Impact of Craft Beer and Spirits on Wine Sales in Hospitality

This essay focuses on the impact of craft beer and spirits on wine sales in the hospitality sector and how that difference in sales affects the operation and management of the beverage programs in the clubs, bars, cafes, and restaurants.

Running head: ESSAY
Impact of craft beer and spirits on wine sales in hospitality and how it affects managing
and running of beverage programs
Name of the Student:
Name of the University:
Author note:

1ESSAY
Introduction
The alcohol industry of New Zealand is quite large and significant sector for the
economy. Alcohol consumption is a part of the culture of New Zealand and thus, the production
and sales of alcohol is a multi-billion dollar industry in New Zealand. The main players of the
industry are the growers, manufacturers, retail distributors and the hospitality sector, that is,
cafes, bars, restaurants and clubs. The taxation system for the alcohol industry is designed such
that the tax on alcohol products is paid in every three months and then the amount of alcohol
consumption is measured. In 2017, it has been found that 476 million liters of alcoholic drinks
were available in the domestic market for consumption among which there was 289 million liters
of beer, 111 million liters of wine and 77 million liters of spirits and the spirit based drinks
(Alcohol Healthwatch, 2019). Thus, it can be said that the beer production and sales is much
higher than the wine and other spirits and spirit based drinks. However, among the type of beers,
the craft beer is gaining popularity in the market of New Zealand due to their exclusive flavor,
quality and uniqueness. Craft beers are those that are independently owned and produce beer in
small quantities than the large scale corporate breweries. These breweries that produce craft beer
are characterized by their flavor, quality and brewing techniques which are more traditional
(Aquilani et al., 2015). The combined sales of craft beer and other spirits are found to be much
higher than the wine sales in New Zealand. However, in the hospitality sector, that is,
restaurants, cafes, bars and clubs, the availability of wine has increased significantly due to
increase in the local production and affordability and it has also been found that currently the
white and red wine consumption has become doubled than it was a decade earlier (Alcohol
Healthwatch, 2019). This essay will focus on the impact of craft beer and spirits on the wine
sales in the hospitality sector and how that difference in sales affects the operation and
management of the beverage programs in the clubs, bars, cafes and restaurants. The essay will
present an overall picture of the alcohol industry of New Zealand and the global trends on the
alcohol products and their impact in the hospitality sector.
Discussion
The alcohol industry of New Zealand is one of the largest industries in the economy.
Among this industry, beer is the most popular alcoholic drink followed by wine and other spirits.
The production and consumption of beer is also higher than wine. As per the industry report,
beer constitutes around 63% of the total alcohol available for sale (Walker et al., 2019). New
Zealand ranks 27 in the list of global beer consumption per capita with around 64.7 liters per
person annually (Recycleglass.co.nz, 2015). Two largest breweries dominate the beer production
and sales in New Zealand, namely, Lion Nathan and DB Breweries with almost 90% of sales by
volume. Apart from the large corporate breweries, the number of craft breweries and brewpubs
has increased significantly over the past decades, which implies that the preference for craft beer
has been rising among the people.
As per the industry report, it is seen that within 2008 to 2015, the volume of beer sold
declined, from 322 million liters in 2008 to 280 million liters in 2015. 2016 onwards, there is an
increase in the volume of beer available for consumption by 3.7% than in 2015, which amounted
to 292 million liters, which declined slightly to 289 million liters in 2017 (Alcohol Healthwatch,
2019). According to the recent trends, the sales of premium brand craft beers has increased
significantly along with the low-strength beer due to rising health concerns among the people.

