Dear Client:
The beer industry could certainly use some pricing expertise.
In a moment where consumers are going from having excess stimulus cash to seeing reserves dry as inflation towers, every CPG entity seems to have its own strategy.
We’ve seen both sides of the spectrum in beer, with A-B taking price up twice this year (it will likely be upward of 5% in October [see BBD 05-17-2022]) and Constellation saying it’s holding on to its 1%-2% price hike guidance. Meanwhile, distribs and retailers are passing along rising input costs.
But for a 30,000-foot view of pricing levers and context, BBD turned to IRI’s Lance Goodrige, Executive, Global Analytics and Consulting, who recently authored the very timely report, “Managing Price During Turbulent Times.”
We wondered what lessons it has for beer.
Overall, answered Lance: “there’s been less pricing being taken in beer than we’ve seen for other categories across the store.” For total food and beverage, “you’re probably looking at somewhere north of 8% that’s been taken” over the last 6-9 months.
“Whereas beer is [about] below four. So there’s quite a bit of difference in how other folks have been taking price in store, versus where this industry has been.”
“A REAL SOFTENING OF OVERALL SENSITIVITY TO PRICE CHANGES” AT THE END OF ’21. So how did we get here? And how much price can beer take before sacrificing volume?
It’s tough, Lance says, because of course “a couple rounds” of stimulus money coming out of COVID gave folks money but not many places (restaurants) to spend it.
“So there was quite a bit of premiumization in terms of how they were purchasing products, especially CPG-type products. And they were starting to upscale and they’re starting to spend more. And then once inflation and supply chain and things like that started to creep into the system, prices started to edge up, but there really was no impact to demand. So a lot of manufacturers, especially on the food side said, ‘wait a second. You know, my costs are going up dramatically. I need to pass those along.’ Those started to pass through and still no impact to demand. So we saw a real softening of overall sensitivity to price changes back at the end of 21.”
BUT NOW FOLKS ARE “STARTING TO RUN OUT OF MONEY” AND “MAKE DIFFERENT CHOICES” But by now, we’ve seen sustained inflation. “I think we’re still lapping pretty big numbers from last year and it’s still in the 8% range. I think June is about the time when it started last year. So, as we continue to lap pretty big numbers, folks are starting to run outta money. So they’re starting to make different choices and we’re starting to see a return to that sensitivity across the store that we hadn’t seen for the last, you know, basically 24 months.”
But does beer still have room to edge up toward that outpacing food pricing without the consumer pushing back?
“I think it does,” Lance said. “It’s a fairly recession-proof category. … Now, there’ll be some trading, you know: different pack sizes, different segments … and channels for instance will change. But overall consumption remains pretty strong through these stressful times. So I’m actually surprised that prices haven’t gone up a bit more than they have so far.”
ROOM TO TAKE PRICE (JUST) THIS YEAR. “I do think there’s room — we’re running outta room — but I do think that there’s room this year, to make some of those price changes or at least pass through some of the price changes that we’re talking about. Getting into next year, it’s a different ball game.”
We wondered if perhaps beer hasn’t gone up more because vodka hasn’t, when it can sometimes be cheaper to make and produce.
“I don’t see that,” said Lance. “Especially given what’s happening in Ukraine and, and the restriction of some of the corn and wheat and, and raw materials from there. Gas prices, transportation costs have gone up. … So I don’t know that it’s just the cost to produce. You have still have to get it to shelf.”
However, “we have seen some movement across different manufacturers and vendors,” who have been penalized, he said, pointing to Heineken.
A TALE OF TWO PRICE HIKES. “So when the Heineken CFO came out, I think it was January or February and said, ‘we have to take a dramatic price increase.’ I think they used the word ‘courageous’. …
“And he tried to get it all back at once, and that didn’t work well for him. Heineken’s been depressed probably ever since that time. And then you contrast that to someone like Constellation, where Modelo and Corona have taken smaller increases over time, but really supported with media and messaging and packaging and innovation, which really softens kind of the blow of those price increases and gives consumers a reason to stick with the brand, versus just this abrupt change in price. …”
But is Constellation Beer leaving money on the table, taking such a little increase vs. competitors (and didn’t we just talk about beer being able to take more price this year)?
