Craft beer: friend or foe?

Reading Thornton’s analysis of the wine market and consumer made me wonder how wine will be affected by some other changes that are going on in the broader alcohol industry.

The growth of craft beer has been one of the most remarkable recent shifts in the U.S. alcohol industry over the past few years. Although craft beer takes a relatively modest 16% share of the beer market today, the category has grown at over 15% per year for the past decade or so. More nascent categories like cider have grown even more rapidly. By comparison, the overall U.S. beer market grew only about 1% last year.

While traditional macro-brewers will bear the brunt of craft beer’s ascendancy, the implications for wine remain uncertain. The risks to wine from a new, popular, and growing competitor category are clear. Prices for premium beer and cider are often lower than for wines of a comparable quality segment, making it easier for consumers to buy quality beer than quality wine. This effect is even more pronounced in on-premise consumption, where beer is almost always offered by the glass and the price barrier is correspondingly lower. Most craft beer competes on price with wine categories for which elasticity is very high: the $6-10 range where Thornton reports very high price elasticity. Perhaps most troublingly, the consumers vulnerable to craft beer are likely occasional wine drinkers, who represent one of the wine industry’s key growth avenues.

But craft beer may also shift consumer alcohol preferences in a way that benefits wine, perhaps by triggering a shift to quality. There likely is room in American budgets for more alcohol spending. As the graph below shows, consumer spending on alcohol has recovered since the recession but remains significantly below levels seen in the mid-1980s. Could craft beer spur a renaissance in the American alcohol consumer, driving a rising tide that lifts wine as well?