Price hikes buffer AB InBev, Molson Coors' profitsNEW YORK (AP) — Higher beer prices kept profits up for brewers Anheuser-Busch InBev and Molson Coors in the third quarter, although drinkers in some parts of the world responded by imbibing less.
NEW YORK (AP) — Higher beer prices kept profits up for brewers Anheuser-Busch InBev and Molson Coors in the third quarter, although drinkers in some parts of the world responded by imbibing less.
The brewers also saw weakness in Europe and the U.S. buffered by growth in emerging markets such as Brazil and China, although they represent a fraction of revenue generated in more developed markets.
As the global economy has weakened in the past few years, drinkers in developed markets have curbed their consumption because of high unemployment and persistently weak economies. The price increases made during the third quarter were so new, it's not clear yet how much of the drop in consumption was attributable to higher prices.
The brewers are going to keep raising prices until they see a stronger push-back from shoppers, said Eric Shepard, executive editor of trade publication Beer Marketer's Insights.
The big brewers used to focus on growing market share first, and profits second, he said. But now they are willing to sacrifice the size of their business in favor of having it be more profitable, which they achieve by cutting costs and raising prices. That's particularly true of Anheuser-Busch InBev, the world's biggest brewer, formed in late 2008 when Belgium-based InBev, known for its cost-cutting and profitability, bought St. Louis-based Anheuser-Busch.
Molson Coors responded by forming a U.S.-focused joint venture called MillerCoors with SABMiller's U.S. business. The price hikes are most likely to stick around, Shepard said.
“They're clear. The question is how long you can do that,” he said. “My theory is that Anheuser-Busch probably won't change course unless they start to give share directly to MillerCoors.”
More people are also switching to craft beers and imports, which make up 5 percent and about 12 percent of the market, respectively, he said. By comparison, MillerCoors has 29 percent of the U.S. market, while Anheuser-Busch has 48 percent, some of which includes import beers.
Molson Coors CEO Peter Swinburn said the higher prices aren't just about making more money and recouping production costs. The company sees having higher prices, and coming out with new, more expensive products as a way to keep brands from appearing to cheap. He cited cans for Coors Light that change color to signal the drink is cold and ready.
“The consumer, we know this because they tell us, is willing to pay more for a can of beer, such as Coors Light, that has a cold-activated blue label on it because they know the product is cold,” he said. “They're getting the very best quality, and they're willing to pay for it.”
AB InBev CFO Felipe Dutra said the company is raising prices more quickly for some brands to encourage consumers to trade up to premium brands such as Budweiser and Bud Light.
Overall net profit fell 7.2 percent to $1.43 billion from the same period last year. Revenue dropped 4.5 percent to $9.32 billion.
The brewer sold 4.1 percent more beer around the world, after excluding sales of assets. Anheuser-Busch credited strong demand in Brazil and China and an unusually hot summer in Russia. U.S. volume fell 1.5 percent and Europe's decline was even steeper at 4.5 percent.
Molson Coors, which also makes Blue Moon and Carling, saw net income rise 9 percent because of higher prices and cost cutting. The company earned $256.1 million, or $1.37 per share in the quarter. Excluding one-time items it earned $1.28 per share. Revenue excluding excise taxes rose 2.5 percent to $875 million.
But the total amount of beer the Denver company sold around the world fell 4 percent, dragged down by a decline of 12.5 percent in Britain, a hangover from big increases the quarter before tied to the World Cup.
In the U.S. sales to retailers fell 4 percent, while in Canada the figure grew 0.4 percent.
Volume rose 11 percent outside the U.S., Canada and Britain, though that is a tiny portion of its business.
Anheuser-Busch's volume growth now is “Latin America-based only,” with some contributions from the much smaller Asian-Pacific market, said Gerard Rijk, an analyst at ING in the Netherlands.
Swinburn said the company plans to keep focusing on coming out with new products and expanding in emerging markets including China so it will be positioned well when the economy improves.
“We're feeling good about it,” he said of the company's business. “What we can't control is the external economy.”
Shares of Anheuser-Busch fell $1.78 or 2.8 to $61.73 in afternoon trading while shares of Molson Coors rose 1.82 or 3.9 percent to $49.04.