Thursday, July 5, 2012

Where we spend our booze money (and why)

There's an interesting set of charts over at NPR's Planet Money that shows the changes in Americans' spending habits on alcohol over the last 30 years. We don't generally spend more money on booze now than we did then (it accounts for roughly 1% of income, same now as in 1982), but we've certainly changed where we're spending it.

Here are the two primary charts:

As the author (Lam Thuy Vo) points out, it's clear that we've spent a much bigger portion of our booze money at bars and restaurants, but it's not because we've been going out more often--it's just that the prices of alcohol-at-home and alcohol-at-the-bar have gone in wildly different directions.

The author suggests a productivity argument to explain the disparity ("Over time, you expect productivity gains and falling prices in manufactured goods. But a bartender today can't make drinks any faster than a bartender 30 years ago. In other words, there haven't been major productivity gains at bars. When a sector lags in productivity growth, it tends to have increasing prices."), but I'm not buying that dynamic as a sufficient explanation.

I think that if it was a brutal lack of bartender productivity that was to blame here (to the tune of a 79% overall increase in cost of providing the service, despite a plunge in the primary input cost), then bars and restaurants would have figured out a way by now to bypass the bartender entirely--pre-mixed drinks, auto-pouring wine dispensers, self-serve beer taps, something, anything to get that pesky bartender out of the way and bring liquor prices back down. So instead, it seems like booze prices at restaurants are headed higher as a matter of business choice, not necessity.

What I think is most likely is simply that there has been a fundamental change in the restaurant/bar business model. Instead of enticing customers with super-cheap drink specials--selling the booze at a loss in hopes of making up the difference on profitable sales of food--restaurants have mostly gone in the other direction, selling their food at cost or at a loss in hopes that their customers will buy super-marked-up drinks to wash it all down. That business model would frankly make a lot of sense, and I know from anecdotal evidence that it can also be incredibly lucrative.

I spent some time over at the Bureau of Labor Statistics website trying to track down some more granular data to support my theory, but my eyes glazed over in a hurry and I quickly gave up the chase. Nevertheless, I think that given the data presented, it's highly illogical to presume that booze prices at restaurants are skyrocketing simply because of lagging bartender productivity. More likely, those prices are increasing (or, at least increasing more rapidly than they otherwise would be) in tandem with decreasing prices elsewhere, probably on another part of the menu.

There are also other potential factors that might drive a business choice in this direction--for example, it's possible that restaurants are deliberately setting their prices high so as to discourage binge drinking and the negative consequences that can result from that behavior (fights at the bar that create property damage, DUIs that result in lawsuits, etc). Whatever the explanation, I think it's fairly clear that the upward pressure on in-restaurant alcohol prices has been a conscious choice on the part of businesses, rather than an unfortunate accident.

Of course, if my theory is correct, then the best move for us as consumers would be to order take-out food from restaurants, then eat that deliciously cheap food at home with booze that we bought for ourselves at the store. That's a move that I've already pulled quite frequently myself, and might just do tonight as a matter of principle.


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