- Supply chain costs have driven up beer prices.
- Brewers are waiting to see when consumers get fed up, as beer tends to be “recession proof”.
- The producer of Corona says that customers have started to buy less beer where prices are highest.
It will take a lot to forego bottled beer drinkers. And for that reason, beer sales are a solid indicator of the state of the economy when inflation is at play.
“We’re very fortunate in the alcoholic beverage business that tends to be recession-proof,” William Newlands, chief executive of Constellation Brands, which owns Corona and Modelo along with major wine and spirits brands, said on an earnings call Thursday.
Newlands and his peers at other companies have warned investors that the current environment, where supply chain costs have caused mass inflation, would test consumer appetite for beer.
The average price of beer in the United States increased by nearly 8% from November 2021 to November 2022, according to Moody’s. All indications are that it is still going up, even if there is a lag in nationwide data.
“It’s obviously too early to give full assurance that the price increase has landed well and hasn’t changed consumer behavior because we’re still learning and we’ll see what plays out over the next few months,” Molson Coors chief executive Gavin Hattersley said at a Morgan Stanley investor conference in early December. Molson Coors raised prices by 5% in the spring and another 5% in the fall, company executives said.
Other players in the beer supply chain, including the stores that sell Modelo and Corona, increase their own prices to varying degrees on top of the wholesale price, Newlands explained on Thursday. So Constellation’s view of sales across the country shows how much consumers are willing to pay. The CEO said that in some places, especially California, prices have gone as far as consumers will tolerate.
“A lot of companies, including ours, took additional prices beyond what we had planned. And that caused a general softness in the market,” Newlands said. “It wasn’t limited to us.”
Some costs in the supply chain fall as imports and overall freight demand slows, but it will take time for them to break even, and perhaps eventually on the shelf. Sales of Constellation beer brands rose 8% in the latest quarter, but the company’s shares still fell on Thursday as high costs continue to weigh on profits.
The CEO said the company needs to be more careful about raising prices further since consumers are starting to falter.
Economists say inflation will persist throughout 2023, but a slowdown in demand for goods, which then sends a signal to businesses to cool it with price increases, is a new and necessary phase out of the current cycle.