After beer took the stage in Qatar due to a last-second alcohol ban in the Middle Eastern nation stadiums, the alcoholic beverage is expected to maintain its protagonism into 2023.
While the Budweiser story has had a happy ending, and the company has been able to deliver on its promise to award beer to the football world cup winner – Argentina –, the beer sector is facing some storms next year.
Inflationary pressures are set to continue battering brewers as relentless sky-high energy prices hit production costs.
“[We expect] an increase in our input costs in the high-teens per hectolitre and significantly higher energy costs, particularly in Europe,” says Heineken in its December Capital Markets Event.
Inflation beyond all dimensions
According to the German Brewers Association, beer makers are facing 100% higher costs for brewing malt, 100% higher prices for pallets, 80% more for glass, and 70% increases in crown corks.
Furthermore, those that rely on CO2 purchasing to keep oxygen out of beer – normally smaller breweries that cannot recycle the gas from its processes – have faced eye-watering costs of up to 3,000% higher than last year, in countries like the UK.
“The cost increases for breweries have reached a level that threatens their existence,” Nina Göllinger, German Brewers’ Association spokesperson, told.
Adding to the list of problems, the industry also faced general issues such as supply chain bottlenecks and COVID-19-related trouble.
Moreover, extreme droughts have affected this year’s hop yields, in Europe being 28.6% lower than last year. In Mexico, severe droughts have sparked temporary production shutdowns and calls to move production to regions with increased water availability.
Bad hop harvests have drawn interest in hydroponic solutions, whose industry models are “amazingly strong”, José Luis Cabañero, CEO and Founder at Eatable Adventures, told last month.
Aggressive pricing action
Even with all the inflationary pain, big brewers have posted healthy financial results with double-digit revenue increases driven by translating costs directly to consumers.
Heineken has achieved a 33.4% revenue growth in the first nine months of the year while only selling 13.9% more beer volume. The company posted an 83.6% year-to-date growth in the Asia Pacific region beer volume sales, being the only region to grow in the double digits.
“We maintain our efforts to price responsibly, offsetting input cost inflation. We are well underway to deliver €1.7 billion (US$1.8 billion) gross savings on our productivity program by the end of this year, while continuing to invest behind our brands and capabilities,” says Dolf Van Den Brink, Chairman and CEO of Heineken.
Similarly, Carlsberg has seen an increase of 17.2% in revenue in the first nine months of the year while selling 6.9% more volume. In the Central & Eastern European region, the company has a 14.7% increase in revenue while selling 2.5% less beer. The company calls its strategy “strong price development,” and its CEO talks about a “need for price increases” in 2023.
“Looking ahead, the business environment remains challenging, with an uncertain macro situation, very high inflation and weakening consumer sentiment,” Cees ’t Hart, CEO of Carlsberg explains.
Brazil Ambev’s net revenue increased 19% this year while only selling 3.6% more beer volume.
“Inflation continued to pressure costs and expenses across our markets, but continued volume growth and improved Net Revenue per hectoliter performance led to both top line (revenue) and EBITDA double-digit growth,” explains the company in its Q3 report.
Meanwhile, Anheuser-Busch InBev had 11.5% revenue growth in the first nine months of the year, selling 3.3% more beverage volume. “The beer industry remains resilient even in the context of an ongoing inflationary environment,” notes the business, in its Q3 report.
US Molson Coors sold less beer this year, posting a 0.9% decline in brand volume sales, but managed to increase its net sales by 8.6% “due to positive net pricing,” according to the company.
“While we are proud of our ability to navigate the cost environment, global inflationary pressures continue to be a headwind,” explains Tracey Joubert, chief financial officer of US Molson Coors.
Pubs and consumers pay the tab
In a message this week to the hospitality sector, Heineken announced it will raise prices 10.7% in January, following two price increases of 5.8% and 3.4% in 2022. Beer price increases and rising energy prices and other costs are driving some pubs and bars out of business.
UK brewers say that the average price of a pint could top £7 (US$8.45) in some cities as energy bills hit both brewers and pubs hard. The UK government has also decided not to maintain its 12.5% VAT for hospitality, implemented during COVID-19.
“The failure to act today represents a huge missed opportunity to help brewers and pubs in the face of sharp increases to the cost of living and doing business. The report we published last month set out the undeniable case for making the 12.5% rate of VAT permanent. The economic and societal benefits of making this change would be enormous and enable the tourism and hospitality sectors to truly act as an engine for the UK’s recovery as we look beyond the pandemic,” says Emma McClarkin, chief executive of the British Beer and Pub Association.
A report by the British Beer and Pub Association, UK Hospitality Tourism Alliance and the Association of Leading Visitor Attractions found that keeping the 12.5% rate as permanent would create 286,850 jobs and deliver £4.6 billion (US$5.55 billion) in fiscal gains over ten years.
Instead, they expect that going back to the old tax rates will cost industry £600 million (US$724.07 million) per year.
Nonetheless, the world cup helped bring more business to the hospitality sector. Six million more pints were calculated to be sold during England’s quarter-final match against France. Adding a boost in sales of 28% to the industry, £26 million (US$31.37 million) only for that game.
