Sluggish Sales Are Heating Up Beer Price Wars
A price fight brewing among Anheuser-Busch Cos., Miller Brewing Co. and some other major beer makers shows no sign of ending, which is good news for quaffers but bad news for Anheuser’s stockholders.
“There’s a major price war in the beer industry,” said Roy Burry, beverage analyst at the investment firm CIBC Oppenheimer in New York.
Because beer consumption is sluggish (as it has been for the last decade), the major brewers are paring prices in the battle to win valuable market share from the others. That’s why the price of 12-can packs of major beer brands has now dropped to $7.50 or less at some Southland supermarkets.
But the discounting is also cutting into some brewers’ profits, most notably at industry leader Anheuser-Busch, whose earnings have disappointed Wall Street.
As a result, Anheuser-Busch’s stock has been flatter than stale ale for the last 12 months. While the stock market has climbed 27%, Anheuser-Busch shares are up only 2%, even though the St. Louis-based company sells twice as much beer domestically as its nearest rival, Miller, whose parent is tobacco kingpin Philip Morris Cos.
Yet Anheuser-Busch--maker of Budweiser, Bud Light and Michelob--vows to keep shaving prices if that’s what it takes to preserve its dominant slice of the U.S. beer market.
The company “will continue to meet competitive prices to protect our market share,” Chairman August A. Busch III vowed recently in announcing the company’s results for the first nine months of 1997.
The results showed that the company’s U.S. beer sales had inched up 0.6% from a year earlier, to 68.7 million barrels, but its share of the U.S. beer market had slipped to 44.7% from 45.1% a year earlier.
Lower prices may be popular with consumers (and price wars are nothing new in the beer business), but price is only one factor in how well a beer sells. Like soda pop, beer heavily relies on image, so its advertising and promotion are also crucial.
Just witness the flurry of beer ads on television. Anheuser-Busch spent more than half a billion dollars on advertising last year, according to Advertising Age magazine, and some of it paid off. The company’s TV ads featuring talking frogs helped slow the decline in sales of its flagship brew, Budweiser, and other promotions extended the sales gains of Bud Light.
Anheuser-Busch will also not raise prices early next year, Busch said, thus temporarily abandoning the industry’s practice of trying to nudge prices higher twice a year.
“Typically they raise prices 1% to 2% a year, with one increase in November and another in February, but the likelihood of you seeing either of those [this time] is very remote,” said George Thompson, an analyst at Prudential Securities in New York.
He and other analysts said Anheuser-Busch has little choice, because Miller--whose top brands include Miller Lite and Miller Genuine Draft--has been leading the price cuts and is showing solid sales gains as a result.
“Miller is driving the discounting, and it’s not clear how Anheuser-Busch is going to get Miller to ease up on that,” said John “Jay” Nelson, an analyst at the investment firm Brown Bros. Harriman & Co. in New York.
Others, though, said consumers might see prices gradually rise next year. The reasoning: Costs of packaging and the commodities used to brew beer are going up, and Miller won’t be able to cut its other overhead costs as much as it did this year.
That means “they’re going to have to raise prices,” enabling Anheuser-Busch and others to follow suit, Burry said.
This year’s price cuts averaged 2% to 3% at the wholesale level, and more on supermarket shelves, depending on the beer and the region in which it’s sold, industry trackers said.
The cuts might not sound like much, but for brewers as huge as Anheuser-Busch, Miller and third-ranked Adolph Coors Co.--which together control more than three-quarters of the U.S. beer market--even those small changes can mean big swings in their sales and profits.
So can a point-or-two change in market share, because suds sales are barely growing overall. Beer shipments to the U.S. market last year totaled 200.5 million barrels--up only 2% from five years earlier.
Coors, meanwhile, plans to keep cutting prices only in certain markets (including California) that it needs to stay competitive, because it doesn’t have its rivals’ deeper pockets to absorb more widespread discounting, Coors Chief Financial Officer Timothy Wolf told Bloomberg News this week.
Even so, Coors is thriving. Thanks to strong sales of Coors and Coors Light, along with its tight rein on costs, Coors’ earnings have jumped sharply in 1997 and its stock has more than doubled in price over the last 12 months.
Miller is doing better this year because, after a lousy 1996, it focused more on its core brands, including Miller Lite. “Anheuser-Busch beat up on the industry in 1996 and very badly hurt Miller,” which sparked “a major competitive backlash” from Miller, including “stepped-up promotions and just plain price cuts,” Burry said.
But Miller executives bristle at suggestions that Miller is responsible for the price war. Rather, they contend that Anheuser-Busch and some Wall Street analysts are using Miller’s price cuts as an excuse for Anheuser-Busch’s own missteps.
“From our perspective, there is no price war, nor has Miller driven the pricing down,” said Chris Moore, Miller’s vice president of sales. Prices of major brands are “down some” from a year ago, but what’s more important is that Miller has improved its advertising and brand awareness, he said.
“In California, for instance, the deepest discounts on key premium packages [such as 12 packs] this year were initiated by Anheuser-Busch, not by us,” Moore said.
Anheuser-Busch declined comment beyond Busch’s statements in the third-quarter report.
Why have beer sales been flat for so long? Eric Shepard, editor of Beer Marketer’s Insights, a trade journal in Nanuet, N.Y., said the reasons include increased awareness of drinking-and-driving dangers and that “people are also drinking less beer compared with other beverages like bottled water and ‘new age’ drinks.”
The falloff is even more pronounced in California, where per-capita beer consumption plunged 23% from 1986 to 1996, to 19.1 gallons a year, he said. The national decline over the decade was 6.3%, to 22.5 gallons per person.
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Times staff writer Jennifer Oldham contributed to this report.
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Chugging Along
U.S. beer consumption has been flat for the last decade and has dropped in California, prompting brewers to use price cuts to gain customers. A look at the top brewers’ U.S. market shares in terms of barrels shipped and per-capita beer consumption:
Brewer Market Share in 1996
Anheuser-Busch: 45.4%
Miller: 21.8%
Coors: 10.0%
Stroh: 8.3%
Others: 14.5%
How Much Beer Is Consumed
(Gallons per person)
United States
1996: 22.5
California
1996: 19.1
Source: Beer Marketer’s Insights
