TakeAway: Despite significant volume declines and loud protest and cries for help from retailers, the biggest U.S. beer brewers continue to increase prices.
It could be that the big brewers are trying to capitalize on the fact that consumers seem willing to pay higher prices for beer (evidence: craft beers, typically the more expensive beers, posted great numbers). However, the value proposition of craft beers is very different from that of mass market beers, and consumers are willing and able to pay a premium for the added benefits that craft beers offer.
What benefits have mass market brewers added to their value proposition to close this gap and warrant price increases?
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Excerpted from WSJ, “Slump Has Beer Makers Over a Barrel,” By David Kesmodel. January 21, 2010
U.S. beer sales volumes fell 2.2% last year, the highest rate since the 1950s, with demand worsening late in the year … The decline, the industry’s first since 2003, raises demands for industry leaders Anheuser-Busch InBev and MillerCoors to come up with better advertising and to rethink recent price increases …
But they must tread carefully, balancing price moves against a need to drive profits in the wake of the mergers that created the two.
The two giants increased prices by about 5% last year, fresh off InBev’s acquisition of Anheuser-Busch and the move by SABMiller and Molson Coors Brewing to combine U.S. operations. Those increases, along with a weak job market and lackluster advertising, contributed to the sales drop …
Some retailers are pushing back against the industry’s price increases and calling for a new approach to marketing. “We need cost decreases or we think there will be declines in domestic beer purchases in total,” said a 7-Eleven spokeswoman. 7-Eleven unsuccessfully has sought lower prices from Anheuser and MillerCoors …
Anheuser and MillerCoors, which control nearly 80% of U.S. beer sales, posted strong profit gains in the first nine months of 2009, buoyed by higher prices and cost cuts that followed the 2008 mergers.
But longer-term, they’ll need to restore sales-volume growth because cost cuts and price hikes will be harder to come by …
“When you raise prices that much, there are going to be consequences,” said an analyst with Deutsche Bank. He said brewers failed to come up with a blockbuster new product akin to Anheuser’s 2008 success with Bud Light Lime.
While the U.S. economy showed signs of improvement in the second half of 2009, beer volumes cooled further. SABMiller said Tuesday that unit sales from distributors to retailers fell 3.6% in the fourth quarter, the weakest result since MillerCoors was formed. SABMiller cited a “challenging industry and economic environment.”
Anheuser, the No. 1 player in the U.S. by sales, and MillerCoors, No. 2, have signaled price increases this year in the range of 2% to 3%, said editor of industry newsletter Beer Marketer’s Insights. Deutsche Bank analyst’s say they expects large retailers to insist that brewers offer more promotions to spur demand, resulting in pricing not “much better than flat.”
Anheuser posted a 2.1% decline in shipments last year, its biggest drop since 1976 … MillerCoors … had a 1.9% drop. Large suppliers specializing in imported beers fared worse, with Crown Imports showing a 5% drop. The small-batch “craft” beer industry continued to represent an industry bright spot, with the biggest among the craft brewers, Boston Beer, showing a 1.7% increase.
Edit by TJS
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Full Article
http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=114556
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