2ESSAY
The wine industry of New Zealand is also quite large and it not only supplies in the
domestic market, but also exports a substantial amount of the produce in the international
market. There are more than 670 wineries in New Zealand and the largest producers are Lion,
Pernod Richard, Treasury Estate Wines, Delegats Wine Group, Constellation Wine and Villa
Maria. The level of wine consumption has also been doubled, from 59 million liters in 2009 to
109 million liters in 2016. The availability of wine in the supermarkets had a significant positive
impact on the growth of its sales across the country and today around 60% of the total wine sales
occurs through the supermarkets. The affordability of wine has increased too due to increase n
supply and fall in price. Wine is the 5th largest export of New Zealand (Alcohol Healthwatch,
2019).
The spirits and spirit-based beverage industry is smaller as compared to the beer and wine
industry. In 2016, 13 million liters of spirits and 59 million liters of spirit-based beverages were
available for consumption in the domestic market. The volume of these increased to 63.1 million
liters which is an increase of 6.4% than in 2016 (Alcohol Healthwatch, 2019). The popularity of
the spirits and spirit-based beverages are increasing among all age groups and across both the
sexes too due to increased production and lower price.
Thus, from the industry overview, it is evident that beer production and sales still
dominate the alcohol market of New Zealand in comparison to the wines and spirit and spirit-
based beverages. However, the other two types have been gaining popularity in the recent years
due to factors like cheaper price, more production and increased availability through
supermarkets and evolving preferences of the consumers etc. At the same time, it is also noted
that there is significant increase in the craft beer production in New Zealand. There are more
than 200 craft beer brands in the market and people prefer craft beers for their exclusive taste and
quality, brewing techniques, and premium brands. Thus, the hospitality sector is also increasing
the availability of craft beer compared to other large corporate brands in their offerings.
The increase in the preference for craft beer and other spirits affect the sales of wine in
the market. Many factors affect the growth in the demand for the craft beer and spirits than wine.
In terms of economics, beer is a normal good and its demand increases when incomes of people
increase. The beer industry is not homogenous as there are numerous brands and types of beer
available including more than 200 brands of craft beer. Thus, as the number of choices is very
high in the market for the beers, which are differentiated and not perfect substitutes, the price,
quality, convenience in availability and consumption, and available substitutes play a major role
in influencing the purchasing and consumption decisions of the consumers (Toro-González,
McCluskey & Mittelhammer, 2014). As found by Gabrielyan et al. (2014), during recession,
when the disposable income of people fall, the demand for beer does not fall, rather there is a
change in the type of demand. Consumers shift to cheaper beer than the expensive ones. Craft
beers are sometimes expensive than the beers produced by the large breweries, however, spirits
and spirit-based beverages are usually cheaper than majority of high quality wines. Beer and
spirits can be consumed at any occasion, formal or informal, while wine is still treated as a
luxury good and it is mostly consumed in formal occasions and fine dining (Lewis & Zalan,
2014). Moreover, to tap the market of wine and high-alcohol content spirits, the brewers are
increasing the alcohol content in the beers and are also emphasizing the exclusiveness of the
craft beers. This is affecting the overall level of wine consumption in New Zealand.

3ESSAY
Another study by Colen & Swinnen (2016) shows that the level of beer and spirit and
spirit based beverage production has increased substantially in the past decade. As the craft
breweries use traditional brewing methods, the production level is lower than that from the large
brewers, which raises the price of craft brewers. The large brewers can enjoy economies of scale
as they can produce in bulk and have access to efficient transportation, and hence, the beers from
the large brewers are cheaper. However, wines are generally more expensive than the craft beers
and spirits. Thus, wines are considered as luxury goods, as when the income of the consumers’
falls, the demand for wines falls too. In other words, price elasticity for wines is higher than that
for the craft beers and spirits, which are cheaper than good quality domestic and imported wines
(Volpe et al., 2016). The competition in the alcohol industry is therefore high due to large
number of substitutes and large volume of production, however, the price, quality and price
elasticity of the products affect the consumption level.
According to the report by Recycleglass.co.nz (2015), the export market is opening up for
the craft beer as well. It is the fastest growing category of beer in New Zealand and within 2014
and 2015, the retail sales of craft beer increased by around 42%, which accounted for 13% of the
total beer sales. Exports of beers to Asia have become doubled within 2013 and 2015. As the
number of craft breweries is increasing, the domestic supply has been increasing too, which is
beneficial for not only the consumers who want to taste the local beers but also for the industry
growth and revenue.
One of the upcoming trends in the beer consumption is the introduction of brewery
taprooms or brewpubs. As the number of breweries is increasing rapidly across the countries
including the craft breweries, people often prefer to enjoy new experiences such as brewpubs and
taprooms (Harkness, 2018). This is a new attraction among the young generations, which is also
increasing the sales of the craft beer. Even the distilleries for the spirits and spirit based
beverages have been increasing, which offers various types of tours to attract consumers.
Although, there are wine tasting facilities in the wineries, yet the experience is not new as
compared to the brewpubs. According to Gevirtz (2019), the older generation prefers wine and
spirits ore than the beer, while the younger generations and the millennials prefer craft beer and
whiskies more than wine. Apart from the financial capacity of the millennials, the evolving tastes
and preferences, and availability convenience are major factors for the growing preference for
premium and craft beers and spirits than for the wines.
Furthermore, the distribution systems of the alcohol industry also play a significant role
in determining the demand and sales of the alcohol products. The alcohols are available through
supermarkets which increased the convenience of availability to the consumers. However, craft
beers and wines are often region exclusive, thus, except for excellent transportation facilities, the
national growth is hampered (Garavaglia & Swinnen, 2018). Although, the rise in the numbers of
craft breweries is more than that in the domestic wineries, which is also influencing the demand
in the market through increased supply of craft beers.
The units of the hospitality industry, that is, restaurants, bars, clubs and cafes also offer
varieties of alcohol choices to the consumers. However, due to high demand of beer including
craft beer and spirits, in most of these places, the availability of beer and spirits are higher than
the wines. As seen from the above discussions and other studies, wines are expensive than the
beers and spirits and people prefer to consume wine as a part for fine dining and formal
occasions, and thus, the offerings vary in different units of the hospitality industry. For example,

