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Beer Sales Drop as Consumers Balk at Higher Prices -- WSJ

The Wall Street Journal · 01/06/2023 08:00

By Jennifer Maloney

Brewers are beginning to feel inflation's pinch.

For much of last year, U.S. beer sales seemed largely unaffected as rising prices squeezed shoppers' pocketbooks. Some beer drinkers traded up to fancier brands as an affordable indulgence; others switched to cheaper suds.

That changed after price hikes took effect across the industry in October. U.S. demand for beer fell in the last three months of the year as consumers reacted with sticker shock. Corona brewer Constellation Brands Inc. now says it plans to make "more muted" price increases in the coming fiscal year, because higher-than-usual price increases in October slowed its sales growth.

"The consumer is overly sensitive to pricing actions," Constellation Chief Executive Bill Newlands told analysts Thursday when the company lowered its earnings forecast, sending shares down nearly 10%. "We need to be careful in balancing our growth profile and our pricing profile."

Overall, U.S. beer sales volumes have been falling for years as people switch to wine and spirits. That decline accelerated in the last quarter of 2022. Sales volume dropped even in well-performing beer categories for which demand had been growing.

U.S. retail-store sales volume of imported beers such as Modelo Especial grew 4.2% in 2022, but fell 0.5% in the four weeks before Christmas, according to an analysis of Nielsen data by the Bump Williams Consulting Co., an industry consulting firm. Superpremium domestic beer brands such as Michelob Ultra grew 0.8% in 2022, but fell 2.3% in the same December period.

The October price increases offset these declines, and kept dollar-sales growth at around 5% in the last quarter of 2022. In December, however, the dollar-sales gains shrank and the sales-volume decline accelerated, said Dave Williams, vice president of analytics and insights at Bump Williams Consulting.

Another troubling figure for the beer industry: Beer imports to the U.S. dropped more than 10% in November from the same month a year earlier, according to an analysis of U.S. Department of Commerce data released this week by the Beer Institute, a national trade association.

"The sharp drop in volume trends is concerning, and a concerning sign for the true health of the category moving forward," Mr. Williams said. "Price sensitivity can only be stretched so far, even for beer."

Beer has often been touted as recession-proof. In October, Budweiser brewer Anheuser-Busch InBev NV said beer drinkers would continue to buy beer because it was a treat they could afford as other indulgences moved out of reach. But the brewing giant also said it was introducing cheaper packages for consumers whose finances were especially tight.

"If you want to upgrade your house, [it can cost] millions of dollars," AB InBev Chief Executive Michel Doukeris said in an October interview. "If you want to change your car, thousands of dollars. If you want to go premium in beer, tens of dollars. So during recessions, inflation, consumers tend to trade up."

A spokeswoman for AB InBev said the beer industry isn't immune to the pressures other industries are facing, and added that the company's brands and package offerings put it in a good position to weather the current inflationary environment.

Constellation Thursday said that higher costs for raw materials, packaging, fuel and freight costs had hurt its operating margins in the quarter ended Nov. 30. The company said that in its 2024 fiscal year, it will stay within its traditional price-increase range of 1% to 2%.

Beer, wine and spirits shoppers have been switching from small, local convenience and grocery stores to big-box and club stores where they can find discounts and promotions, alcohol-industry executives said. And prosecco sales soared over the holiday season as people chose the cheaper Italian bubbly over French Champagne.

Write to Jennifer Maloney at Jennifer.Maloney@wsj.com

(END) Dow Jones Newswires

January 06, 2023 08:00 ET (13:00 GMT)

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