I just got back to my desk with a bottle of smoked imperial porter from Tennessee to fortify me for the evening of writing. Looks and smells great, and reminds me of a welcoming fire in a log cabin on a snowy winter night.
As much as beer is sustenance on a frosty evening, and as much as the warming elixir in my glass is a rich tapestry of memories, craft beer also pulsates with an economic life intertwined with its socio-cultural life. The smoked imperial porter from Tennessee that reminds me of childhood visits to the Yukon involved a choice I made to purchase it on a drive between Kentucky and Oklahoma. Regardless of whether I agree entirely with what some economists think motivated my decision to purchase that particular beer distributed to that particular liquor shop, the economics of craft beer production and consumption is becoming an increasingly prominent and high-stakes game –– so much so that the Brewers’ Association has seen fit to employ a full-time economist, Bart Watson.
The economics of beer. Beeronomics.
Enter Trey Malone, Ph.D. candidate in the Department of Agricultural Economics at Oklahoma State University and aspiring beer economist. Trey and I met several months ago when he started attending our local homebrew club meetings. Trey’s research in applied economics dovetails with a field of research about which we’ve been hearing a fair amount of late: behavioural economics. Why is it that we consume what we consume? (An NPR segment from October 2014 detailed how a group of foodies were tricked into praising a plate of hors d’oeuvres for their “fresh” and “pure” taste. The tasty morsels? Re-presented McDonald’s fare.)
But studies emanating from the intersection of economics and psychology can also have implications that fuel unreflective consumption. Can’t decide between all those beers on that extensive tap list? Something hoppy, maybe? Or local? Inquiries into consumer behaviour start with these and similar sets of assumptions about what consumers want or need. The resulting market research erects a hall of mirrors that subsequently confirms consumer desires, a simulacrum akin to the dystopian shopping mall reality of Don DeLillo’s White Noise. A retailer looking to build a tap list just has to look to all those sets of aggregate data to determine what the consumer apparently wants. (My guess: more IPAs, more sour beers.) The potential implication: a feedback loop that, through its intensification of the desire for particular products, is inimical to diversity.
Inasmuch as I have reservations about some aspects of contemporary economic thought, applied economics has been a boon to the craft beer industry. It has shone a light on the tangible benefits that breweries bring to communities, both in terms of employment and income generated through tourism and entertainment spending. This research helps shape policy regarding alcohol regulation and taxation. Applied economics can also help craft beer brewers and retailers discern what appeals most to the consumer, right down to the finer details of labeling and packaging.
For his part, Trey is hard at work figuring out what makes us beer drinkers tick.
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Tell us about how your research relates to beer. What does your research involve on a day-to-day basis? Do breweries or retail outlets (bars, pubs, liquor stores, etc.) approach you to conduct research for them?
I focus on applied economics at OSU. Applied economics is sometimes said to be the study of unintended consequences, with any economic choice we make likely causing some level of fallout for someone else. For example, by trying to promote healthy lifestyles through limiting alcohol availability, policymakers might negatively affect total state revenue.
The majority of my dissertation research entails field experiments, and at this stage of my research I’m developing and expanding my network of contacts within the industry. I am currently finishing a paper with my dissertation advisor using data from many state agencies as well as the Beer Institute in order to study the role of state-level legislation on growth in the craft beer market. I’m also in the process of conducting field experiments with various restaurants in the Stillwater area such as Zannotti’s Wine Bar, where we changed the number of beer options and the style of menu. My hypothesis is that consumers need different ways to mitigate the large number of beer options in the modern marketplace. I’m testing this reasoning by conducting an experiment where we doubled the number of beer options to see if people would be more or less likely to purchase a beer relative to another option on the menu.
What are some of the most exciting aspects of your personal research? Did you have any inkling when you first started your undergraduate studies that you’d be working toward an advanced degree relating to beer?
For me, the most exciting part about applied economics is the economic paradigm itself. Because the study of economics is the study of the allocation of scarce resources, I feel like I see research questions everywhere.
As an undergraduate, I fell in love with economics but had no idea what that really meant. My undergraduate advisor does beer research from an economic history perspective, so he was my first exposure to anything like what I do now. I can remember drinking a Boulevard Pale Ale with one of my good buddies when we were all deciding what to do for graduate school, and I told him I had no idea. He laughed and told me he thought I’d probably end up doing beer research exactly like my undergraduate advisor. I told him that was ridiculous… and here I am. My Master’s degree focused on the economic development potential for local food systems, so it was a natural transition back to craft beer for my doctoral work.