“I don’t think so,” said Lance, “because both their dollars and their volume have continued to rise. And, you know, typically when you take price, what you wanna do is you wanna minimize the volume loss, but gain dollars. And they’ve been able to continue to do both.
“CAUTIOUS IS BETTER”FOR STZ BEER. “Is there money left on the table? Yeah, there probably is some money left on the table, but they’re being very cautious about edging their way into covering their costs. I don’t know what their costs are. I don’t know what their position is, relative to other manufacturers. I would guess that it’s pretty strong given their global footprint. I do think there’s room. I don’t know how much room that is, but cautious is better, I think, for them, especially in this competitive environment.”
WHAT ABOUT PROMOTION ACTION? AVOIDING $5 FOOTLONG SYNDROME. We also asked: Especially in the wake of summer promo season, does Lance have any tips for how and when brewers can discount and promote without running into the ‘$5 footlong’ phenomenon? (Where of course Subway found it hard to take price after such a successful promo.)
Lance noted that COVID — 2020 and the first half of ’21 — was marked by a lack of promotion.
“So basically in the absence of promotion, we allowed those prices to float. And they went north a little bit. I think promotions overall across the store were down about 25%, which is a pretty big deal.
“But I think now, when folks are realizing that volume is impacted by some of these price increases, they’re gonna have to come back with a promotion strategy that makes sense for their brand. We have to give consumers a reason to stay with our brand and stay with the outlet in which they’re buying our brand.” That involves not only marketing, but also savvy promotion.
But that’s not without warning.
“My fear and caution about promotion is that everyone’s gonna be buying for the same space in the second half of the year. So getting with your retail partners and making sure that you’ve got your objective locked in is gonna be extremely important— because CSDs are coming for that space. Water’s coming for that space; seltzer’s coming for that space. Uh, even, you know, non-beverage categories are gonna be looking for that space as well. So I think the competition is gonna heat up for that because everybody’s gonna be looking to preserve volume in the second half.”
More Monday on how shoppers are cherry picking pack sizes in this environment, and when we can see economy brands start to pop. Inflation could certainly switch up this recession-resistant category: Lance points out that the average household (at $60,000 income) is now spending an extra $400-plus monthly, just on price increases alone. You better believe that’s gonna change behaviors. (And to see the entire conversation, check out our pod.)
BIOSTEEL NOW THE “OFFICIAL HYDRATION PARTNER” OF THE NATIONAL HOCKEY LEAGUE
Last week, new BioSteel chief/Constellation alum Bruce Jacobson told BBD that the world would soon see outsized investment for the burgeoning hydration company [see BBD 07-01-2022].
That’s crucial context behind the company’s new announcement that BioSteel has just announced a “multi-year partnership” naming BioSteel the Official Hydration Partner of the National Hockey League and the National Hockey League Players’ Association. It fits the brand’s DNA, as Biosteel’s Michael Cammalleri was an NHL player (and his business partner John Celenza was a former NHLPA intern).
This marks the sports hydration company’s first partnership with a league. The deal will debut during the 2022 NHL Draft in Montreal, where BioSteel is a presenting sponsor of national coverage across Rogers Sportsnet in Canada.
“The new partnership will provide the BioSteel brand with League-wide rinkside marketing and product supply rights, retail activation rights, community engagement platforms, player marketing and activation rights and more,” per announcement.
There’s lots to it: “Beginning in the 2022-23 NHL regular season, fans will see NHL players hydrating with BioSteel during every NHL game in North America. BioSteel products will be featured on each bench, penalty box and goal net. In addition, BioSteel will have a year-round platform to activate brand programming with NHL marks, logos, teams and players, including at the NHL Scouting Combine and NHL Draft, which includes a new BioSteel-sponsored Prospects Portal on NHL.com.”
