still in their 20's!) cop an attitude of disgust. All I could think was, "What a bunch of simple minded MFers..." That said, I also saw two big corn fed meatballs get excited and try to order a pint of Schlitz... I think they thought it was a McCain rally! ;-}

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