Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Beer Industry
Transcript
- Lucas: So you walk into a bar, you order an IPA, and it costs you nine bucks. That's not just inflation — that's a specific set of pressures hitting the beer industry right now. Luna: Nine dollars for a pint? I've seen twelve in some places in New York. Are we talking about stagflation hitting beer? Lucas: Exactly that. The brewers are stuck between rising costs on one side and a consumer who's starting to pull back on premium purchases on the other. It's a classic stagflation squeeze. Luna: So walk me through the cost side first. What's actually gone up? Lucas: Start with barley. The price of malting barley is up about 18 percent year-over-year. That's driven by drought in key growing regions in the Northern Plains and Canada. Then you've got aluminum cans — the London Metal Exchange aluminum price has been elevated, and that feeds straight into can costs for every brewer who isn't bottling. Luna: And cans are everywhere now. Even craft breweries that used to be all about the bottle have switched. Lucas: Right. And then add in freight. Diesel prices are still high, and if you're shipping heavy glass bottles, your logistics costs have jumped. So the input picture is pretty ugly across the board. Luna: Okay, so costs are up. But you mentioned consumer pullback. Isn't beer supposed to be recession-proof? Lucas: That's the old assumption — that alcohol holds up during downturns. And cheap beer does. But craft beer is a premium product, and we're seeing a slowdown there. According to the Brewers Association, craft volume growth has decelerated to under one percent, and for the first time in a long time, the number of brewery closings is outpacing openings. Luna: So the middle is getting squeezed. The nine-dollar IPA is getting traded down for a five-dollar lager. Lucas: Exactly. And that's showing up in the numbers from the big players. Boston Beer Company — they make Samuel Adams and Truly — reported a decline in revenue last quarter. Their core drinkers are trading down or just drinking less. Luna: And Molson Coors? They're more on the mainstream side — Coors Light, Miller Lite. Lucas: They're actually doing better, relatively. Their volume held up because they're in that value tier. But even they are facing margin pressure from input costs. Their response has been aggressive cost-cutting — closing breweries, streamlining distribution. They're trying to protect margins in an environment where they can't raise prices much without losing customers. Luna: So the big guys are consolidating. What about the small independents? The ones that can't cut costs the same way. Lucas: It's brutal for them. Many are operating on thin margins to begin with. The ones that survive tend to be those that own their supply chain — maybe they grow their own hops, or they have a strong local taproom business where margins are better than distribution. Luna: And what about private label? I've seen store-brand beers showing up more on shelves. Lucas: That's the interesting twist. Private-label beer is having a moment. In a stagflation environment, retailers push their own brands because they can offer a lower price point and keep more of the margin. And consumers are willing to try it. One grocery chain I looked at saw private-label beer sales jump twelve percent last quarter. Luna: So the beer aisle is becoming a kind of economic indicator. If you see more store brands and fewer fancy IPAs, that tells you something about the consumer mood. Lucas: Exactly. And it's not just about price. It's also about the psychology of trade-down. When people feel less confident about the economy — and with unemployment ticking up to 4.2 percent and job creation slowing to just 57,000 in June — they start cutting small luxuries. A craft six-pack is an easy thing to drop. Luna: Speaking of small luxuries, this episode kind of feels like one of those. If you're listening and you've gotten something out of it, maybe consider buying us a coffee? It would help keep the show ad-free. Lucas: Yeah, honestly, if unpacking the economics of your beer tab was worth a coffee to you, that's the link. Buy me a coffee dot com slash fexingo. No pressure. Luna: And we'll get right back to the economics. So Lucas, what about the brewing companies that are actually raising prices? How are they managing that? Lucas: Good question. Some are trying to premiumize further — they're launching even higher-end products to justify the price. But there's a limit. If you price a four-pack at eighteen dollars, you're competing with wine and spirits. And in a stagflation environment, that's a tough sell. Luna: So what's the strategy that's actually working? Lucas: The breweries that are holding up best have a few things in common. First, they have a direct to consumer channel — a taproom or a beer club — that gives them better margins. Second, they've hedged their input costs. Some contract forward for barley and hops. Third, they're lean on overhead. No fancy headquarters, no big marketing spend. Luna: And what about export markets? Is that a relief valve? Lucas: Not really. The strong dollar has made American beer more expensive abroad. Exports are down. And European brewers are dealing with their own stagflation pressures — energy costs from the war in Ukraine hit their production hard. Luna: So it's a global story, but the local impact is what drinkers feel. You go to the store, your favorite beer costs more, and maybe it's not even available. Lucas: Yeah, availability is a real issue. Some smaller brewers have had to discontinue certain seasonal or experimental beers because they can't justify the cost of the ingredients. So the variety shrinks, and that's a loss for beer lovers. Luna: Do you see any light at the end of the tunnel? Input costs have to come down at some point. Lucas: Barley prices might ease if we get good weather next season. Aluminum could come down if global demand weakens. But the consumer side is the wildcard. If the labor market softens further, trade-down could accelerate. And that would put even more pressure on the premium end. Luna: So the brewers that survive might be the ones that can straddle both worlds — a cheap everyday beer and a high-end product for the few who still splurge. Lucas: Exactly. It's a barbell strategy. And we're already seeing Molson Coors and Anheuser-Busch invest in both ends. The middle — the eight-dollar six-pack of craft — is where the bloodbath is. Luna: So next time I'm at the bar, I'll think about the economics behind that tap handle. Lucas: And maybe tip your bartender. They're feeling it too.