Consumers cutting back, but not on liquor

updated 10:21 a.m. ET Sept. 1, 2008

NEW YORK - By 6:30 p.m. every stool at the bar is taken. It’s a Thursday night at the White Horse Tavern, a well-worn watering hole in the shadows of lower Manhattan’s financial district, and the regulars have found a refuge.

All that depressing news about the economy — job cuts, spiraling inflation, the mortgage mess — you don’t need to tell these folks. But the offer of $3 pints is good until 8, and with the television at the end of the bar tuned to the ninth race at Louisiana Downs instead of the stock market wrap-up, the world is on hold.

So what does this scene tell us?

• When people are under financial stress, they’re more likely to frequent bars.
• When economic times are tough, people drink more alcohol.
• In a downturn, folks will cut back first on other purchases before they give up booze.
• Maybe we’re more complicated creatures than conventional wisdom suggests.

A tough economy ratchets up the pressure to rethink spending decisions. Food, clothing and shelter are essential. But when it comes to the extras, grim new realities set out some straightforward choices between needs and things we can live without.

Then there’s booze.

In the past few weeks, scattered reports have noted that alcohol sales are up in some places, despite — or maybe even because of — the downturn in the economy. The new figures have revived the thinking that when Americans are taking it on the economic chin they keep a firm grip on the bottle.

In Pennsylvania, for example, officials reported that sales of wine and liquor are up 4.7 percent for the 11 months ending in May, to $1.63 billion. In Connecticut, the state reports that the taxes it collects on sales of alcoholic beverages also are up 4.7 percent for the fiscal year that ended in June.

A closer look, though, shows in those states and others, the rise in alcohol sales merely follows on past increases. The most recent increases are, in some cases, smaller than what has been seen in the past. Still, the fact that they’re increasing says something.

“Beverage alcohol really is only mildly affected by the economic factors,” says Danny Brager of The Nielsen Company, which tracks consumer purchasing decisions. “A lot of consumers would still consider alcoholic beverages as an affordable indulgence.”

But the psychology of alcohol consumption is far from simple, and very different from many other economic choices.

When gas rises by $1 a gallon, choices are limited to driving less or using a different vehicle. But there’s no immediate, easy alternative to gas.

It’s the same with cigarettes, the purchase most regularly compared to alcohol. True, you can quit or cut back, and there’s a limited selection of cheaper smokes. But the bottom line remains that if you want a cigarette, you have to pay the price.

Alcohol is different. If high-end European vodka is too expensive, you might try the stuff distilled in Wisconsin. If that’s too much, how about a beer? Don’t have enough for an import, try a domestic. If the bar tab is too much to handle, stop off at the store and bring a six-pack home.

“It’s essentially a portfolio the industry presents to the customer so that if there’s a problem in income, you can still drink and they can still sell,” says Paul Gruenewald, scientific director of the Prevention Research Center, a federally funded non-profit in Berkeley, Calif.

“People are very rational overall. They’re doing what makes sense. They still want to sit down after work and have a beer, and OK, it won’t be a Heineken. They’ll have a Budweiser.”

When Nielsen asked consumers in May whether the economy was affecting their alcohol spending, nearly half said not at all. More than 80 percent said they’re spending the same amount they were a year ago, or more.

But individual decisions about alcohol can be very nuanced. In the short term, it’s clear consumers are going out to eat less and drinking more at home, Brager said.

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