Folks trade down and shift to house parties to get a buzz

Alcohol used to seen as a recession-proof good. This downturn is changing that thinking as evidence of cutbacks in spending, consumption, and on-premise drinking abound. Back in the Spring of 2008, Nielsen conducted a bunch of surveys to see how the economy was affecting the consumption of wine and spirits. The answer then was it was not yet a major impact. The Blog “Wine & Spirits Daily” reported:

When it comes to wine, 49% said the economy has had “no effect” on the amount they spend, while 37% said “just a little” and 13% said “significantly.” With spirits, 48% reported “no effect,” while 34% said “just a little” and 17% claimed a significant difference in spending. Beer, meanwhile, had 47% of consumers reporting that their spending hadn’t changed, while 40% said “just a little” and 13% said “significantly,” according to Nielsen.

But, by January of 2009, the industry was reporting a change in dynamic. The Associate Press put out a story called “Is the alcohol industry recession proof?” which showed major impact being felt in the industry. The big change in behavior is what is called off-premise drinking i.e. carry-out beer, wine and spirits instead of drinks in restaurants and bars in order to cut costs.

Consumers are eating out less as they try to save money, and when they do go, Cressy said, they’re limiting what they order. On-premise volume fell 2.2 percent last year.

Instead, people are drinking at home and buying from stores.

Off-premise volume rose 2.9 percent for the year.

So people are drinking, but they’re paring back, said David Ozgo, the council’s chief economist.

The number of drinking occasions is falling; he said he wasn’t sure yet how much they were dropping.

"They still want to have a good time, so a certain amount of those drinking occasions will be shifted to at-home," he said…

And the beer industry isn’t recession proof either, figures show. Earlier this month, SABMiller PLC, the maker of Miller Genuine Draft and Peroni Nastro Azzurro, said its beer shipments fell unexpectedly in the most recent quarter amid a worldwide slump in consumer spending.

And I know this trend has continued. A source in the industry told me last month that her company was focusing on off-premise premium brands to add sales. The point is to get customers to choose a premium brand in a higher price point now that they are spending less due to the off-premise drinking.

However, when it comes to beer, people are trading down. Real Time Economics says “Sorry, Bud: Natty Light Isn’t Just for College Anymore.”

Heineken sales sank 18% from the previous year in grocery, convenience and drug stores during the two-week period ended July 5, followed by Budweiser at 14%. Corona Extra sales dropped 11%, while Miller Lite declined 9% and Bud Light fell 7%. Coors Light sales held up better, falling less than 1% from a year ago.

Meanwhile, sales of “subpremium” beers including Busch, Natural Light and Keystone posted “substantial gains”, according to Ad Age, which didn’t provide the specifics.

It’s a sign that despite the cheap, frat-party image of those brands (and debatable taste), consumers are focused on one thing right now: the bottom line.

Clearly, people still want to get a buzz, but they are not willing to pay the same price for that buzz.

Nevertheless, alcohol consumption is down – not just in the US, but globally. Another source who works at a major national beer distribution center in Germany told me a few months ago that staff was being cut as sales are down there. This pattern In the land of Oktoberfest was confirmed by the recent report showing German beer consumption is now down.

According to German-language weekly Spiegel, beer consumption is down 5% this year. This decline in beer consumption in Germany is the most on record. All of the major German-owned brands are getting killed: Veltins (–6.5%), Krombacher (-5.3%), Bitburger (-4.6%), Warsteiner (-6.5%), König (-6.7 %) und Jever (-7 %).

There are some clear trends from the anecdotes and data; people are indeed cutting back on consumption, trading down, and going off premise. However, the loser here is less the wine and spirits makers and more the hotels, restaurants and bars. The pullback in alcohol consumption and sales is another sign that the travel and leisure industry is due for more pain to come.