Blog: Chris Brook-Carter(Price) War! Huh! What is it good for?

Chris Brook-Carter | 28 June 2005

US beer drinkers may be rejoicing, but the price war that is brewing in the country looks set to make this a long, hot and sticky summer for the nation’s beer makers.

Anheuser-Busch made efforts to put a brave face on matters yesterday (27 June) when it announced that demand for its new aluminium bottle was outpacing supply across the country, leading the brewer to double its capacity for the package by the autumn.

A-B also said yesterday that its latest brand, Budweiser Select, has grown to become the beer industry’s 12th best-selling brand, and has achieved a 1.7 industry share since being introduced nationally in February.

However, these snippets of good news cannot take away from the major concerns about the price war A-B has begun with primary rival Miller Brewing. Earlier this month, Miller released a statement detailing its intention to discount more aggressively to level the playing field with the Budweiser brewer and Molson Coors, conceding that it failed to respond sufficiently to A-B’s Memorial Day discounts.

It is a dangerous downward spiral for the brewing industry to be caught in. Significant gains were made in driving value in the US beer category during the late 1990s and early years of the new century, helping A-B post quarter after quarter of double digit growth. These efforts now appear to be unraveling fast.

“We consider this a net negative for category profit trends and category equity in the minds of consumers,” said Legg Mason analyst Mark Swartzberg in a research note recently. “We also believe A-B continues to overestimate discounting’s ability to restore sustained volume momentum, largely because Miller is ready to fight back more aggressively and effectively than it has in other periods of intensifying price competition.”

Though A-B is driving this pricing pressure, it may unwittingly be the loser in the long run. The geographic spread of Miller’s parent group SABMiller makes its ability to absorb pricing pressure in single markets greater than A-B’s. Although A-B is used to being able to throw it weight around successfully, this may be one battle the US giant may regret starting.


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