Hey, if a headline like cheap beer doesn't get your attention on a Friday, I don't know what will. I came across two interesting stories on the subject this morning. Both pieces share the same theme, people all over the world are still drinking alcohol, but they are drinking more at home and drinking cheaper stuff.
According to the first article, five British pubs are close down every single day. The British Beer & Pub Association says that cost conscious Brits are drinking more at home than going out. This is bad news for beer companies, like Heineken (HINKY.PK hey I never noticed that its ticker symbol was "hinky" HA), and SAB Miller because they generate the majority of their U.K. sales at bars, where sales are twice as profitable as they are at liquor stores. Analysts believe that distillers, such as Diageo (DEO) will be impacted less by the shift which rely upon selling their products in stores more than in pubs.
Beer sales at pubs in Britain dropped 8.1% during the third quarter, amounting to a staggering 1.1 million fewer pints drunk per day. This will likely pressure the profit margins for many beer companies. Britain accounts for approximately 3% of the global beer market and nearly 10% of the European beer market.
It's not surprising that British consumers are cutting back. Britain's economy contracted for the first time in 16 years last quarter.
Brits Booze Without Beer, Mix Drinks at Home as Recession Looms
The second article talks about drinkers are lowering their standards and are purchasing cheaper brands of beer than they have been. According to SABMiller's CEO, the rate at which European consumers are are moving away from specialty and microbrews towards mainstream beer brands, like Miller, Coors, and Budweiser, is "surprising."
Over the past several years, beer companies have benefited from consumers "trading up" to more expensive premium brands, however this trend appears to be shifting quickly. This again is bad news for beer companies.
Even more interesting than the shift to mainstream brands in developed markets is the change to home-made alcohol in developing markets like Latin America.
Hmmm, I personally find this trend very disturbing because I live in a developed country yet I already drink a mainstream beer in Miller Light. Does this mean that I will have to start brewing some sort of strange hooch in my basement to use to drown my sorrows? Yuck.
Drinkers are returning to cheap brands, says SAB