Saturday, May 01, 2010

May Brings Higher Beer Prices

This may be a hard one to drink to, but May is bringing in higher beer prices for a number of brands. First hit will be a number of highly successful regional craft beers, as prices may rise about $4 wholesale per case of four six packs.

Higher material prices and lower sales volume during to the worst of the economy have made profits tighter for the industry in recent months. Commodities such as barley have increased in price. Aluminum to make the cans has increased in price. Electrical power has taken steep increases, thanks to regional utility boards approving big jumps in electric service bills. And finally, gasoline prices are on the increase as well.

While Anheuser-Busch has capped aluminum prices due to a locked-in price contract with suppliers, other brands may not. Aluminum is equal to roughly 20% of the cost of beer products. Barley may constitute up to 12% of the cost of some brewers.

But brewers are always a little skittish to raise prices as a 1% price increase usually results in .5% decrease in sales volume. A $1 increase in a craft beer six pack can hit sales very hard for small craft brewers and is a difficult decision to make. Further, beer retailers are stuck between a rock and a hard place. Do they pay more for a product and suffer a big reduction in profits? Or, do they balance that price increase with a moderate loss of profit to offset what would be a horrible loss of sales volume if the shelf price really reflects the product's newer higher price. It's a difficult decision for retailers to grasp with, and either way not a happy one for consumers.