The current surge in inflation is enough to make anyone reach for a strong drink. But even booze-fuelled escapism is about to get more expensive, according to Heineken, which this week warned the price of its beers would go up as it faced mounting cost increases.
The brewer isn’t alone: Carlsberg too, plans to raise its prices – and has warned it expects doing so will hit its sales. Indeed it’s likely many brands across the beer category will have to do the same.
In fact, the prospect for Heineken is slightly more positive than some of its rivals. Many of its bestsellers are premium beers such as Birra Moretti and its eponymous lager. Shoppers are not historically as sensitive to price rises on premium drinks, as they are already paying a bit more.
Whether it could get away with hiking the price of its low & no brands is a different matter. There is a strong – though debatable – perception in the market that non-alcoholic drinks should be cheaper than their alcoholic counterparts because there is no duty burden for them to bear.
That’s not to say they aren’t subject to the same surging cost pressures as their stablemates. But with Heineken’s low & no sales up 30% this year, according to its latest results, it will have to tread carefully with this increasingly important chunk of its portfolio.
Price hikes also don’t look great from a consumer perspective: on the surface, Heineken has just posted an 80% rise in net profits (to $2bn). Which may leave a bit of a sour taste in shoppers’ mouths as they are forced to pay extra.
The picture is of course more complex than that. Heineken’s results are strong, yes, but they encapsulate the ‘bounce back’ from the toils of 2020, when it lost an entire sales channel, hospitality, to coronavirus for months on end. Indeed, many big players across not just beer but fmcg as a whole are treating the year ahead with caution rather than optimism. Organic growth is much slower than 2021 and margins are being squeezed.
Regardless, messaging around rises will have to be careful. Especially with inflation firmly at the centre of public discourse.
And beer isn’t the only sector of booze facing the coming months with trepidation.
Wine and spirits have their own struggles. The Wine & Spirit APPG published a report this week into the consequences of the government’s proposed alcohol duty upheaval on SMEs in the sector – and it does not make for cheery reading.
The WSTA said the coming changes would “heap more misery on British businesses” with its “complex and costly” approach to what could be a “once in a lifetime chance to make alcohol taxation simpler and fairer” – at a time when wine and spirits businesses are already facing massive cost pressures.
That is because, while under the current proposals beer and cider will be taxed at lower rates, the proposed Small Producers Relief scheme will only apply to drinks under 8.5% abv. Which discounts nearly all winemakers and distillers. The APPG report has recommended making small producer support available to all producers, regardless of the strength of the finished product.
And that’s without even getting into the ramifications for makers of full-strength wine, who will in effect face having to get their heads around 27 new tax rates, rather than the three they have been used to. As The Grocer previously argued, there is much in government’s proposals to like – but these are serious issues that need to be ironed out, lest the wine sector be left at a serious disadvantage.
Still, the alcohol industry can find reassurance in that for many years now, shoppers have proved themselves willing to trade up again, and again, if they feel like they’re getting more bang for their buck. If brands can keep them engaged and excited, they may find it easier to weather 2022 than those in less fortunate segments of the market.
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