USA: Beer wholesalers see 'price war' looming

Beer wholesalers surveyed by Citigroup Smith Barney believe their industry is on the verge of a price war that could last seven months or longer, Dow Jones Newswires posted on July 25.

"The major brewers continue to discount and roll back prices," analyst Bonnie Herzog said in a note to investors. "We believe a price war is looming," and "82% of the wholesalers we surveyed agreed and on average believe a price war could last at least seven months." Citigroup didn't say what exactly constitutes a price war.

The firm said it "received responses from wholesalers that own 69 warehouses and distribute to just under 100,000 retail locations across the U.S." The survey was conducted during the second quarter.

Herzog fears that a price war, with further discounting, will reduce the brewers' profits, even though it will likely increase the volume of beer sold. "Furthermore," she said, "these things typically play out over several quarters and don't just 'magically' stop, restoring profitability."

Anheuser-Busch Cos. (BUD), St. Louis, said earlier this year it is willing to sacrifice short-term profits to increase volumes and maintain market share. SABMiller PLC's (SAB.JO) Miller Brewing Co., Milwaukee, has indicated it is willing to go toe-to-toe in price discounting, if necessary. Molson Coors Inc. (TAP), Golden, Colo., also has been discounting. Herzog said discounting is "a Band-Aid for a much more serious trend in the industry," that is, growing consumer preference for wine and mixed drinks.

The survey also found that 69% of the wholesalers "have seen more growth" in sub-premium brands compared with a year ago. Those brands include Anheuser-Busch's Natural Light, Molson Coors' Keystone Light and Miller's Milwaukee Best.

In addition, 80% of the wholesalers said they "saw an increase in marketing and promotions behind these brands during the second quarter," Herzog said. If consumers are "trading down" to less expensive beers, she said, that also could hurt profits. Citigroup has done investment banking work for Anheuser-Busch, Molson Coors and SABMiller. Herzog doesn't own shares.

27 July, 2005