Nightlife Inflation: Alcohol Industry’s Resilience

Sharon Yu, an M.S. candidate at UPenn, moved to Philadelphia in the third year after the coronavirus struck the US. When she went to the nearest liquor store in her new neighborhood for her favorite sake, she was surprised to find its price tag was almost twice as expensive as it had been only months before. Hesitant hands lingered above the gilded bottle for a while; instead, Yu picked up two bottles of cheaper California Merlot on the next shelf.

Thirsty Americans are struggling with the skyrocketing inflation rate that hit a fresh 40-year record in June. The alcohol industry in the US has been experiencing the same. For selective drinkers like Yu, the inflated alcohol bills have forced them to seek a balance between price and taste. The nightlife inflation has pressured people to adjust drinking habits accordingly. From a macro perspective, the American alcohol market, which is highly dependent on imports, has reflected dynamics of inflation due to the Covid-19 pandemic, changes in supply chain, international transportation, etc.

The alcohol industry is part of a multiple-tiered distribution system. In the US, the system can be three or four tiers depending on the product, whether it’s domestic or imported. From the production house to the distributors, then to the bars and restaurants, and finally, to the fancy glassware in front of customers, the pipeline takes months or even years. The pandemic has severely slowed transportation, and inflation has also affected: corks, glass bottles, energy, and labor. “Everything is getting insanely expensive now,” Greg Jones, the CEO of Abacela Winery in Oregon, says.

Wineries and distilleries are confronting massive inflation in the raw materials for their products and feeling the tremors caused by the energy crisis. The cost of raw materials – glass bottles, stickers, and corks – has jumped. “Right now, we're paying 15% more for glass bottles than last year.” Jones adds. “We've got all of these kinds of push and pull issues in the industry, but we can do nothing.”

Internationally, political tension also affects raw material inflation. The Russian invasion of Ukraine even pulls up the cost of wine production in the US. As one of the largest European exporters of screwtops, Ukraine has stopped supply overnight. Cheryl Stanley, a wine expert at Cornell Hotel School, suggests political instability is one of the factors that cause raw material inflation: “You just have the European winds blowing from the supplier end.”

Apart from the higher net cost, wineries also feel the effects of the energy crisis. Jones has observed fewer recreational vehicles at his vineyard; even now, his services “are 90% restarted” with upgraded programs. He attributes the plummet in RV visitors to the skyrocketing fuel price. Abacela refined its wine-tasting rooms, but customers stopped coming in their RVs and campers, far less than the boom of visitors before the pandemic. “They no longer have more room in their vehicles that they can put wine into,” Jones says. He finds it a problematic phenomenon that affects sales and the price-setting of Abacela’s product lines.

Moving to the middle tier in the alcohol distribution chain, distributors who connect the production and sale pipeline, have been experiencing a distinctive version of the nightlife inflation story.

Stanley raises the delays within international supply as a key point. It is mostly affected by the pandemic, such as the shortage of South African vintages attributed to the government shutdown during the Covid. Delays at ports are another incentive for fluctuating price tags. “Orders are stuck in the middle of the Atlantic; all we can do is wait,” Stanley adds. The retail price can go through the roof accordingly.

Anthony Levenson, the supply consultant for Roma Liquor on Manhattan’s Upper West, says ongoing inflation has required new ways of understanding it and strategies to pull through it. From his perspective, the liquor store itself “isn’t reflecting the great inflation as people might expect.” Levenson says, “like the rent for the store or labor. No, we’ve signed long-term contracts, so inflation doesn’t matter.” What matters is the inflation in residential renting. “I’ve noticed a salient wave of new residents flooding our neighborhood. New customers bring in new purchase habits; we have to adjust our products accordingly,” Levenson adds.

“So, we got some small-brands that we haven’t got before,” he concludes. “It has never happened.”

The inflated housing market has made swarms of new residents flood into his neighborhood, introducing new drinking habits. It utterly changed Levenson's supply orders. Joshua Paul, a co-owner of Mess Hall, a bar in Harlem, has also noticed a new trend in customer choices: higher tequila and mezcal consumption. As these spirits more often “come to the forefront on people’s plates as they desire,” the higher demands, in a way, encourage higher price-setting. Handling the orders for Mess Hall, Paul also finds that “certain distilleries are recognizing that fact, and so they are putting premiums, prices on some of those spirits in the genres that are trending.” Blanco Reposado and Agave, for instance, have the same ingredients but are casked for different lengths of time to satisfy customers’ demands.

Energy-related inflation has also hit bars and restaurants, where inflated gas and electricity prices have changed the management of alcoholic beverages. Paul says his operational costs are dramatically increasing; the inflated bills hijack his net revenue. Although revenue is returning to pre-pandemic levels, paying higher energy bills results in a profit drop. “So now the overhead and all your bills are gone and are costing way more money in relation to what you're actually bringing in,” Paul says, explaining the dilemma Mess Hall is confronting. The phenomenon has forced the bar to make some changes for survival. Raising the price tag of alcohol alone is inadequate to solve this issue. “In order to sell liquor and beer, you need to sell food. So we have a food program,” Paul adds. Now, as an additional part of nightlife receipts, the inflation tide has pulled up food prices as well.

The butterfly effect ultimately results in higher nightlife bills. Yu describes herself as a “more calculative value-for-money expert” as the inflated bar bills have shocked her and stressed her budget. “The price of Japanese sake and whiskey have doubled or even tripled. Thus, I have to adjust my drinking habit, such as purchasing sake less regularly or buying some domestic substitutes.” Yu adds.

Unlike Yu, some drinkers realized that the intemperance the pandemic brought to them was hurting both health and purse. Angel Quiles is one of them. He recently decided to stop drinking. Instead, Quiles picked up the lute and put down the whiskey bottles to fill his quality time after work. Free online lute lessons replaced the routine purchase of Irish whiskey in his budget. The former Manhattan guitar player restarted his music career and, in a way, resisted the growing inflation.

The pandemic and the resulting inflation have altered drinking habits, but this has not stopped most people from drinking. A recession is expected sooner or later, the price of alcohol might go higher; however, “we learned in 2008. People will still be drinking.” Stanley says.