MILWAUKEE – Beer is supposedly one of those Joe Lunchbox products that people continue to buy even when the economy is tanking.

But that doesn’t necessarily hold up when you’re selling a six-pack of Capital Brewery Wisconsin Amber for around $7.50, instead of Miller High Life for about three bucks less.

Capital Brewery Co., Jacob Leinenkugel Brewing Co. and other craft brewers have been hit by a softening economy that’s led consumers to cut their bar tabs and conserve their beer bucks.

“People have less disposable income,” said Dick Leinenkugel, vice president of sales and marketing at the Chippewa Falls, Wis.-based brewer. “They’re prioritizing their spending on food and fuel, and spending less on going out to eat and drink.”

R.C. Schmidt, who operates Water Street Brewery brewpubs in Wisconsin, agreed. Consumers are cutting back on dining out, and the money they save “is going to the gas tank.”

Leinenkugel, Schmidt and other brewers were reacting this week to a new report that says volume sales of craft beer grew by 6.2 percent during the first six months of 2008, compared with the same period in 2007.

That outpaces the overall U.S. beer industry, which last year recorded a 1.4 percent sales volume increase. But it’s well below the craft segment’s hot growth of recent years, including a 12 percent volume increase in 2007 and a 48.6 percent increase from 2002 to 2007.

The midyear report from the Brewers Association, a Boulder, Colo.-based trade group for craft brewers and brewpubs, also said dollar sales of craft beer were up 11 percent for the first half of 2008. The segment’s dollar sales increased 16 percent in 2007.

The new numbers show that demand for craft beer continues to grow despite a softening economy and higher beer prices tied to the soaring costs of barley and hops, the association said.

Other craft brewers said they continue to grow. But some also said they’ve seen demand drop in certain markets.

Middleton, Wis.-based Capital Brewery’s sales were flat or showing slow growth during the five months of the year, said President Carl Nolen. The picture brightened considerably in June, and Capital was up about 6 percent for the first half of the year, he said.

Leinenkugel Brewing, a subsidiary of MillerCoors LLC, posted first half sales that were ahead of the craft segment’s overall sales, Leinenkugel said. That growth has come mainly by expanding Sunset Wheat and other Leinenkugel’s brands into new states, he said.

But in the brewer’s long-time stronghold of Wisconsin and Minnesota, the company has seen softening demand, Leinenkugel said.

People are still drinking craft beers, Leinenkugel said. But there are more choices, and larger craft brewers like Leinenkugel Brewing have the most to lose, he said. Leinenkugel Brewing in 2007 was the nation’s fourth-largest craft brewer.

Other larger craft brewers that have seen slowing growth include Craft Brewers Alliance Inc., the newly formed merger of Portland, Ore.-based Widmer Brothers Brewing Co. and Woodinville, Wash.-based Redhook Ale Brewery Inc.

“We’re seeing some markets that are not meeting expectations,” said Tim McFall, the company’s vice president of marketing.

Still, the picture isn’t all that gloomy. Big brewers like MillerCoors or Anheuser-Busch Cos. would love to have a 6 percent sales volume increase. Anheuser-Busch said last week its first-half sales volume was up 0.4 percent.

Also, the craft segment’s slowing growth isn’t uniform.

McFall said the more mature markets like the Pacific Northwest, where craft brewers have long been strong, are seeing less growth. He said emerging markets, including the Upper Midwest, hold great potential for continued strong growth.

Milwaukee-based Lakefront Brewing Inc., which sells mainly in the Upper Midwest, posted an 18 percent sales volume boost for the first half of 2008, said President Russ Klisch. Much of the growth has been in the Milwaukee area, with Lakefront’s Cream City Ale and India Pale Ale leading the charge.

“We’ve been on fire,” Klisch said.

Leinenkugel Brewing will see a boost in its sales when it enters the 800-location Ruby Tuesday’s restaurant chain this fall, Leinenkugel said.

Finally, small craft brewers still benefit from consumers who want to patronize them instead of the big guys.

“People are supporting their local brewer,” said Nolen, of Capital Brewery.


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