2009 State of the Six Pack - Part 1

When the New Year begins, it is not uncommon to reflect on the year that had past and ponder what lies ahead in the coming year. Organizations give annual reports. Newspapers and television shows do special review pieces. Politicians give their annual address (the President’s State of the Union, the Governor’s State of the State, the Janitor’s State of the Mop Bucket, etc.).

It is in this spirit that Hoosier Beer Geek sent a Six Pack of questions to everyone we knew in the Indiana craft beer industry. Breweries, bars, restaurants, distributors, and stores across the state were included in this Six Pack. We packaged their comments, along with our thoughts, into the first annual State of the Six Pack address.

We have broken this up into three parts. Today, we will look at the economic factors that have played into the Indiana craft beer market. Tomorrow, we will discuss the craft beer market slice of the larger beer market pie. And Thursday, we will conclude with thoughts on Indiana’s laws relating to beer and alcohol. We hope that you find this to be as interesting and illuminating as we did.

Question 1: How has the economy affected your corner of the craft beer market so far and how do you see it affecting your 2009? Address both the impact on consumers and on your business operations, if possible.

Everyone is well aware of the economic issues that this country is facing. And most everybody has been making adjustments or concessions in order to balance their own budget. After losing their employment, one of our own Knights had to cancel a beer road trip. Of course, others of us seem to continue plowing cash into the craft beer machine. Just doing our part for an economic recovery!

For a good feel on how the economy is affecting the craft beer industry, we begin with those who are closest to the consumers, the retailers. Courtney Hall, owner of The Hop Shop, tells us, “We have seen a slight drop in sales, but more of a “trading down” than anything. That is, many people are buying 1 six pack instead of 2, or picking up an $8 six pack instead of a $10 six pack, for example. However, as this has been happening, we have seen an increase in the number of people either entertaining at home or simply staying at home to drink instead of going out to a bar or restaurant. The net effect of all of this is that we have essentially been flat in beer sales as compared to last year at this time.”

So how have the restaurants been fairing? “Business continues to move forward,” says Elizabeth Morse, owner of Corner Wine Bar and Old Town Ale House. “[The Corner Wine Bar] has been around for a long time and is pretty predictable/profitable. [The Old Town Ale House] continues to increase revenue each week, albeit slower than we'd anticipated. In general, sales are lower than projected at both restaurants. However, while customers spend less, we find that they are more likely to drink with those dollars than they are to buy food at our establishments.”

Roger A. Baylor at New Albanian Brewing Company is in the unique position of being a brewer and a retailer. “So far this year, we’re doing fine [selling] our own [beer], and also doing well with the top shelf of guest beers…[T]he house brewed price tier and the most expensive imports and micros are both thriving, while the items in the middle are static.”

As the economy tumbles, retailers feel it first. Then moving up the chain, distributors start to feel the effect. Mat Gerdenich, Owner of Cavalier Distributing, said “I started seeing some effects late September and we are speculating how things are going play out next year.”

Jim Schembre, manager of World Class Beverages, remains optimistic that, despite the economy, craft beer will still see growth in Indiana. “[W]e anticipate that the growth rate of the craft specialty business in Indiana will grow but at a much slower pace. probably closer to 9% not like the past increases of over 25%. We base those numbers on several things. One is we have a substantially lower market share than the rest of the country which gives us room to grow. Two is we are seeing new distribution as it relates to the on premise channel which is not growing with the traditional beer categories so those retailers are looking for something different to appease there consumers. And craft specialty fills there need. And lastly a bigger focus on Local beers which we think can improve the sales for the category.”

It appears that while consumer spending in down, people still like to drink. “[I]n the face of a bad economy, craft beer is still an affordable luxury,” Mat Gerdenich adds. Probably one of the cheapest vices available.

Question: At this time last year, everyone was worried about the effect that the global hops shortage would have on the beer world in 2008. Did the price/unavailability of certain hops change the recipe of any of your standard beers or force you operate your business than you normally would have? How do you see this affecting your business in 2009?

At the start of 2008, everyone in the beer industry was nervous about shortages of hops. Hopheads, like myself, feared the loss of some of our favorite beers. Would hops be reduced in recipes? Would some hoppy beers be dropped all together? We held our breath as the answer revealed itself.

“We had to tweak some of the beers,” said Roger Baylor, “but the brewers were resourceful, and we spent what we had to spend to get what we wanted when we could get it. There was never a thought of dumbing down.”

“Fresh hopped and generally hoppy beers were still brewed,” observed Mike Sprinkle, “Beer Doktor” and Chain Fine Wine Buyer for Crown Liquors, “and I don't think that breweries skimped on the hops, so that was good.”

So brewers were still supplying products for those demand hops. But what about prices? “[W]e saw the price increases!” reports beer distributor Mat Gerdenich. But hops weren’t the only culprit. “The price of grain also had a lot to do with pricing as well. Hops caused us some supply issues in 2008 but not nearly as was predicted. I only know of a few of our suppliers that reformulated some recipes. I am currently hearing mixed reviews as to 2009.”

Courtney Hall concurs with Mat. “There were some price increases throughout the year, but it is hard to pin all of those on the rise in hop prices. Malt prices also went up this year, and for the majority of the year, gasoline was out-of-control expensive, so I think there were several factors in any price increases that happened. Along the same lines, I do not think that this will have a huge impact in 2009 either. Some brewers may cut back on some of the extravagant and extreme sort of beers in an effort to conserve their hop allotment, but I don’t envision shortages of their higher volume beers.”

Basically, everybody agrees that the impact of a hops shortage were not as bad as everyone feared. But there were some price increases. What we can anticipate for 2009 is anybody’s guess. We suspect that this year, consumer spending and demand will have a bigger effect on the breweries, retailers, and all those involved in the craft beer business than hops, barley, and fuel costs.