Consumers are continuing to trade up in their alcoholic beverage purchases, even as the COVID-19 pandemic-induced economic downturn continues, Brewers Association (BA) chief economist Bart Watson said during a webinar last week.
“People still see beer as an affordable luxury, while beer has taken on a lot of price relative to wine and spirits,” he said.
Watson’s presentation reviewed 2020 through the lens of several data points and provided some predictions for 2021. Although premiumization in beer is not a new phenomenon, its continuation during the pandemic, which has caused spikes in unemployment and financial hardship nationwide, seems to defy expectations.
“We see long-term forces that are pushing the beer market to premiumize as people trade up,” Watson said. “This is something we’ve really seen in the data since the ’90s, and so that suggests there are lots of forces behind it.”
However, the brunt of the effects of the pandemic has been borne mostly by lower wage earners, leaving those with higher incomes who have transitioned to remote work relatively unscathed.
“The lowest end of the labor market has been hit the hardest and so most of the jobs that have been lost are very, very low wage jobs,” Watson said. “That means, in the context of the beer market, the people who still have money in their pockets are the people who are more likely to buy in those higher priced beer categories and all indications are that that’s going to continue into 2021.”
Over the last 26 weeks, off-premise retail dollar sales of the three highest priced beer category segments — craft, imports and domestic super premiums — have increased double-digits compared to the same time frame last year, according to IRI data shared by Watson. Dollar sales of domestic premiums have increased about 2.5% over the last 26 weeks, after declining nearly the same amount in the same period last year. However, dollar sales of domestic sub-premiums have declined about 2.5% in that same time period.
Watson predicted that consumers will continue to trade up in the beer category, especially when they compare it to other alcohol categories.
“High end parts of beer are still very affordable, versus the luxury segments of both spirits and wine,” he said.
Millennials Still Engaging With Craft; Gen Z Will Be More Diverse
Drinkers’ proclivity for premiumization and an aging populace has been a boon for craft beer; typically people make more money as they age, and consumers’ behavior indicates they will spend more money on beer.
“This is a great long-term sign for craft and craft’s ability to recover out of this,” Watson said.
Craft beer has gained more drinkers every year since 2015, when the BA first commissioned market research firms Nielsen and Harris Insights to conduct the now annual Craft Beer Insights Poll (CIP). In 2020, the survey found that 44% of legal drinking age adults drank craft beer, the largest population share in the survey’s history.
As the millennial generation progresses in their careers and increases their spending power, they are able to allocate more money to craft beer, which has buoyed the segment in recent years. However, craft breweries shouldn’t count on millions of dollars of spending at the same levels.
“We get a huge generation moving across the economy that by and large likes craft and is in the right age frame for craft,” Watson said. “The ‘but’ here is that that’s not going to last forever.
“We’re going to see the millennials age out of prime beer drinking age, and so it’s going to be harder to keep them in the craft beer category,” he continued.
The elder members of Generation Z, born after 1996, have begun to reach legal drinking age and they are more diverse than previous generations. Nationwide, 52% of them are non-Hispanic white, according to the Pew Research Center. In some regions, this number is even lower, such as the west, where only 40% of Gen Z are non-Hispanic white.
Watson noted that Gen Z seems to drink less than older generations and are less concerned about how local brands are to them, so craft brewers will need to find different ways to communicate with them.
“What craft has done in recent years is double down on its core set of drinkers, who are higher socioeconomic status, more likely to be white and more likely to be male,” Watson said. “That’s been fine in an era where the age demographics have been so much in our favor that craft’s been able to grow anyway, but that strategy is going to get tapped out over the next five or 10 years.
“Craft really needs to expand its offerings to a broader set of not only Gen Z drinkers, but across the economy and across ages,” he continued.
Drinkers More Aware of Alcohol Content; Still Interested in Hazy Beers
In this year’s CIP, both high alcohol content and low alcohol content gained 10 points over the 2019 poll for how important they are in consumers’ purchasing decisions.
“It’s kind of interesting to see that contradiction, but both have been getting more important in the craft market over time,” Watson said. “The craft market really segments into a set of lifestyle brands that people want to drink, maybe more often day in, day out and specialty flavorful brands that are more for celebrating, for indulging.”
Other beer attributes drinkers said they were looking for included juiciness/haziness and crispness. The CIP found that women and craft drinkers in all age groups (21-25, 21-34 and 35-44) indicated they were more interested in juicy/hazy beers than they were last year.
“That strikes me as a style that’s still set for growth,” Watson said.
Supply Chain Disruptions to Continue in 2021
The drastic shifts in consumer behavior caused by the COVID-19 pandemic have had far-reaching effects on the beer industry’s supply chains, which are unlikely to let up next year.
“Anytime you have an economy in turmoil, it is going to create ripples that create disruption,” Watson said.
The aluminum can shortage caused by a sharp uptick in at-home beer consumption due to the cessation of draft service during the pandemic will continue throughout the first half of 2021.
“In the second half, it’s still going to be very, very tight as some of the new capacity that comes online is already spoken for,” Watson said. “New capacity here is only a partial solution because there’s long-term trends driving can demand as well. We see can demand not just within craft beer or the beer market generally, but within a broad range of beverages.”
Ball Corporation, one of the world’s largest manufacturers of aluminum cans, estimated in October that the country is 10 billion cans short in 2020.
Nationwide inventory of carbon dioxide has bounced back, after shrinking in the spring and summer following major downturns in ethanol production when much of the country was under stay-home orders and demand for gasoline plummeted.