Beer Watch: Those Tiny Bubbles are Getting More Expensive … But Why?

As one who has been known to appreciate a good pint of bitter (or two) from time-to-time, I pay especially close attention to the cost of beer. In the past couple of years, I've been shocked by the price increase in my favorite, IPAs, because of rising hop prices. But now it looks like even the watered down, mass market stuff is set to bubble over. A recent post over on the LA Times blog provides some background on rising costs and quotes Ariba's Bob Zieger about whether the cost increases are justified. According to the story, "MillerCoors, the Chicago maker of Miller Lite, Coors Light and Blue Moon, and Anheuser-Busch Cos., the St. Louis producer of Budweiser and Bud Light ... [plan to raise prices and] both blamed rising expenses for their planned increases. Together, the companies control 80% of the U.S. beer market."

But how much of this price increase is justified? Bob does a good job standing up for Joe Six Pack's wallet when he suggests that the brewers may be crying commodity price inflation wolf. He notes "beer is not made from a combination of pork bellies, copper and cocoa. [Rather] its key price drivers, like hops and barley, are actually not experiencing a serious price increase right now. If there was ever a time to blame commodity costs for a necessary price increase, it was last year." But today, MillerCoors and Anheuser-Busch are using commodity prices as "a convenient scapegoat for a price increase".

In a market where the top two producers control 80% of marketshare, it's unlikely that we'll see these duopolistic providers retract these recent price hikes unless consumers react by drinking fewer pints of suds. Which, given the overall economy, is unlikely. After all, alcohol is one of the few recession (and depression) proof consumables in the market. Because when the going gets tough, that six pack is the last thing on the shopping list to be cut out. And for this reason, the top brewers might very well get away with using their dubious logic to extract a few more pennies per can at a time when many of their customers can least afford it yet are unlikely to change their buying habits. It's a classic case of relative price inelasticity. They can blame commodity prices all they want for the increase, but really, it's a case of economics 101, and they know it as well as we do.

Jason Busch

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