"Brews and Blues: Inflation's Toll on Craft Beer Lovers"

In the face of escalating inflation, Americans are struggling to manage household expenses. From housing and food to transportation and entertainment, the average household expenditure was expected to reach USD 72,900 by August 2022—approximately USD 11,500 more than in 2020. This inflationary pressure has significantly impacted the beer industry, with the cost of beer ingredients, packaging, and shipping all seeing substantial increases. Craft beer, in particular, has been hit hard.

Craft Brewers Absorb Costs, Yet Sales Decline

While macro brewers and some larger craft brands passed increased production costs onto consumers, many smaller craft brewers absorbed these costs to avoid raising prices. Despite their efforts, craft beer sales have declined both on-premise (at bars, restaurants, and breweries) and off-premise (retail stores) throughout 2022. This decline is a stark contrast to the 23% increase in off-premise craft beer sales during the peak of the COVID-19 pandemic in 2020.

Conflicting Trends in Beer Sales and Pricing

The relationship between beer prices and sales is complex. Academic studies often suggest that higher prices and taxes lead to reduced alcohol consumption. However, industry reports indicate that beer sales have not dropped in direct proportion to price increases since 2008. This discrepancy is partially explained by the fact that craft beer drinkers, who typically have higher median incomes, are less price-sensitive than non-craft beer drinkers. Additionally, during the pandemic, some consumers opted for 'premiumization,' choosing higher-priced craft beers in smaller quantities, while others bought larger quantities of cheaper beers.

The Pandemic’s Lasting Impact

The COVID-19 pandemic forced breweries to adapt quickly. Many shifted to canning and bottling their beers due to the closure of taprooms, bars, and restaurants. However, this shift was complicated by an aluminum can shortage. Smaller breweries, particularly those without strong distribution networks, faced significant challenges. Overall retail sales for the industry plummeted from $29.3 billion dollars in 2019 to $22.2 billion dollars in 2020, resulting in a loss of over 568,000 jobs.

Research Questions Addressing Craft Beer Consumer Behavior

This study seek out to understand how craft beer drinkers have adjusted their consumption habits in response to rising prices and inflation. The research focuses on four key questions:

1. Have craft beer drinkers decreased their on-premise consumption due to inflation and rising costs?

2. How much more are craft beer drinkers willing to pay on-premise if prices remain higher?

3. How much more are craft beer drinkers willing to pay for off-premise purchases if prices remain higher?

4. To what extent have craft beer drinkers utilized third-party delivery services, and how much more are they willing to pay for this convenience?

Survey Insights

An online survey conducted in Fall 2022 gathered responses from 350 craft beer drinkers. The majority of respondents were male (61.1%), aged between 26-40 (56.8%), and earned less than $80,000 dollar annually (64.6%). Key findings include:

• Decreased On-Premise Consumption: Nearly half of the respondents indicated they now drink craft beer away from home less frequently, aligning with previous studies that suggest increased prices lead to reduced consumption.

• Willingness to Pay: Respondents showed a relatively low willingness to pay higher prices for on-premise and off-premise craft beer. However, those with higher incomes were more willing to absorb price increases.

• Third-Party Delivery: Usage of third-party delivery services, like Drizly, surged during the pandemic but has since declined. Yet, there remains a willingness among some consumers to use these services in the future, suggesting potential market expansion.

Implications for Craft Brewers

The findings highlight the economic strain on consumers due to inflation, particularly impacting craft beer drinkers who face rising prices across various industry sectors. Despite the general perception that craft beer consumers are less price-sensitive, the study reveals a paradoxical trend where some decrease their consumption away from home in response to price increases.

Craft brewers have demonstrated resilience by adapting production methods, sourcing local ingredients, and experimenting with pricing strategies to moderate price increases. On-premise sales, especially in brewery taprooms, remain crucial to profitability due to higher profit margins compared to outside sales. The study suggests that craft brewers and sellers should continue to innovate and explore new sales avenues, such as third-party delivery services.

Conclusion

The study underscores the complex relationship between economic factors, consumer behavior, and industry dynamics within the craft beer market. While rising prices and inflation pose significant challenges, the willingness of consumers to pay slightly more for products they enjoy provides some hope for the industry. Future research should continue to assess the evolving consumer preferences and the impact of economic fluctuations on the craft beer market.

For further details, refer to the full study here.

1. Comparative Analysis: Considering Japan's unique economic landscape, how might the impact of inflation on the craft beer industry in Japan differ from that in the United States, particularly in terms of consumer behavior and brewery adaptations?

2. Cultural Preferences: How do cultural preferences and drinking habits in Japan influence the craft beer market's response to inflationary pressures compared to the American market? Provide examples from both countries to support your analysis.

3. Supply Chain Challenges: Given the global nature of supply chains, what specific challenges might Japanese craft brewers face due to international inflationary trends, especially concerning the cost of beer ingredients and packaging materials?

4. Economic Policies: How could Japan’s economic policies, including taxation and subsidies, affect the craft beer industry’s resilience to inflation compared to the United States? Discuss potential policy measures that could be implemented to support the industry in Japan.

5. Market Adaptation Strategies: Analyze the effectiveness of the adaptation strategies employed by American craft brewers, such as shifting to canning and bottling, for Japanese craft brewers. What additional strategies might be necessary for Japanese brewers to sustain their businesses amidst rising costs?