“There’s not much which is totally recession-proof, except maybe bankruptcy lawyers. (Beer’s) not recession-proof, but it’s recession-resistant.” – Jim Koch, 2009
To be clear, there is no way to fully recession-proof your business, even if you are a bankruptcy lawyer. But on the brighter side of things, there are some ways that owners can foster a recession-resistant brand and implement strategic activities that will soften the blow to your income statement. First, let’s take a quick look at what a recession actually entails for the craft beverage industry and then address some potential solutions for owners and operators to help weather the economic storm.
Are Recessions Normal?
Advanced economies experience peaks and valleys; this is also known as a normal business cycle. The high points are known as expansion, when consumer spending is high, unemployment is low, businesses are expanding, and stocks are thriving. The occasional valleys are times of economic constriction, also known as recessions. This is when consumer confidence and spending is low, unemployment is high, stocks fall, and business expansion stalls out. There are methods that governments use to stabilize the economy and push the population back into expansion, and then round and round we go. The cycle begins again.
Recessions are not abnormal, but that doesn’t mean they are easy to navigate, especially for “normal good” producers, like beverage alcohol brands. Normal goods are those items that consumers spend more on when times are good, but decrease purchases for when budgets are tight. While some consumers might truly believe that alcoholic beverages are survival goods, the typical customer doesn’t see it that way. During recessions, alcohol purchases are often scaled back to account for higher spending on things like gas, utilities, and grocery staples, or consumers will “trade down” the quality of their alcohol brands as a temporary solution to help them battle inflation. The typical environment for craft alcohol during times of recession is a tale of consumers in two income brackets — those who trade down for budget alcohol brands and those who continue to buy premium because their income has not been affected.
Does this mean you need to run out and create a recipe for a super cheap value brand or start cranking out high-end bombers? Absolutely not. First of all, don’t panic. The last thing to do is go out of your way to completely alter your business plans to accommodate recession level economic conditions. What owners and operators can do is pay close attention to market trends, get strategic with their sales plans, and double down on their marketing efforts. Just like buying into the stock market when everyone else is selling, pulling back during a recession is not always the best business strategy. Reinvesting in your infrastructure, financially and organizationally, can help suppliers improve production rates, profitability, and sales.
Analyzing Industry Trends
Spending a few minutes a day with Google can help any owner stay on top of craft beverage industry trends. Between content provided by industry specific companies like Ekos, beverage folks can find just about any statistic that they could need regarding what consumer segments have the most purchasing power, what drink styles are trending, the fastest growing price points in retail, and class of trade trends. Data aggregation companies like IRI, Nielsen CGA, SPINS, Fintech, Winsight, and the IWSR, just to name a few, are all excellent sources of drinks industry customer trends.
Building Strategic Sales Plans
In addition to external factors like drinking trends, producers should also be looking inward at their own sales plans to find ways to increase sales volume and revenue in creative ways. Sales data tracking is one of the most effective ways to identify trends within your own brand family. Your point-of-sale system in your taproom or tasting room can provide vital statistics about the purchase habits of your on-site customers and a CRM, ERP, or distributor sales reporting portal can provide suppliers with essential information about their wholesale sales trends. The goal of all this data tracking is to identify new opportunities in a tough market. Sales will not look the same during an economic downturn. Producers will need to know how to find incremental sales in hidden places by using strategically focused plans that leverage their unique successes and avoid low ROI sales activities and channels.
Amplify Your Marketing
And finally, one of the most effective ways to endure tough times is to reinvest in your marketing efforts. Leveraging your existing customers and finding new ones will help owners make ends meet when revenue is looking sad. On average, any business loses about 10% or more of their existing customer base every year for a multitude of reasons. That number only increases during times of recession, so unless you’re proactively prospecting for new customers, your brand will be operating at an extreme deficit during economic downturns. Posting more on social media, garnering new email subscribers, producing more interactive branded content, engaging with new segments of craft beverage fans, and utilizing targeted online advertising strategies are all ways that suppliers can supplement their current marketing activities to attract new eyeballs and new wallets. On the flip side, repeat business is priceless during a recession. In tight economic times, reinforcing brand loyalty by providing benefits through your marketing messages and programs will help suppliers leverage the ROI of their best customers. Suppliers got very creative with customer loyalty programs during the heat of pandemic shutdowns, and while the situation is a little different, the tactics are the same — utilize your strengths, think outside the box, and make your customers feel seen and appreciated.
Julie Rhodes is the owner of Not Your Hobby Marketing, a craft beverage consulting firm. She has more than 20 years of experience in supplier sales, digital marketing, and distribution management in the craft beverage industry. Julie consults small- and medium-sized beverage alcohol brands through webinars, white papers, digital courses, and one-on-one consulting. For more information about Julie or to reach out to her for consulting services, click here.