U.S. News

Brouhaha Brewing Over Rising Beer Prices

Beware to all you thirsty souls out there: Your summer brew just got more expensive.

From craft breweries to the world's largest brewer, Belgium-based Inbev, beer companies across the board are raising prices at the tap, trying to keep up with soaring energy, grain and aluminum costs.


Blaming 9.5 percent surge in cost of sales, Inbev earlier today announced an unexpected drop in first quarter profits and said it is hiking beer prices across the world to help offset inflation. The maker of Stella Artois and Beck's is not alone, and industry insiders say this may only be the first taste of price hikes.

"Prices have gone up 4.3 percent since the turn of the year," said Brewers Association director Paul Gatza, "It wouldn't surprise me if that goes up even further."

InBev's profit fell to 249 million euros ($384 million) in the first three months of the year, down from 280 million euros in the same period in 2007.

It came in well below a forecast of 341 million euros ($526 million) by analysts surveyed by Dow Jones Newswires.

Revenue rose 4.8 percent to 3.19 billion euros ($4.92 billion), up from 3.05 billion euros a year ago, again missing analysts' more optimistic forecast of a 9 percent surge. Overall volume sales fell 0.4 percent.

The problem?

Beer makers are facing a double whammy with inflation running high and supply shortages in beer's two principal ingredients: hops and malt. Hops gives beer its flavor, while malt barley creates alcohol during fermentation. In the last year, the cost of both is exponentially higher and rising.

“The shortage is pretty bad,” said Gatza. “Certain hops varieties are not available at any price.”

While big brewers like Anheuser-Busch , Molson Coors Brewing , and SABMiller have been able to hedge some of these costs, the craft and micro-breweries are getting hit much harder, according to Motley Fool senior analyst Tim Hanson.

InBev now depends largely on sales in South America and emerging markets in Eastern Europe and Asia for growth as drinkers in Western Europe and North America consume less and turn to wine.

But many are blaming weak results in those very markets — particularly Brazil and Russia — for hard-hit volume. In Brazil, bad weather and an early carnival reduced the summer period when it would sell more beer, Inbev reported.

Brazil's consumer market was also showing "some softness" driven by food inflation of more than 11 percent, it said, but was confident that beer sales would pick up during the rest of the year. Russia was affected by strong shipments in the final quarter of 2007, Inbev said.

Meanwhile, Morgan-Stanley said research shows that sub-premium beer share declined 100 basis points as average price per volume increased 3.2 percent. The segment was a source of growth for premium beer (share up 10bps), super-premium domestic (up 50bps) and imports (up 60bps).

Also, import shares are beginning to recover as craft share gains flatten, Morgan-Stanley said. In the latest week, imported beer share increased 60 basis points - driven almost entirely by HeinekenUSA (share up 50bps) while Crown share trends remained modest - up 10bps on a 0.4% average price per case increase. Craft beer share was flat in the last week - the first time that we have seen this on a normal week in about 2 years.

Domestic brewer trends remain comparable to that seen year-to-date, however.

The Associated Press contributed to this report.