Major problem brewing: Sobering cost of production makes beer a luxury drink ahead of World Cup
26 Oct 2022 --- With the football World Cup kicking off in less than a month, bars and beer brewers are preparing themselves for a spike in beer consumption. But the alcoholic drink, often synonymous with big sporting events, is being seen more of a luxury item these days as inflation and price pressures brew up a storm that threatens to further impact the cost of a pint.
UK brewers say that the average price of a pint could top £7 (US$8.03) in some cities as energy bills hit both brewers and pubs hard.
In Germany, the situation is not better, “Already during the COVID-19 crisis, supply bottlenecks and cost increases hit the brewing industry hard. But what is currently happening is beyond all dimensions. The cost increases for breweries have reached a level that threatens their existence. We are seeing unprecedented price increases for raw materials, packaging, energy and logistics,” Nina Göllinger, spokesperson for German Brewers’ Association, tells FoodIngredientsFirst.
Football fans traveling to Qatar will have to face costly beer price tags, as the country has a 100% excise tax on alcohol, according to the General Tax Authority of the country, and can only be purchased at selected locations such as hotels and licensed restaurants.
Beer will also be served near football stadiums at hospitality zones. However, only non-alcohol beer will be sold inside the arenas, according to FIFA.
Existence threatening costs
Göllinger explains that prices for brewing malt are up to 100% higher this year and pallets are also up to 100% more expensive. The cost of crown corks has also increased up to 70% and the prices for new glass have risen 80%.
“Due to the rising cost of living, gastronomy and trade are already experiencing a clear reluctance to consume on the part of consumers. This development, which is having a full impact on the breweries, will continue,” she highlights.
“Ukraine, currency and duty challenges and soaring inflation have created a ‘perfect storm' for the industry,” says Alon Mahon, CEO of UK’s Brewgooder. Mahon says that the current situation could be even tougher than during COVID-19 lockdowns “unless the public show their support for the trade in the coming months – as well as the government.”
3000% carbon dioxide inflation
The beer industry uses C02 to keep oxygen out of beer. Breweries often rely on carbon dioxide to move beer between tanks or kegs and canning lines.
Mahon explains that carbon dioxide costs UK brewers 3,000% more than it did last year, flagging it as “eye-watering.”
In Germany, Göllinger notes that only 30% to 40% of the usual supply quantities of CO2 are available on the market. This mainly affects smaller brewers who can’t capture the excess CO2 created naturally during the fermentation process and ones that additionally produce soft drinks, which then have to buy large quantities on the market at any cost because carbonic acid can’t be replaced.
“The increasing shortage of carbonic acid is a core problem for the industry because it means that production and bottling in breweries have to be interrupted more and more frequently,” she highlights.
The British Soft Drinks Association adds: “We need more than a temporary fix, however, it can’t be right that a company whose products are critical to the food and drink supply chain can be allowed to close a key plant without adequate warning or apparent consideration of the wider impacts, including another primary supplier of CO2 closing for maintenance at the same time.”
“Long-term, the Government needs to create or support conditions that prevent such damaging fluctuation in the market.”
Big beer companies make a fortune
Despite skyrocketing production costs, Germany has been able to increase production by 3.8% to 157.2 million, in the first six months of 2022, compared to 2021, according to the countries’ Federal Statistical Office – although beer sales are still 5.5% lower than before the pandemic.
Dutch brewery Heineken has achieved revenue growth of 37% and net profit growth of 20.6%. The company has increased its prices by 15.3% across markets to offset inflation.
“We expect significant inflationary pressures on our cost base and ongoing investment in our business to continue and impact the second half of 2022 and into 2023,” warns the company in its Q2 results statement.
US and Canadian brewers, Molson Coors, states in its Q2 2022 quarter report that they had increased net sales by 7.1% “primarily due to positive net pricing,” despite selling 0.6% less beer. The company had to raise prices due to a 32% increase in costs per hectoliter of beer sold due to raw materials, transportation and energy costs increases.
“After growing the top-line for the first time in a decade last year, we have now generated net sales growth for five straight quarters for the first time in over a decade on a constant currency basis,” said Gavin Hattersley, President and CEO of the company.
Brazil’s Ambev is also having a banner year, with net revenue increases of 19.6% in the second quarter. The company is also growing on price increases as revenue is accelerating three times faster than volume growth (6.1%).
Portugal plans beer taxes raise
With consumers already having to face increased prices for beer due to generalized inflationary pressures, some governments want to increase the bill for beer further.
Portugal is planning to increase special taxes for beer by 4%.
“Portuguese microbreweries will pay more than double the taxes per hectolitre than a large Spanish brewer pays,” says Francisco Gírio, secretary-general of APCV Cervejeiros.
“[This] will have a ‘serious’ impact on the competitiveness and survival of the beer sector, its companies and consumers,” he highlights.
“If the proposal is approved in the Assembly of the Republic, the brewing sector will be greatly harmed compared to its two biggest competitors, wine and beer from Spain, and beer prices in Portugal could increase, as more costs could be passed on to consumers,” concludes Gírio.
By Marc Cervera
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