Beer Prices: On Tap to Rise
by Tim Manni
If the product you sell has long been proven to be virtually recession proof, why not raise your prices? While you’ll never hear the folks at Budweiser or Miller make such a statement, the reasoning behind it isn’t far from the truth.
The nation’s two largest sellers of beer said Tuesday that they plan to raise their prices (once again) towards the end of this year:
“We do plan on taking prices up in the fall on the majority of our volume in the majority of the U.S.,” said David Peacock, president of Anheuser’s U.S. division. “The environment is very favorable, we think.” Retailers informed of the proposed changes generally agree with the increases, he said.
MillerCoors also said it will raise prices. “We have seen very strong pricing to date this year, and we are projecting a favorable pricing environment moving forward,” said Brad Schwartz, a vice president at MillerCoors, a joint venture of SABMiller PLC and Molson Coors Brewing Co.
While there are several factors contributing to the planned increases, the U.S. Department of Agriculture’s expectations that food prices will rise at about the same time of the year as beer is just one of them. Another reason is that Budweiser and Miller’s dominant share of the marketplace (the two control 80% of the market) has allowed them to continually raise their prices without suffering too much in terms of sales.
Yet, some retailers say the increases are bad for business:
Some retailers are unhappy with the increases. “This is the blow-back from not having enough competition,” said Michael Binstein, chief executive of Binny’s Beverage Depot, a 22-store Midwest liquor-store chain. The increases, he said, will raise the average price for a 12-pack by about $1 a package in the Chicago area, citing data from distributors.
However, it’s not just the American giants that have decided to raise prices. Dutch brewer Heineken has also decided to boost prices, a surprising move that has left investors and the brewer optimistic:
Heineken remains optimistic. In addition to price increases, first-half earnings growth was fueled by €50 million savings from Heineken’s ongoing cost-cutting program, and an improved product mix as the brewer’s premium Heineken brand made up more of its sales. The brewer believes that both will continue to boost profitability in the second half.
The anticipation that economic conditions will improve further by year’s end has and will lead to price increases. Most recently the increases have centered on commodities and the products that are made from them.
Readers: If you drink beer, how will these increases affect your choices? Will you jump to “premium” or “craft” brands, or will you downgrade?
(hat tip: MSNmoney)
