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CASTLE MALTING NEWS in partnership with www.e-malt.com Chinese
17 June, 2022



Brewing news World: AB InBev to raise prices to catch up with inflation

Anheuser-Busch InBev SA/NV says some of its beverages are going to get pricier and come in variable sizes as the maker of Corona and Bud Light looks to catch up with inflation in the U.S. and elsewhere, the Wall Street Journal reported on June 16.

Leuven, Belgium-based AB InBev found that despite regular updates to its pricing, the company is lagging on cost increases in certain markets, including the U.S. and Brazil, as inflation accelerated since the beginning of the year.

“Overall, I feel inflation is a little bit higher than our view,” AB InBev Chief Financial Officer Fernando Tennenbaum said.

In the U.S., the consumer-price index stood at 8% in the first quarter, but AB InBev’s total net revenue per hectoliter of beer only increased 6.2%, illustrating the gap between the pace of inflation and the company’s ability to match it. (An hectoliter equals 100 liters.)

Another country where the brewer has been slow to adjust is Brazil, where the CPI rose 10.7% in the first quarter compared with a rise of 8.5% in total net revenue per hectoliter, the company said. Across AB InBev’s global brands, the CPI during that time period increased by 8.2% on a weighted average basis, while total net revenue per hectolitre of beer rose 7.8%.

AB InBev tracks its budget on a monthly basis and sets a one-year plan and reviews it at least quarterly. It uses various tools to manage inflation, including price increases, changes to its containers and its pack sizes.

“You can have different pack sizes with different price points for different occasions,” Mr. Tennenbaum said. AB InBev uses returnable packaging in Brazil and in other countries, which helps with bringing down costs, he added.

U.S. consumer inflation in May reached its highest level in more than four decades as rising energy and food prices pushed prices higher. The Labor Department last week said the CPI rose 8.6% in May from the same month a year ago, the highest reading since December 1981.

Mr. Tennenbaum declined to provide specifics on AB InBev’s pricing strategy. “Pricing is only one of the levers we have to manage cost inflation,” a spokeswoman said.

The brewer, which operates in about 50 countries around the world, also uses zero-based budgeting to keep costs under control. The tool forces managers to plan every budget from scratch, and is being used by many consumer-facing businesses. “It’s a mind-set,” Mr. Tennenbaum said.

AB InBev plans to stick to its outlook this year for 4% to 8% growth in earnings before interest, tax, depreciation and amortization.

“In good times, it’s great to be a beer company. In bad times, it’s very good as well,” Mr. Tennenbaum said.

The company’s first-quarter results were somewhat mixed. AB InBev recorded revenue of $13.23 billion for the first quarter, up 11.1% from the prior-year period.

Using normalized Ebitda—which isn’t an accounting measure under International Financial Reporting Standards—the company posted $4.48 billion for the quarter, up 7.4% from a year ago. Its profit, however, was $499 million, a 44% slide from a year ago.

AB InBev has a broad collection of brands at different price points, which will help with generating revenue even if the economy slows, analysts said.

“They have mainstream and premium beers,” said Laurent Grandet, a managing director and lead consumer staples analyst at Guggenheim Securities LLC, a financial services firm.

“If consumers go for cheaper beers, they have the breadth of the portfolio,” he said. Still, customers trading down could result in lower profits, he added.

In the U.S., brewers including AB InBev are limited in how much more they could charge, as consumers might turn to spirits or other products instead.

“The price of beer has been increasing over time, but there is not much more to increase,” Mr. Grandet said.





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