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Beer makers plan price hike as inputs costs climb

Although brewers are putting cost controls in place to protect their margins, rising costs of barley, glass and other packaging material has made it tough for them to avoid a price hike.

May 30, 2022 / 07:01 PM IST
(Image: Reuters)

(Image: Reuters)

Like most consumer products, beer is about to become more expensive this summers as brewers try to cope with a steep increase in the prices of barley, glass and other packaging material.

According to industry estimates, the price of barley has almost doubled in three months, and the cost of labels, cartons and bottle crowns risen by more than 25 percent. Glass makers, too, have raised prices by 30 percent in three months.

“We have as such been compelled to either raise the landed cost of our beers or reduce discounts in order to remain viable,” said Prem Dewan, Managing Director (MD) of DeVANS Modern Breweries, which makes beer brands such as Godfather, Kotsberg Pils and Six Fields.

“…there may not be any immediate effect on retail rates; however, the supply of cheaper brands may be adversely affected,” Dewan added.

Other beer makers like United Breweries and B9 Beverages, maker of the craft beer Bira 91, are also hiking prices.

‘Judicious price increases’

United Breweries is implementing price increases in Delhi, Rajasthan, Uttar Pradesh, Maharashtra, Karnataka, Madhya Pradesh and a number of smaller states, said Rishi Pardal, MD and chief executive officer (CEO).

Pardal indicated the company is contemplating “judicious price increases” and is in talks with state governments. United Breweries brews brands such as Kingfisher and Heineken.

B9 Beverages has raised the price of Bira 91, in most states it operates in and changed the composition of its product mix in some others to mitigate the impact of inflation.

In India, alcohol prices are controlled by the state governments, which derive a significant part of revenue from brewers and distillers.

“Whether it’s glass, aluminum, wheat or barley, all commodities that are essential for us are either facing price escalation or shortage. However, we are focusing our efforts towards securing them in adequate quantity to ensure uninterrupted production,” said Ankur Jain, founder and CEO of B9 Beverages.

Besides price increases, companies are also looking at other measures to mitigate the impact of rising input costs. B9 Beverages is improving its product mix and selling more of its premium portfolio than mass-market products.

Demand still strong

“Premium beer accelerated ahead of mass market beers as a result in the last two years. For us, our higher priced, more premium products grew at a pace of 1.5 X of our mass portfolio,” said Jain.

Demand for beer has remained strong despite price hikes.

“The demand in the peak season has shown a promising start in the month of March and we remain optimistic about the long-term growth drivers of the industry,” said Pardal of United Breweries.

Supplies of wheat and barley have been hit by the Russia- Ukraine war; both countries are major producers of these commodities and account for about a third of the world’s wheat production.

India turned a major exporter of wheat in recent months to plug the supply shortage created but the crisis, but unfavourable weather has led to a fall in the production of the commodity in India, too, given harvest losses in Punjab and Haryana.

The government this month imposed a wheat export ban. It also slashed its estimate of wheat output for FY22-23 to105 million tonnes from a prior estimate of 111.23 million tonnes.

“A prolonged heatwave poses significant risks to domestic wheat output. The export ban implemented by the government could ease domestic price concerns, at the margin,” said a note by Barclays.
Devika Singh