Do you have to be an expert on beer to conduct your research, or do you just have to have a certain degree of research acumen and know how to do math and statistics? Is sensory training relevant to your work? Beyond the numbers, how much of what you do involves interacting with consumers and producers of beer?
I would say you could do this kind of research with no sensory training at all. In fact, it might almost be easier to taste beer like a layperson if you are trying to understand consumer preferences. I think what is more important is understanding the marketplace: in other words, being an active participant in making decisions based on your preferences, and talking with other people who are making the same sensory decisions. I don’t think you have to be an expert on beer tasting; rather, you need to be an expert on beer buying.
To truly understand how a market interacts, though, I think it is important to gain a level of understanding of all players in the marketplace. For example, it is important not only to understand the consumer of a given product, but also the producer, the distributor, and the retailer. Each participant operates with specific objectives in mind.
Generally, economists tend to be introverted and prefer office hours to field hours, but experimental economics demands a keen devotion to understanding people at a deeper level. I love to sit at a bar and observe how people make their orders. I’m fascinated by what drives them to make the selection they do. Is it because the offering is local, or is it because a friend recommended it?
Based on your research to date, what do you perceive to be some of the biggest challenges facing the craft beer industry in this period of rapid growth?
Increasing the number of participants in the market improves quality in the market through competition, but I would imagine that the increased competition might change what has historically been a “compatriot” culture in the marketplace. Oftentimes, craft brewers perceive the competition to be “Big Beer” and frequently work together on collaborations or help each other out as if they weren’t competing for the same consumer dollars. I think once we reach a higher number of breweries in the marketplace, we might start to see some of that helpfulness in the marketplace deteriorate and turn into firm competition of the kind we see in other marketplaces.
Self-distribution legislation is a crucial step for states who would like to encourage local producers, along with tasting rooms and growler laws. Legislators need to remember that craft brewers are more interested in quality control and receiving compensation that is in line with the higher quality product they produce than they are interested in selling high volumes. That means they are far more interested in educating the consumer about why their beer is as good as it is, and why consumers should be willing to drink a higher-quality product but drink less of it.
What kind of advice would you give to craft beer enthusiasts who think that your line of work might be appealing?
The door is wide open for compelling beer research. Craft beer is a relatively new market, and most academic research lags behind this rapidly evolving industry. That said, doing what beer drinkers do on a regular basis is a great first step.
Formalizing the experimental drinking process that we all regularly participate in is the next step. In other words: data collection that minimizes experimental error. Obviously, chemists and brewers have labored for years minimizing experimental error, but there are a surprisingly small number of published sensory analyses of craft beer that actually discuss what the layperson perceives when he or she drinks a beer. I think the French expression, “à chacun son goût,” is misleading, as I believe there is accounting for taste. While we might not be able to justify why we might like something, people can generally order their preferences in a way that maximizes their happiness. That order might change with the weather or my mood, but at any specific point in time, I am just like any other person in that I can tell you what I want.
Given that I believe we as craft beer fans tend to be a little more experimental in our preferences than the general population, it would be wonderful to start understanding what we like and are willing to pay for. Craft- and home-brewers clearly understand how to make a quality product, but if the craft beer market intends to continue its steady growth, I think it is important to move the discussion into a more analytical framework. Numbers and statistics are what will ultimately earn the beer market credibility with policymakers, and the way we can grow those numbers is by being sure to bring a product to market that is not only high-quality, but also appealing to a large number of drinkers.
What’s your favorite Oklahoma beer? If stuck on a desert island and a genie appeared offering you one beer and one beer only, which one would it be?
My favorite Oklahoma beer right now is the Coop DNR. I love the complexity. If stuck on a desert island? As corny as this is, I would ask for a Boulevard Pale Ale. That has been (and probably will always be) my go-to beer. I’ve heard people talk about how songs transport them to different times and places. Boulevard’s Pale Ale does that for me. Just a sip takes me back to the first time I found out what beer could taste like.
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With the exception of the Zannotti’s Wine Bar logo (www.zannottiswinebar.com) and the Craft Beer Cost Infographic (Huffington Post), all remaining images courtesy of Trey Malone.
The Craft Beer Cost Infographic is from Joe Satran’s “Here’s How a Six-Pack of Craft Beer Ends Up Costing $12,” Huffington Post, September 12, 2014.
© 2015 F.D. Hofer, Trey Malone, and A Tempest in a Tankard. All Rights Reserved.