The third quarter results for the world’s big brewers are being reported this month in the financial press, and while you might think that declining sales – which almost all of them have experienced, at least in their traditional markets – might translate into decreased profits, or even losses, well, you’d be dead wrong!
- Denver-based Molson Coors overcame a decline in world-wide beer volume to post an 8.8% rise in earnings, as revenue increased for the fourth consecutive quarter from year-earlier levels. (Courtesy of the Wall Street Journal)
- Two years after its ill-timed takeover of Budweiser, the Brazilian-Belgian beer giant is taking on its own customers, gambling that U.S. beer drinkers will swallow above-inflation price increases despite the sluggish economic recovery. AB InBev’s expectation-beating third quarter results suggest that bet may be paying off. (Thanks again WSJ)
- Still, earnings for big beer look better than revenue, said the report. MillerCoors said Wednesday that net income for the third quarter, excluding special items, actually increased, 37%, to $334 million, thanks to cost cutting and price increases. (Credit this time to CSPNet.com)
Yes, you read that right. Demand is down, which if I remember my university economics is supposed to mean that prices are also supposed to drop in order to stimulate sales. But 
instead, the big brewers are raising prices to the point that rather than having merely a mitigating effect on their revenue stream, it is actually increasing profits.
Or in other words, AB InBev and SAB Miller and Molson Coors are gambling that their North American customers are dupes, and the bet is paying off. Suckers!
Just to play a bit of the Devil’s advocate here…
How much of that increase in profits comes from divestments several of these giants have done this year? (e.g. AB-InBev’s getting rid of all their Eastern European business units) or other cost cutting measures not directly related to brewing?
Generally speaking, revenues from divestment will go into a separate category, Max, although I’m not certain that is the case in these instances. The cost-cutting certainly does figure in the bottom line, though.
The point, however, is that every analysis of the profits increases I’ve seen has pointed to rising prices as a key component, viz. “…gambling that U.S. beer drinkers will swallow above-inflation price increases despite the sluggish economic recovery.”
I was asking because I think I’ve read something like that somewhere: that (I think, but it doesn’t matter) Heineken’s earnings from a certain period had improved thanks to having got rid of some underperforming business units. But I could be pulling that out of my arse, anyway….
On the other hand, with the dominant market share those big boys have in the US they can get away with pretty much anything in terms of prices or cheaping down their beer, knowing full well that the Joes Sixpack will keep on buying their stuff.
I don’t know, Max, at least one Joe Sixpack might disagree…
hehe…
When you can walk into your local liquor store and buy a six-pack of Blanche du Chambly or other Canadian microbrew for about the same price as a six-pack of Blue or Canadian, you know the big breweries are over-pricing.