Impact of Craft Beer and Spirits on Wine Sales in Hospitality

Running head: ESSAY
Impact of craft beer and spirits on wine sales in hospitality and how it affects managing
and running of beverage programs
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1
ESSAY
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.

2
ESSAYThe 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.