For those who like cheap beer, the party's over.
Beer prices, flat for fully three years, are foaming up. They have risen nearly 3 percent since January _ producing the most expensive six-packs seen this decade.
Most consumers probably aren't crying in their beer _ yet. Supermarkets that priced six-packs at $3.62 on average last summer now charge about $3.77, government statistics show. The price increase is also less conspicuous because it reflects fewer promotions and discounts than last summer.
But the rise in prices may signal an end to the price war in the $52-billion beer market in the past few years. That war of attrition squeezed profit margins _ yet still failed to energize sluggish beer sales _ for the past five years.
Now major brewers are forecasting both dollar and unit sales increases this year. And, heartened by consumer willingness to ante up amid the growth of expensive "microbrewed" beers, such as Samuel Adams and Pete's Wicked Ale, brewers expect to raise prices further, perhaps by 2 percent, this fall. The earlier 3 percent rise was initiated by Anheuser-Busch Cos., the No. 1 brewer, with a 44 percent market share. Then the second- and third-ranked players, Philip Morris Cos.' Miller Brewing division and Adolph Coors Co., followed suit. The three major brewers _ above the fray of hundreds of microbreweries _ control about three-quarters of the U.S. beer market.
The industry's pricing experiment may yet unravel. The last time there was a sizable increase was in 1991, when the government doubled the federal excise tax on a barrel of beer to $18. To cover that cost, brewers raised the price of six-packs roughly 25 cents in stores, pushing them for the first time above the $3 mark. As a result, beer consumption took a hit, declining 2 percent in 1991.
A second round of price increases could widen too greatly the spread between major brands, such as Budweiser and Coors, and discount ones, says Bob Jennings, beverage merchandising manager for Raley's Supermarkets, an 84-store chain in West Sacramento, Calif. Jennings typically stocks discount beers such as Keystone at about $2 less per 12-pack than the major brands. But with the recent price increases, 12-packs of Budweiser, Miller and Coors cost $7.99 _ now $3 above the Keystone price. "The big brewers need to be careful not to go up too much or they'll have consumers trading down," he says.
The increases couldn't be better news for Dirt Cheap Cigarettes, Beer & Liquor, a five-store chain in St. Louis. While carrying the big beer brands, the retailer a year ago launched its own brew, Totally Dirt Cheap Premium Beer, for $6.89 per 24-can case. Fred Teutenberg, a general manager of the stores, says he has recently had requests for the cheap beer from retailers in other states. "As other beers go higher on price, we're going after the low-price segment," he says. "So far, knock on wood, it's been a good seller."
But some factors favor the major breweries. The widespread popularity of pricey imports and microbrews has raised overall pricing for beer. Last year, the typical domestic six-pack ran $3.14, while imports commanded $5.51, according to Impact Databank, a market-research publication.
That gap has given brewers enough breathing room to raise prices on old standbys like Budweiser and Miller without giving Joe Six-Pack sticker shock. The rise of microbrewed beers "has changed the way Americans look at beer, and prices," says Tom Pirko, president of Bevmark LLC, a beverage consulting company.
More mundane issues also are driving prices higher. Coors, based in Golden, Colo., says rising costs for aluminum, grains and hops are forcing the industry's hand. And with brewers consolidating, competitive pressures are easing. This summer, Stroh Brewery Co., the fourth-largest U.S. beer company, swallowed up G. Heileman Brewing Co., the fifth-largest brewer.
The flat market for beer stocks, meanwhile, is prompting brewers to make bolder, riskier pricing moves. Shareholder returns for brewing-company stocks have been eroding during the past five years. Seeking to reverse that, top executives appear more willing to sacrifice market share for higher sales.
"The brewers are feeling pressure from shareholders to grow earnings in a flat business," says Bevmark's Pirko. "Holding even doesn't do any good."