Business is booming for the world’s largest brewers. Sales are racing ahead of pre-pandemic levels, as on-trade sales have roared back to life. But the real tests for the post-Covid health of the industry are yet to come.

This week, another brewing giant posted stellar first-half numbers. Having upgraded its full-year earnings expectations last week, Carlsberg beat market forecasts for its first half performance, with sales surging 20.7% in the half and by 18.7% in the second quarter.

While pricing growth of 11% certainly helped – boosted by the return of the higher priced on-trade, as well as inflation-driven price increases – volumes also jumped 8.9% in the half, driven by a strong performance in western Europe and Asia.

AB InBev and Heineken have also posted impressive first-half sales numbers. AB InBev saw revenues rise by 11.3% in its second quarter, boosted by ongoing premiumisation and expansion of the beer category across most key markets. Meanwhile, Heineken saw net revenues jump 24.3% to €16.4bn in the first half, driven by continued demand for premium drinks, with its organic beer volumes up 7.6% and premium volumes 10.2% higher.

Put simply, consumers are drinking more beer, even as prices rise. “Consumers are cutting back on the things they can do without or they can put off into the future, but they still want to be able to enjoy life and those little luxuries, like a beer after work,” said Danni Hewson, financial analyst at AJ Bell.

These better-than-expected performances seem to make the mass sell-off of brewing shares in the wake of Russia’s invasion of Ukraine look like an overreaction.

Carlsberg, which had the most exposure to the Russian market, lost 28% of its value in a single month back in February/March, while AB InBev and Heineken saw double-digit falls.

All three have taken big write-offs on their exits from Russia and suppressed activity in Ukraine, but the underlying businesses across the rest of the world have been more durable than expected.

Firstly, the potential Covid hangover clouding the return of out-of-home drinking looks to be far less pronounced than feared in major markets. Not only has 2022 largely been free of restrictions in key developed markets, consumer behaviour has returned quickly to pre-Covid normality amid pent up demand.

More recently, the brewers couldn’t have wished for better weather to boost their sales. CMC Markets commented: “If Carlsberg did summers, then they would be very hot summers, and that has probably helped drive sales higher thus helping offset higher costs.”

“The key test will come when the weather cools down,” it cautioned. It’s a pertinent point – and it’s not just the weather that’s likely to turn in the coming months.

Carlsberg warned of weaker second-half progress, citing rising commodity prices and energy costs and last year’s hedging winding down. Additionally, it pointed to a lag between experiencing these cost increases and being able to pass them on. It will also face much tougher comparables due to the industry’s strong third quarter of 2021, when restrictions were eased.

Potential shortages 

The overall supply chain situation also remains stressed amid potential shortages of CO2 and glass, and there is no guarantee consumers will continue to accept cost increases  – which have had a negative impact on volumes in other areas of fmcg.

The fourth quarter does bring easier comparisons again, given winter Covid restrictions last year. A winter World Cup won’t harm fourth quarter performance either.

But the second half of the year is likely to give us more of an indication how strongly the global brewers have emerged from Covid and the long-term effects of massive disruption in eastern Europe and shedding their Russian businesses.

Carlsberg certainly remained cautious this week – guiding to a weaker second half that “appears conservative”, according to Bernstein.

Thus far, the key pre-pandemic trend of premiumisation is holding firm – boosting sales and margins across the industry even in the face of rampant inflation. There is some evidence of downtrading in premium spirits, but beer is a much more affordable luxury.

The coming months will tell us just how much value consumers place on the perceived quality and brand name of their pint.