Consumers Refuse to Pay Increased Prices, Resulting in Decreased Beer Sales

As inflationary pressures continue to build, brewers are starting to feel the pinch. Costs for key ingredients like hops and barley have been rising, eating into profits and putting upward pressure on prices. While some brewers have been able to offset these costs through efficiency gains and cost-cutting measures, others have been forced to raise prices, which could put a damper on demand.

U.S. beer sales were largely unaffected by rising prices last year, with some drinkers switching to more expensive brands and others opting for cheaper options.

After prices went up in the beer industry in October, demand from U.S. consumers fell in the last three months of the year. This was likely in response to the higher prices, with many people feeling sticker shock. Corona brewer Constellation Brands Inc. was one of the companies affected by this trend.

Now says it plans to make more muted price increases in the coming fiscal year, because higher-than-usual price increases in October slowed sales growth.

"The consumer is very sensitive to pricing," Constellation CEO Bill Newlands told analysts on Thursday. "We have to be careful in balancing our growth and pricing."

In general, U.S. beer sales have been declining for years as people switch to wine and spirits. That trend accelerated in the last quarter of 2022, with sales volume falling even in categories where demand had been growing.

According to an analysis of Nielsen data by the Bump Williams Consulting Co., a retail-store sales volume of imported beers such as Modelo Especial grew by 4.2% in the year 2022. However, in the four weeks leading up to Christmas, this same volume fell by 0.5%. In contrast, Superpremium domestic beer brands such as Michelob Ultra saw a 0.8% growth in 2022, but experienced a 2.3% decline in sales during December of that year.

The October price increases were not enough to offset the declines in sales volume, which accelerated in December, according to Dave Williams, vice president of analytics and insights at Bump Williams Consulting.

The beer industry is facing another troubling figure: a 10% drop in beer imports to the US in November compared to the same month last year. This is according to an analysis of US 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 worrying sign for the future health of the category," Mr. Williams said. "Price sensitivity can only be stretched so far, even for beer."

Beer is often said to be recession-proof. In October, Budweiser brewer Anheuser-Busch InBev reported that sales of its flagship beer had remained strong despite the economic downturn.

NV said that beer drinkers would continue to buy beer because it was a treat that they could afford, even as other indulgences became out of reach. However, the brewing giant also said that it was introducing cheaper packages for consumers who were facing especially tight financial circumstances.

A spokesperson for AB InBev said Thursday that the beer industry is facing many of the same pressures as other industries, but added that the company's brands and package offerings put it in a good position to weather the current inflationary environment.

Constellation Thursday reported that higher costs for raw materials, packaging, fuel and freight 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%.

According to alcohol industry executives, shoppers have been increasingly switching from small, local convenience and grocery stores to big-box and club stores in search of discounts and promotions. Prosecco sales saw a significant uptick over the holiday season as people opted for the cheaper Italian bubbly over French Champagne.