BioSteel will also be a presenting partner of a marquee NHL social platform “to be announced at a later date.”
BANG CAN’T ESCAPE $175M ARBITRATION AWARD TO MONSTER AND ORANGE BANG
Welp, it appears Bang Energy’s parent company, Vital Pharmaceuticals (VPX), is officially on the losing end of one of “the largest trademark infringement awards in U.S. history,” per Reuters.
Indeed, a California federal court ruled last week that VPX cannot escape the massive $175 million trademark win awarded in arbitration to Monster and small orange juice maker, Orange Bang, earlier this year.
On top of the $175 million, VPX is on the hook to pay out a 5% royalty fee on Bang-branded sales moving forward, as well as nearly $10 million in attorney fees. Ouch.
How did we get here? Well, Reuters reports that way back in 2009, Orange Bang sued VPX claiming the company’s “Bang-branded pre-workout drinks would cause confusion.” Orange Bang and VPX eventually settled in 2010, “allowing [VPX] to continue using the Bang name on ‘creatine-based’ drinks, as well as other drinks if sold only through fitness-focused venues like gyms and vitamin shops.”
But when VPX rolled its Bang Energy RTD in 2015, a pre-workout energy drink that was billed to contain “Super Creatine,” Orange Bang linked up with Monster “to accuse [VPX] of breaking the settlement and violating Orange Bang’s trademark rights, arguing the drinks are not creatine-based.” Law 360 notes that Monster and Orange Bang reportedly came to an agreement “that let Monster litigate the case in exchange for half of any recovery.”
VPX then filed suit in 2020, “alleging Monster had wrongly ‘weaponized’ the settlement and requested a ruling that it did not infringe,” according to Reuters.
The case was eventually sent to arbitration, where a California arbitrator ruled in favor of Monster and Orange Bang, having found that “Bang Energy’s drink is not creatine-based because ‘Super Creatine’ is not actually creatine and does not raise the body’s creatine levels,” per Reuters.
The arbitrator handed out the hefty $175 million award to Monster and Orange Bang, as well as the 5% royalty fee, and Bang fought the ruling claiming the arbitrator “effectively dispensed his own brand of economic justice.”
That brings us to this latest update from the California federal court, where U.S. District Judge Dale S. Fischer ruled that “whether correct or incorrect,” the arbitrator’s opinion “grapples in good faith with the various conflicts in the case,” and ultimately upheld the decision.
BEER BRIEFS:
BILL TO EXPAND RTD COCKTAIL AVAILABILITY FALLS FLAT IN NORTH CAROLINA. The Beer Institute put out notice yesterday that the North Carolina Legislature has chosen not to advance House Bill 904 this legislative session. The BI commended NC lawmakers “for protecting local jobs and opposing tax breaks for out-of-state liquor companies,” though the bill appears to be more of an expanded availability effort for canned cocktails than a tax equivalency push. Still, the BI calls it another win for America’s beer businesses, noting that “tax carveout proposals for big liquor in numerous states—including Alabama, Arizona, Hawaii, Kentucky, Maryland, Washington and West Virginia— either stalled or failed during this year’s legislative sessions.”
D-MAC IS BACK, AS CHIEF OF SALES AT JIANT. Longtime beer vet, Dave Macon, who stepped down from his post as Firestone Walker’s sales chief earlier this year, has landed a new gig as chief sales officer at Jiant, a fast-growing “modern alcohol brand” out of Southern California that currently produces both hard kombucha and hard tea lines. Check out the full story on the big hire for Jiant in CBD later today.
Until Monday,
Harry, Jenn, and Jordan
“When I make up my mind to do a thing it stays made up.”
– L. M. Montgomery
———- Sell Day Calendar ———-
Today’s Sell Day: 6
Sell days this month: 21
Sell days this month last year: 22
This month ends on a: Fri.
This month last year ended on a: Fri.
YTD sell days Over/Under: -1
