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It's not called beer money for nothing.

Dutch mega-brewer Heineken began increasing its prices by more than 12% last year to offset higher production, ingredient, and energy costs. The hope was that drinkers would remain loyal. But inflation has finally become too much for consumers, especially in important Asian-Pacific markets. And it's not just a Heineken -- or even beer industry -- problem. The entire retail sector is facing a wave of customers turning away from their favorite, but now higher-priced, brands.

Spend More, Buy Less

Heineken's first-half beer sales volumes fell by 5.4% from the same period last year, with declines in all regions. A significant economic slowdown in Vietnam -- one of the brewery's largest markets -- hit particularly hard, with sales falling roughly 13% and operating profit dropping by about one-third.

As a result, Heineken cut its annual profit forecast, expecting growth to be between zero and a mid-single-digit percentage. But Heineken was simply following the recent price-raising playbook:

  • Anheuser-Busch InBev, Carlsberg, and Molson Coors have all increased prices since last fall, and while that initially worked, they could also report sales drop-offs in their upcoming Q2 results this month.
  • Increased prices among brewers and a reinvigorated cocktail culture caused spirit makers to wrestle market share away from beer companies in the US for the first time ever last year: Spirits made up 42.1% of alcohol sales, while beer accounted for 41.9%. And that momentum is still going. Market researcher Catalina said sales of pre-mixed cocktails grew 29% between May 2022 and May 2023, while domestic beer sales dropped 3%.

Sorry, I'm on a Budget: Multiple retail sectors saw their customers initially go along with higher prices, but with high global inflation sticky, consumers are starting to cut back.

Quarterly profits were up for Unilever, Kimberly Clark, and Pepsi, but sales volumes are down. Barron's reported that "shoppers are turning toward cheaper alternatives, such as private label brands, while others are opting to stop spending on more discretionary goods altogether as they become more cautious about spending." Heineken already said it expected its price increases to moderate in the second half of the year; other companies will likely follow that playbook, too.