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Is beer price increase justified?

August 27, 2009 |  3:26 pm

Beware the price increase The disclosure of planned price increases by the nation’s two largest beer sellers earlier this week have prompted some to ask if the actions are justified considering the state of the economy.

MillerCoors, the Chicago maker of Miller Lite, Coors Light and Blue Moon, and Anheuser-Busch Cos., the St. Louis producer of Budweiser and Bud Light, both blamed rising expenses for their planned increases. Together, the companies control 80% of the U.S. beer market.

But Bob Zieger, a sourcing expert at Ariba Inc., a Sunnyvale, Calif., supply management software and consulting firm, said he takes issue with the idea that "general commodity prices" are behind beer price increases.

"After all, beer is not made from a combination of pork bellies, copper and cocoa. Its key price drivers, like hops and barley, are actually not experiencing a serious price increase right now. If there was ever a time to blame commodity costs for a necessary price increase, it was last year," Zieger said.

He said the giant brewers are using commodity prices as "a convenient scapegoat for a price increase."

And there’s a lesson in that for other business operating in the current low inflation, recession plagued environment, Zieger said.

"As the market rebounds and companies look to recover profits lost during the recession, you must know your cost drivers," Zieger said.

He urges companies to closely follow the true cost drivers of the material and inputs into their businesses, including commodities, currencies, labor and transportation. Armed with that information, "you can push back against unwarranted proposed price hikes," he said.

Beer drinkers, however, are probably stuck.

"Consumers won’t have much ability to push back if the price per six-pack goes up and will likely take any modest increase in stride," Zieger said.

-- Jerry Hirsch

Photo: Coors Light cases in a Palo Alto supermarket last February. Credit: Associated Press

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