US beer drinkers are looking for value, says Molson Coors CEO, as demand for beverages softens
08/08/2024 00:06
Consumers are thinking twice about how much they can spend on beverages and booze.
Beer drinkers are thinking about their wallets before they grab a cold one.
"Consumers [are] making different pack sizes choices," Molson Coors CEO Gavin Hattersley told Yahoo Finance in an exclusive interview. He said this behavior has been going on "for a while" and is "pretty consistent through through Q2."
After years of price hikes, consumers are looking for value while recession fears loom. Those who used to buy a 24 pack might buy a 30 pack, or downgrade from a six pack to a single serve, per Hattersley.
That's consistent with other consumer staples, especially food and beverage, Bryan Spillane, Bank of America analyst, told Yahoo Finance.
One of the main questions consumers are asking before buying is, "How much cash do you have in your pocket?," he said.
"Think about a Tallboy... you don't have to buy a whole six pack." Tall boys, which are singular 16 oz cans, have "definitely taken off," said Spillane.
Molson Coors saw its US volume spike 5% in Q2 last year as the Bud Light boycott drove drinkers to tis brands. It said it held onto 80% of the market share it gained.
However, with a larger than expected 4% price increase in Q2 of this year, its US volume has dropped 7.8%. Molson Coors plans to "normalize" prices back to a 1% to 2% increases.
How the summer — traditionally the strongest season for booze and beverage companies — plays out could give insight into industry's performance for the next year.
A poor performance around the summer holidays could bring into question whether lower prices or more promotions could be on the table for 2025, Spillane said.
Rival Heineken's (HEIA.AS) shares fell 8% this week following its report last Monday that an anticipated boost from summer sporting events hasn't come to fruition. Meanwhile, Diageo (DEO) warned of a consumer slowdown in the US.
Anheuser-Busch InBev (BUD) saw US revenue decline by 0.6% in its Q2 report, while North America volume dropped 3.2%. The company said the results are "in line with the industry as we cycled a challenging comparable in April but gained volume share of the industry in May and June," per its press release.
Coca-Cola saw unit case volume decrease 1% in North America as pricing jumped 11%, while CEO James Quincey told Yahoo Finance consumers are looking for value. PepsiCo saw volume in its North America beverage business drop 3.5% this quarter, while its Frito-Lay business saw volume decline 4%, both missing estimates.
When Yahoo Finance asked if Hattersley was worried about a potential US recession, he said Q2 "had noise," but was a "strong" quarter overall.
"There were some weeks which are good. There were some weeks that were not but when you took the whole quarter together, it was a pretty similar trend to that which we've been experiencing," he said.
US drinkers are also leaning into Molson's core brands like Coors Light, Miller Lite, and Coors Banquet, while its premium offerings like Blue Moon has struggled.
"We've been really successful in in the flavor space, in the US. We've made progress since we launched our strategy, but we've got more work to do there. We're not blind to that," he said following a revamp of Blue Moon with new packaging, a rebrand of its light offering, and launch of Blue Moon non-alc.
This comes as Constellation Brands' (STZ) Modelo Especial and Anheuser-Busch InBev's (BUD) Michelob Ultra are gaining share in the US, currently holding the No.1 and No.2 spots as best selling beers.
Yet internationally, consumers are leaning into above premium brands. In Europe, more than half of volume or revenue is from the pricer drinks, with "tremendous" success around the European lager Madrí Excepcional, per Hattersley.
The fight for Americans' fridges is still sizzling in the background as the dust settled following the Bud Light boycott from last April.
"We've put a lot of hard work into our brands over the last over the last four years, trying to make sure they're healthy... consistent and the quality is great," Hattersley said, pointing out year-over-year comparison for this Q2 is especially tough given the big Q2 they had in 2023.
Molson Coors plans to continue to focus on distribution, display, and "highly relevant marketing campaigns," like its current Olympics campaign for Molson Canadian. It's also the official beer sponsor of Leagues Cup in the US, which he said "is a passion point" for one of its biggest, most important consumers, the Latinx population.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at [email protected].