Welcome to Beer Hampshire

In New Hampshire in summer, the mountains and valleys are green, the streams are babbling, and the beer is flowing. The state, home to 17 brewers—including an 865,000-sq.-ft. Anheuser-Busch (BUD) facility in Merrimack—boasts the highest beer sales per person in the U.S. In 2010, an average of 32.7 gallons of beer, the equivalent of nearly 350 12-ounce cans, were sold per legal drinking-age person in New Hampshire, according to estimates from the Beer Institute, an industry lobbying group in Washington, D.C. The overall rate for the rest of the U.S. was 20.7 gallons.

In addition to high consumption by residents, Lester Jones, chief economist of the Beer Institute, says sales are boosted by New Hampshire's lack of a sales tax, drawing shoppers from surrounding states who can stock up on beer along with other goods at a lower price.

Following New Hampshire is Montana, with per-capita beer sales of 30.5 gallons, North Dakota at 29.8 gallons, South Dakota at 27.5 gallons, and Nevada at 26.8 gallons. Utah had the lowest consumption rate, 12.4 gallons per person, followed by Connecticut at 16.2 gallons, New York at 16.5 gallons, and New Jersey at 16.8 gallons.

With the weather warming up, New Hampshire's peak beer-buying season has begun. "The bulk of our sales are in the summer," says Andy Schwartz, brewer at Redhook Ale Brewery (HOOK) in Portsmouth. "When the long winters end, we come out to play and try to maximize our summers."

Cross-Border Shoppers

Residents of the Granite State are a drinking crowd: The state has the highest rate of alcohol use, 63.1 percent, compared with a U.S. rate of 51.4 percent, according to the most recent survey by the Health and Human Services Dept.'s Substance Abuse and Mental Health Services Administration (SAMHSA). Utah has the lowest rate at 27.8 percent.

Still, a large population of imbibers does not make New Hampshire a leader in binge drinking (defined in the survey as having five or more drinks on the same occasion). The state's binge drinking rate is 25.9 percent, compared with the U.S. rate of 23.3 percent. North Dakota has the most binge drinkers at 32.6 percent.

Rather than excessive behavior, New Hampshire's beer industry gets a boost from cross-border sales—shoppers who come from other states to buy goods to bring back home. While the state excise tax on beer is fairly high at 30¢ a gallon, there is no sales tax or bottle deposit. Nearby Maine has a 5 percent sales tax, and Vermont 6 percent to 7 percent. Massachusetts this year repealed its 6.25 percent sales tax on alcohol, which was introduced in 2009.

"On average, the tax differential allows cross-border shoppers to save about $1 per case of beer purchased in New Hampshire," according to Patrick Fleenor, chief economist of Fiscal Economics, a consulting firm in Alexandria, Va. But shoppers are not crossing the border just to save a dollar on beer. "Many individuals living in close proximity of the border do all their shopping in New Hampshire," says Fleenor. "This is why you see so many strip malls and big box retailers in border areas. It's a similar situation in other states without sales taxes, like Delaware and Oregon." He estimates that cross-border sales will account for 5.1 percent of New Hampshire's beer sales in the next three to five years.

Four-Season Tourists

While some states, such as Massachusetts, technically require a permit to bring alcohol into the state, enforcement is weak. New Hampshire's state-owned liquor stores remain a popular attraction—and revenue generator. "Over the years, New Hampshire residents and those from surrounding states for miles around have chosen to shop for their wine and spirits at our conveniently located New Hampshire Liquor & Wine Outlet stores," according to the New Hampshire Liquor and Wine Outlets website. While these outlets sell wine and spirits—but not beer—out-of-state shoppers can still stock up on beer at a New Hampshire grocer on the way.

In addition to shoppers, tourists also bring business to restaurants, hotels, and other beer retailers. "New Hampshire is a four-season tourist destination," says Redhook's Schwartz. "The state is supportive of local breweries because they are a great enhancement to an already strong tourism industry."

Merrimack's Anheuser-Busch facility—which has an annual capacity of 3.1 million barrels and brews Budweiser, Bud Light, Busch, Busch Light, Michelob Light, Natural Light, Red Bridge, and Michelob Ultra—receives about 55,000 guests each year.

Bucking the National Trend

Unlike the rest of the country, beer sales in New Hampshire are on the rise. U.S. beer sales were down 1 percent by volume in 2010 and down 2.2 percent in 2009, according to the Brewers Assn., an industry organization in Boulder, Colo. Yet in New Hampshire, beer sales in fiscal 2010 increased about 2.5 percent, to 42.5 million gallons, and 8 percent since fiscal 2000, according to the New Hampshire Liquor Commission.

Beneficiaries of the consumption boost include craft brewers—independently owned breweries with less than 6 million barrels in annual production. In New Hampshire, these include Redhook, Smuttynose, Portsmouth Brewery, Tuckerman, Woodstock Inn Station & Brewery, Moat Mountain, Seven Barrel Brewery, Flying Goose Brew Pub, and Milly's Tavern. Craft brewing in the U.S. grew 11 percent by volume and 12 percent by retail dollars, as overall U.S. beer sales shrank, according to the Brewers Assn. Nationwide, the number of craft brewers increased to 1,716, from 1,552 in 2009.

Craft brewers are also getting some help from grocers. "From what Supervalu (SVU) is seeing in stores where we do carry alcohol, craft beer is one of the fastest-growing segments, including national and regional brands," says Michael Siemienas, a spokesperson for the company, which has 34 Shaw's Supermarkets in New Hampshire. "We're seeing a lot of new local breweries opening up. What we're trying to do is take advantage of local brands when there is a demand from customers."

In Portsmouth, Smuttynose Brewing—a regional craft brewery named for Smuttynose Island in the Isles of Shoals—will increase production to 37,000 barrels this year, from 30,000, says owner Peter Egelston. The company distributes to 19 states and D.C., but New Hampshire remains its top market, accounting for about 25 percent of sales. The bulk of production is sold within 150 miles of the brewery.

"Our growth this year is phenomenal," say Egelston, who plans to increase marketing efforts to such groups as women, Gen-Xers, and baby boomers that have disposable income and interest in craft beer. Even in a recession, beer can sell well, especially in a lower-cost market such as New Hampshire. Says Egelston: "It's an affordable luxury."

Click here to see the states with the biggest beer consumption.

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