Beer costs are going up, so are corporate salaries and so are mergers among big brewers. http://articles.moneycentral.msn.co...hy-every-cold-beer-costs-you-more.aspx?page=1 Why every cold beer costs you more As the tab for a Budweiser crept up this year, its executive salaries jumped 92%. Here's why beer is getting more expensive while other food and beverage prices drop. By Michael Brush MSN Money Faced with a deep recession and a terrible job market, more than a few hard-pressed Americans no doubt enjoy the simple pleasure of a cold one after a long day. But the three biggest beer companies are serving up a little buzz kill with their brew. Beer prices rose nearly 4% in the first half of the year, and big brewers say prices will keep going up this fall. They're up less than a dollar a case thus far, but it bucks the trend of a 1.5% overall decline in food and beverages prices this year. And what's the extra dough paying for? Profit growth and pricier commodities used to make beer, the brewers say. Oh, and at least one other thing: more-expensive executives, whose pay in many cases has nearly doubled over the last year. Maybe they'll buy the next round. Can you say bonanza? Take the top executives at Anheuser-Busch InBev (AHBIY, news, msgs). While consumers shelled out more for their blue-collar Budweisers in the first half of this year, compensation for Bud execs advanced 92%. The top 13 executives made $73 million in the first half of 2009, or $5.6 million each, on average -- up from $38 million a year before. And mind you, Anheuser-Busch InBev execs received a 79% pay increase in 2008, reminds Paul Hodgson of The Corporate Library, an independent corporate governance research firm. The increases are mainly due to gains from stock options and stock vesting. Anheuser-Busch InBev top brass aren't the only beer execs getting in on the act. Molson Coors Brewing (TAP, news, msgs) chief Peter Swinburn got a 120% pay increase in 2008, to $6 million from $2.7 million the year before, according to company reports. And Boston Beer (SAM, news, msgs) chief Martin Roper saw his pay go up 28% last year to $2.75 million, according to company filings. These pay increases for the beer-sector execs come at a time when executive pay has been going the other way. Median pay for CEOs of companies in the Standard & Poor's 500 Index ($INX) last year declined 8.7%, according to Equilar, an executive compensation research firm. But the big beer companies say the pay increases make sense because their companies just got a lot bigger through mergers and joint ventures. Molson Coors has grown as a result of a joint venture that combined its U.S. operations with those of Britain-based SABMiller (SBMRY, news, msgs) into a new company called MillerCoors. And of course, Dutch company InBev created an international beer monster last year when it bought Anheuser-Busch and created Anheuser-Busch InBev. Beer companies also say their execs deserve more because they are hitting higher performance targets. These are the profit gains that bring beer lovers pain -- because they translate to higher prices. The price increases In the first half of the year, beer prices in the U.S. went up 3.7% overall, according to beer expert Ben Steinman of Beer Marketers Insights. And beer companies said last week that more increases are on the way. "We plan on taking price increases on a majority of volume and in a majority of markets this fall," says an Anheuser-Busch spokesman. MillerCoors says it will also raise prices on some products. At least one producer of pricier imports, Heineken, has similar plans. Video: Beer prices will keep rising Beer companies say they have to raise beer prices because they're still catching up with big increases in commodity prices over the last several years. "You can't take beer up $2 a case (at once)," says Harry Schuhmacher of Beer Business Daily. "It would be too much of a shock to the consumer. So beer went up way less than the costs went up for the last five years, and the beer companies just ate the difference. Now they are trying to get some of that back." The power to raise prices without hurting sales is rare in a recession. But these companies seem convinced you'll put your beer goggles on and keep buying. Recessions may make people want more beer, says a study from Mintel, a consumer research company. The theory: Beer drinkers crack open more brews during downturns as a form of escape, and also because they're forced to spend more time at home. Plus wine drinkers "trade down" to beer. The beer companies are also taking dead aim at consumers trying to save a buck in the recession. During hard times, you'd expect people to switch from relatively costlier domestic brands, such as Bud Light, Coors Light or Budweiser, which go for around $17.60 a case on average, according to Information Resources, a consumer research firm. That's exactly what's happening during this recession. Consumers have been turning to cheaper brands like Natural Light and Busch Light from Anheuser-Busch, and Keystone Light and Miller High Life from MillerCoors. These beers cost around $12-$14 a case on average, Information Resources says. Because that's where the demand is going, that's where the beer companies are charging more. The cheaper brands listed above are all up 4% to 5% this year, says Information Resources. Pabst Blue Ribbon, another low-priced beer, is up 6.74% in the first half of the year. In contrast, Bud Light, Coors Light and other premium brands are up less than 3%, Information Resources says. The companies "are attempting to reduce trade-down, and if there is trade-down, at least it will be to a higher price," explains Steinman. Of course, this price wrangling is made easier because just three beer companies -- Anheuser-Busch, MillerCoors and Pabst Brewing -- control 95% of the U.S. beer market. The price increases are having their desired impact on the bottom lines. Molson Coors saw earnings advance 20% in the second quarter to $205.4 million, or $1.11 a share, even though it shipped 3.2% less beer. Price increases, along with cost cutting, explain this feat. Likewise, at Anheuser-Busch InBev revenue advanced 2.9% in the first half of this year even though the amount of beer sold slipped 0.4%. Price increases, cost cutting and one-off savings on pensions following the merger helped the company boost profits 53% to $1.92 billion from $1.25 billion the year before. For investors, though, even this pricing power doesn't necessarily make the stocks a buy. "Beer is a big, mature industry. It averages 1% growth a year in most years," says Steinman, of Beer Marketers Insights. And earlier this decade, volume growth was flat because hard liquor was taking market share, he says. That trend could return once the recession ends and people have more money. Analysts are not wildly bullish on beer stocks: Deutsche Bank and Goldman Sachs Group analysts do have "buy" ratings on Molson Coors because it looks cheap and because of expected continued cost savings in the U.S., which it can pass on to investors, if not consumers. But Carlos Laboy at Credit Suisse has a neutral rating on the stock, citing market-share losses in Canada and market weakness in the United Kingdom. Deutsche Bank analyst Andrew Kieley likes Boston Beer, in part because a new plant in Lehigh, Pa., should help reduce costs and boost margins. But it looks like investors are already pricing this in. Kieley has a "hold" rating on this stock because, at $39.50, it trades above his 12-month price target of $39. Goldman Sachs analyst Javier Gonzalez Lastra has a "neutral" rating on Anheuser-Busch InBev in part because of rising financing costs. And if it's any consolation for you beer drinkers, beer company workers -- if not their execs -- are sharing your pain. To reduce costs, Molson Coors has been cutting back on what any beer drinker would think of as a golden perk: free beer for life in retirement. And you thought the higher prices hurt. At the time of publication, Michael Brush did not own or control shares of any company mentioned in this column.
