Thursday, 18 March 2010

Economics of the mad house

Molson Coors, the American-Canadian giant that owns the former Bass breweries in Burton-on-Trent, is to raise beer prices to pubs in an attempt to boost its wafer-thin profits. The group has been concerned for several years that while it makes vast amounts of beer -- mainly Carling lager -- its profits are negligible.
According to the weekly trade newspaper the Morning Advertiser (18 March), Molson Coors will raise pub prices of its beer by 7 pence a pint with immediate effect. With brilliant timing, this comes just two weeks before the government's Budget, when Chancellor Alistair Darling is expected to increase beer duty by 5%.
Molson Coors' decision has been driven by its need to tackle the problem of wafer-thin margins. The group brews a mighty 6.8 million barrels a year but its profits amount to just one penny a pint.
The reason for Molson Coors' parlous profits situation is that it sells beer to supermarkets at enormous discounts. The prices are sometimes so low that beer is sold as a loss leader, cheaper than bottled water. The supermarkets have the big brewers over a barrel: when Molson Coors raised the price of Carling to Tesco in March 2009, the supermarket group promptly de-listed the brand. It lasted just six weeks: Carling was soon back on Tesco shelves and we can guess who blinked first, brewer or retailer.
And as always it's the battered pub and pub customers who pay the price for this economic lunacy. Instead of facing down the supermarkets and forcing them to pay realistic prices for beer, Molson Coors makes pub drinkers pay a heavy price for draught beer.
It's worth comparing a global giant such as Molson Coors with a successful regional like Fuller's of west London. Fuller's brews 200,000 barrels a year -- as Molson Coors would say, "we spill more beer than Fuller's makes". Yet the family-owned brewery had to warn the Stock Exchange earlier this year that its profit figures for the previous year would be higher than expected as a result of its success.
Will the global giants learn the economic facts of life or will one of them eventually go out business, a victim of supermarket greed?


Blogger Cooking Lager said...

It’s always Tesco’s fault, Rog, only in the beer world not in the real world. Tesco have a business model to pile it high and sell it cheap, at low margin, and compete with other supermarkets. Selling at a loss occurs very rarely and most of the time only on products that don’t shift that they cannot hand back to suppliers. The myth that they sell lager cheaper than bottled water does not become true through repetition. Nor is cheap lager socially irresponsible. Most of the booze related disorder occurs at or near licensed premises. If Coors want to flog Carling at a low margin, or if they don’t is up to them. The market will decide what their product is worth. Picked up a tasty offer on Carlsberg Export in Sainsbury’s today. If Coors won’t sell cheap lout, others will.

18 March 2010 at 15:00  
Blogger Johnny Norfolk said...

Why would any sound company sell at a loss to anyone. So rather than blame supermarket greed blame the poor management of the brewers.

The supermarkts are trying to sell at the lowest price to gain market share.This gives the customer a good deal. My local brewery is not putting up the price of his draught beer, so drinkers should shop around for the best deal.

18 March 2010 at 20:44  
Anonymous Anonymous said...

Sorry Roger, think you have it a little wrong here on who flinched; As the MA article suggests, it was Tesco and not the brewer cutting it's own margins. the price rise was unilateral across all channels.

19 March 2010 at 08:52  

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