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09/25/2011

Pricing Update: More Retailer Pushback, But Look at Calif; Craft Hikes Coming; Yuengling

This has to be one of craziest yrs yet in terms of pressure on pricing in many different directions, complicating pricing strategies this fall and going into 2012. Certainly, more retailers pushin’ back against latest round of price hikes. “I’m open to price increases truly coming from input costs going up,” buyer Geoff Greble from influential Wegmans said on panel at Brooklyn Brewery’s natl sales conference. But he’s “questioning large premium houses” about “how input-driven” current increases are, or whether they’re “manipulative of gross profit on different products.” Speaking generally, several top grocer execs told Wall St Jnl that consumers increasingly pessimistic and more price conscious. One said “I think we’ve got to start holding a tough line (with vendors) from this point forward.” Elsewhere, one big southern retailer told INSIGHTS planned beer price hikes in one state “are probably the biggest mess I’ve seen in a decade. They’re too high, too crazy and everyone is trying to be too cute.”

Ironically, beer consumers traded up at faster pace over summer with craft, import and superpremium segments gaining steam. In fact, Wegmans looks closely at its most loyal shopper’s club members and has found “highly increased switchability” in their buying of beer, said Geoff. “Used to be” premium beer buyers and craft buyers “didn’t mix a lot,” but now Wegmans is seeing “more switching between them” than ever before. Premium prices “have gotten to a point,” said Geoff, where more consumers say: “I’m just going to buy craft.” As premium pricing “inches up,” more “people are switching out.” Editor’s note: some may be “switching out” to wine and/or spirits too, especially since wine and spirits prices have barely moved for many, many mos.

But if you look at one of nation’s largest mkts, Southern Calif, there’s been no real price hikes on premium brands for yrs. The “real increase” coming this yr is “desperately needed,” said Harbor’s Ned Hall (Harbor is 35-mil case MC house owned by Reyes Holdings), indignant at suggestions by many that increases excessive or not warranted. He shared data that showed virtually no increase on biggest chain packages in recent yrs. The 3 biggest packages are 36 packs, 30 packs and 18 packs, about half of volume for a mainstream brand. Harbor currently sells 36 packs at $19.60, compared to $19.50 in 2007. It sells 30 packs to retailers for $16.90, compared to $16.75 in 2006. And 18-packs are actually lower than they were in 2008: $10.50 vs $10.55. Those packages slated to go up almost a buck next month.

Meanwhile, craft brewers are facing big input cost pressure and so they need to take sizable price hikes. That includes big barley cost increase, perhaps 30-40%, according to Boston Beer’s ceo Martin Roper. He told analysts Sep 7 that Boston seeks price hike in 4% range later this yr, early next. But pricing environment “challenging” since other craft brewers may not move, Martin added. “Our goal is to take price, see what happens and reserve the right to reverse course” if that’s what mkt dictates. Last week, Brooklyn Beer’s coo Eric Ottoway said Brooklyn’s raw material costs will increase as much as $3 mil, and Brooklyn will increase prices by $1 case or more to distribs, likely much higher at retail. Speaking last mo on conference call, Craft Brewers Alliance cfo Mark Moreland acknowledged grain prices up, but said CBA had “locked in our 2012 grains” and that as result of several operational improvements CBA able to “mitigate the impact” of those higher prices. If CBA does not have to raise prices, that could pressure competitors.

Another brewer not taking widespread increase: Yuengling. It had already told distribs in Mid Atlantic, NY and core mkts of PA, NJ and Del there would be no increase in 2011. So Yuengling holding in well more than half its volume this yr. Some Mid-Atlantic distribs may go up on their own on selected pkgs. And Yuengling is looking at selective increases in Fla. Interestingly, one state where Yuengling not holding is Tenn, where it’s priced at Mich Ultra levels yet still up 20%+.

Publishing Info

  • Year: 2011
  • Volume: 42
  • Issue #: 18
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