A-B to increase prices despite soft U.S. sales

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A-B to increase prices despite soft U.S. sales
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  • Anheuser-Busch InBev beer sales

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It might seem like an odd time to raise beer prices, with U.S. sales struggling and an economy sputtering.

But that's exactly what Anheuser-Busch plans to do.

The megabrewer has notified U.S. distributors that the price of its beer is going up, starting Sept. 13.

How much prices will rise is still unclear. It will change by market and by brand. And whether consumers will end up paying more for a Budweiser six-pack or a case of Busch Light — or if distributors and retailers will eat the added cost — remains to be seen.

But A-B clearly believes it needs higher prices to close the gap between what it calls premium (Budweiser, for example) and subpremium (Busch Light) brews. Drinkers, pinched in a tough economy, are grabbing the cheaper beer. Subpremium is not as profitable. So something has to give.

A-B InBev, the world's largest brewer and A-B's parent company, believes it needs to address the profit gaps between its brands through a new pricing strategy, CEO Carlos Brito said Thursday during a conference call with analysts. "When I look at other categories in the U.S., those gaps of ours are just too large compared to other categories," he said.

A-B InBev reported strong numbers Thursday, boosting its share price 5 percent on the Brussels exchange. Profit jumped 7.4 percent to $1.15 billion in the second quarter, compared with the same period one year ago. Worldwide beer volumes were up 2 percent, thanks largely to Brazil and China.

But the U.S. market has been tough for A-B InBev and its subsidiary Anheuser-Busch: Beer volumes in North America fell 3.4 percent.

When sales are soft, discounts typically follow. So A-B's move in the opposite direction is widely seen as gutsy.

"Everybody's surprised by it," said longtime industry analyst David "Bump" Williams.

Beer distributors and retailers were surprised as well — and not too happy, either. Some retailers were 'screaming" about it, and "there's generally more questioning of this price hike than any we remember," wrote Benj Steinman in his industry newsletter Beer Marketer's Insights.

Among distributors, "I sense a lot more hesitation and fear than I ever have," noted Harry Schumacher, editor of Beer Business Daily.

Independent retailers such as Don Diserens, owner of Alton Sports Tap in Alton also don't see how a price increase at this time is a good move.

"Nobody's wanting to see price increases. You can only cut so much before you start passing it along," said Diserens, who is also the Illinois Licensed Beverage Association president.

The risk for A-B is not only turning off consumers but losing support from distributors and retailers. The brewer could find Budweiser, Stella Artois and Michelob are no longer stocked in the best cooler door locations or supermarket end caps, and advertising display programs could lose support, said Williams.

A-B declined to release details of its pricing strategy. A-B President Dave Peacock said in a statement, "We intend to implement a fall price increase that will vary by market, by brand and by package."

Schumacher thought the price hikes were worth a try. Worse-case scenario is that A-B backs off and begins discounting its beers. And two groups that might be celebrating the hike are importers and craft brewers. They should be doing back flips, Schumacher wrote, because the price gap between some artisanal summer lagers and Budweiser will be smaller, giving them more sales and perhaps room to inch up their own prices.

Copyright 2012 stltoday.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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