4ESSAY
the restaurants offer more variety of wines along with craft beers and spirits than the choice of
other beers, while the bars, pubs, cafes and clubs offer wide variety of beers, including craft
beers than the choice of wines (Jun & Arendt, 2016).
The hospitality units thus must understand the market needs and demands while
designing their offerings. As the fine dining restaurants must stock their cellers with imported
and rare wines along with rare beers in bottles and draught options, while the bars, pubs, cafes
and clubs stock themselves with large number of beers, including premium, imported, rare and
craft beers (Reinders et al., 2017). The craft beer has entered the mainstream of the culinary
world. The units are also promoting the local breweries, which is boosting the sales of the local
beer products. The marketing opportunities are also multifaceted, in which it meets the interest of
the consumers for the craft brewing along with the demand for tasting the premium and local
beers (Smith et al., 2017). As the cafes, pubs, bars and clubs are promoting the local craft beers,
it is helping the local craft breweries in terms of business revenue, profit and growth. Increasing
competitiveness is also helping the local breweries to enhance their quality. At the same time, as
these breweries are growing due to the growing domestic demand, the prices are becoming more
competitive, which is beneficial for the customers.
On the other hand, the wine industry of New Zealand is growing due to higher demand in
the international market. As the demand for craft beer and spirits are higher than wine in the
domestic market, the wine producers have targeted the international market. Wine is the 5th
largest export product of New Zealand. Thus, it can be said that apart from catering the needs of
the restaurants and individual consumers, the industry has the capacity to meet the overseas
demand (Alcohol Healthwatch, 2019). This is also increasing the competiveness of the wine
industry. However, as it is a luxury good with high price elasticity, the industry should make the
prices more competitive, especially the local wineries to capture a larger market share. Once the
price is more affordable, it can be said that the wine consumption in the restaurants and at the
individual level will increase and the local wine industry will be boosted.
Conclusion
It has been found that only in New Zealand, but in other countries also, such as, in the
U.S. the demand as well as production and sales of craft beer and spirits have been evolving and
growing rapidly. Thus, wines are accounting more percentage in the exports than in the
consumption in the domestic market. It has also been found that the spirit market is growing
significantly and rapidly and the demand for locally produced craft premium beers and spirits are
increasing too. The millennials play an important role in the rising demand for craft beers and
spirits than that for wine as wine is more expensive and is treated as a luxury good which cannot
be consumed in bars, pubs, cafes or clubs. Furthermore, the export market has opened up for the
craft beer also along with that of the local wines. This opportunity is pushing the production of
the craft beers, which is also boosting the local market. Hence, it can be concluded that the
growing preferences for craft beer and spirits are much higher among the millennials of New
Zealand than for the local and imported wines due to price, quality, price elasticity and
convenience of availability and consumption. The units of the hospitality sectors also act in
accordance to the market demand, which helps in managing their inventories of the alcohol
types. The local cafes, bars, restaurants also play a major role in meeting the consumer demand
regarding the alcohol choices, which also contributes in the growth of the alcohol industry.

5ESSAY
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6ESSAY
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