- Economic Issues
Thursday, January 31, 2008 12:17 AM
Subject: Re: Economic Issues, Some Questions
I recently returned from a 5-month cross-country road trip where I visited
70 separate breweries. Macro economics is part of the business of beer and definitely
has an effect. I watched June 2007's optimistic excitement of impending expansions
slowly morph into a grounded pessimism over hops and malt availability and cost
by September 2007. To answer Andy's specific questions:
Q: Is anyone
holding off on any expansion/big ticket items to see what exactly will happen?
Your reasons? How long will you wait?
A: From what I saw, only new
start-ups seemed to be holding off and postponing building and opening. I think
they will wait until malt and hop prices stabilize and become available again.
Stainless prices were high and used equipment was hard to find. These folks will
be re-running their numbers until the numbers pencil out. I think some may wait
until used equipment prices come down in price, in order to offset the increased
cost of raw materials.
Q: Do you see opportunities for growth even
in an economic slow down?
A: Yes. The low dollar keeps the price of
imported beer high and therefore competitive with craft beer compared to 1996-2003.
Those who contracted their malt and hops early or who have economies of scale
will fare the best if there is a recession, as they will be able to keep their
beer prices lower than others who do not have those advantages.
Does the economic situation coupled with the increase in beer prices due to hop/malt
supply create a perfect storm in which people may turn away from craft beer to
something less expensive?
A: What are the alternatives? With the dollar
so low, it won't be imported beer. It may be the lower-priced mass-produced lagers,
however long-time craft beer drinkers may not be able to switch completely. During
the last 10-15 years, the manufacturers of mass-produced lagers (International
mega-brewers) have been perfecting their craft knock-off beers. These bottled
craft-alikes generally do not list the real name of the manufacturer, but list
a quaint "Plank Road" type brewery name on the label. The craft knock-offs
will probably not affect draft craft beer sold in pubs because a bartender is
an effective beer tour guide. However, they may create serious competition in
the grocery store marketplace because of lower price, excellent distribution,
severe lack of beer stewards cruising the beer aisle, and the ability to stealthily
sit on a shelf in the craft beer section and look just like a craft beer. Perhaps
our best defense is a "drink local" or "know your brewer"
Q: Is beer recession-proof, as the saying goes?
Some beer is definitely recession-proof. The question is, which beers?
If we do find ourselves in a recession which area do you think will feel it first,
retail (brewpub) or wholesale (packaging breweries)?
A: Depends on
the newness of the brewery, and whether or not they contracted enough malt and
hops to get them through the bumpy ride. That said, a brewpub is a restaurant
first. If a brewpub can't get raw materials, it will still be able to get beer.
So a brewpub will be able to exist and function mostly as it was designed, although
if it has to buy beer because the brewer did not contract raw materials, the brewer
may be out of a job. A packaging craft brewery has only one function, and that
is to produce and sell beer. Newer, and therefore less experienced, packaging
craft breweries may have missed their opportunity to contract raw materials at
a good price, and possibly may have missed their opportunity to contract altogether.
If the packaging brewery cannot get raw materials, it cannot achieve its function
and will cease to exist.
Please see the March-April issue of New Brewer
for my trip report and prognostications in the article, "Across