Ah, the joys of a duopoly.
Despite a recession and slumping U.S. beer shipments, the largest beer producers will raise their prices. They are convinced that enough customers will keep raising their glasses that the brewmasters can raise revenue, profit, and share prices.
So what if they raise the hackles of customers? They know they can get away with it because of their market power. The Budweiser, Miller, and Coors families of brands account for about 80% of the U.S. beer market.
They haven't described the size of their increases, but Anheuser-Busch InBev (OTC BB: AHBIY.PK) and the U.S. joint venture of Molson Coors (NYSE: TAP ) and SABMiller (OTC BB: SBMRY.PK) will act this fall in most of their markets, according to The Wall Street Journal.
The price increases will arrive as beer volumes decline or remain stable compared to year-ago periods. The forecast for the U.S. is a slower volume growth rate for 2009-2012 compared with 2004-2008.
They've done it before
Last year, when Molson Coors and SABMiller created a U.S. joint venture, the main goals were cutting costs and streamlining administration. The venture and InBev's takeover of Anheuser-Busch last year created a climate that is not conducive to price wars in order to gain market share.
Boosting prices in a crippled economy has worked as recently as last year. While Anheuser-Busch was still independent, it successfully imposed higher prices in September and October for most markets in the U.S. Similarly, the joint venture said a fourth-quarter price increase produced more revenue in a "softened" U.S. market.
An epidemic of pricing power
Other international brewers, including those with big exports to the U.S., aren't letting the recession get in the way of decisions.
Grupo Modelo, Mexico's biggest brewer and maker of the leading U.S. import brand, Corona, recently told Bloomberg News that it would hold the line on prices even though the recession is causing some U.S. drinkers to trade down to cheaper beers.
Grupo Modelo exports Corona to the U.S. via a joint venture with Constellation Brands (NYSE: STZ ) . Anheuser-Busch InBev owns 50.2% of Grupo Modelo, although the Mexican company's board retains operational control.
Heineken (OTC BB: HINKY.PK) also vowed to "maintain the price position of key brands." The company said Wednesday that its worldwide first-half profit, excluding one-time gains, rose 12% versus the year-ago period thanks to cost-cutting and "robust" pricing even though total volume dropped.
Don't expect bargains
Higher prices from the giants may provide cover for smaller brewers, like Boston Beer (NYSE: SAM ) . In the second quarter, the maker of the Samuel Adams brand imposed a 3% net price increase even though its chairman fretted about the recession discouraging people from trading up to premium beers. Boston Beer said it will maintain "healthy pricing."
When The Motley Fool wrote about the beer industry earlier this month with the headline "Sell Less, Earn More," we weren't kidding. The bottom line is that "bottoms up" will be more expensive. That should be good news for shareholders even if it is tough to swallow for consumers.
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