AN ECONOMIC ANALYSIS OF THE UNITED STATES DEMAND FOR DISTILLED SPIRITS, WINE, AND BEER INCORPORATING TASTE CHANGES THROUGH DEMOGRAPHIC FACTORS, 1960-1981 (BEVERAGE ALCOHOL)

Although distilled spirits, wine, and beer are categories of beverage alcohol, their consumption has grown at very different rates since the early 1960s. Distilled spirits consumption rose by only 75 percent while beer consumption doubled and wine consumption tripled. Moreover, in the 1970s, wine and beer consumption accelerated but distilled spirits consumption slowed. The purpose of this study is to explain these differential trends. Microeconomic theory suggests three relevant factors--prices (both own and related), income, and tastes and preferences. In this study, taste and preferences are measured by changes in the age structure of the adult population, women's share of the civilian labor force, marrieds' (or nonmarrieds') share of the adult population, advertising expenditures, and habits. Three types of analyses were undertaken. First, industry-based cross-sectional studies were reviewed to (1) identify correlations between consumption patterns and demographic factors and (2) determine how these patterns may have changed over the last two decades. Second, existing econometric demand analyses of beverage alcohol and its sub-categories and types were critiqued. Third, original econometric analysis was conducted. Several econometric methods were employed. A non-linear, simultaneous equation demand system (generalized linear expenditure model) for nine types of distilled spirits, table wine, and beer was derived from a pre-specified utility function. The price and income elasticities were then compared to the results from standard, ad hoc, linear, single equation demand functions. The linear equations were estimated using OLS, first difference, and principal components and analyses. The analyses suggest the relative importance of explanatory factors vary considerably among the types of beverage alcohol. However, similar patterns were evident for non-whiskeys, table wine, and beer. Consumption of these beverages was stimulated by the rapid growth of persons age 18-34 and 65 and over, the number of non-marrieds, women in the labor force, and, to a lesser extent, income. Substitution did occur from whiskeys to table wine and non-whiskeys, but demographic factors rather than prices seemed to be the cause. Thus, the hypothesis that taste changes (attributed to demographic factors) contributed most to the differential trends among the beverages was confirmed.