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Craft beer sales are surging at stores, but craft breweries are still struggling. Cheap beer is surging, but it's still losing market share. That's because the economics of the beer business are complicated. (And that's before you start drinking.) But the beer business can tell us a lot about the last two recessions.

Take Natty Light (seriously, take it, we don't want it). Natty Light falls into a category that the beer biz calls "subpremium" — a category filled mostly with beer that closely resembles water. After over a decade of decline, the pandemic has pushed subpremium beer sales up big time. According to data from IRI, a market research company, store sales are up over 11% as compared with the same time period last year (early March to late June). This surge has happened *despite* the shutdown of colleges, frat parties and beer pong.

Subpremium beer tends to be lower in calories and sold in bulk, which probably helps in the COVID-19 era. But when we first read reports of the surge of cheap beer, we thought it was mainly a sign that consumers were tightening their belts in the face of the economic collapse. Economists use the term "inferior goods" to describe products that sell well when people lose income. During recessions, cash-strapped consumers flock to cheap stuff like instant ramen noodles, used cars or Netflix as an alternative to going to the movies. This has also, to some extent, been historically the case for lower-priced beer, wine and spirits, says Patrick Livingston, an analyst at IRI. "But what's interesting about this current period is that we have really not seen that effect set in," he says.

Previous reports — for example, the article "Consumers Switch To Cheaper, Lighter Beer During COVID-19"— have missed that while cheap beer sales are up, overall beer sales are up even more. There's been a 27.5% increase of beer sales in stores over the same period last year. And so while lower-priced beer has seen a surge, it has actually been losing market share, according to IRI's data. Subpremium beer is lagging behind imports, which are up 15%, and craft beer, which is up almost 23%. Cheap beer is also lagging way behind "hard seltzer," like White Claw, which is relatively expensive and has seen a 246.7% increase when compared with this time last year. All these surges in purchases of more expensive beverages are a part of a trend beer biz folks refer to as "premiumization."

"If anything, the premiumization trends we've seen within the beer market have strengthened during recent months," says Bart Watson, the chief economist at the Brewers Association, a national nonprofit trade association for small and independent craft breweries. (Yes, the Brewers Association has a chief economist, and Watson acknowledges his job is cool as hell).

Beer tends to be fairly recession-resistant. In fact, according to IRI data, the trend toward premiumization began in the last recession and has continued to be the dominant driver of beer sales ever since. Watson says that craft and other expensive beer tends to be somewhat insulated from economic downturns because of who tends to buy it: young professionals with good jobs and cash to burn.

"You know, we didn't really see craft or imports or super premium lose share in the last recession," he says. That's because, he says, the recession didn't inflict as much pain on the class of people who tend to drink Session IPAs, artisanal Porters, Belgian Lambics and Saison pale ales. Likewise, in this pandemic and recession, craft beer drinkers are more likely to have the luxury of working remotely, keeping their jobs and spending a few extra bucks on beverages with flavor.

Yet, craft breweries are still struggling. The surge of beer sales in stores is driven by the shutdown of bars, restaurants, clubs and sporting venues. And while craft beer might still be doing well in stores, craft breweries, Watson says, get about 40% of their sales from draft beer. With bars, restaurants and their breweries closed, the kegs haven't been flowing. Corporate breweries, meanwhile, "get more like 10% of their revenue from draft beer" and only about 20% from drinking in bars, restaurants, and other public venues, Watson says. "So the shutdown has hit the smallest brews the hardest."

If the recession continues, job losses become permanent and unemployment benefits expire, Watson says, it's possible that we'll see more craft brew drinkers opt for cheaper options at the store. Craft brew was already seeing signs of a slow down before COVID-19 hit. But, he says, given the type of consumer who tends to drink craft beer, he has a hard time seeing a huge change in consumption habits. "I mean, it's hard to imagine somebody who loves to drink IPA suddenly saying, 'I'm going to save money by going to Busch Light.' " But, given that craft breweries are largely dependent on people hitting the town, that mindset only helps them so much during the pandemic.

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