Breweries Provide Sign of Deepening Recession

As if the constant barrage of troubling macroeconomic news was not enough to tip you off, now something truly appalling has come to our attention. No, it isn’t the new unemployment statistics, credit spreads, the latest report on retail sales, declining home prices, or even producer prices, but the newest sign of economic weakness comes from the reports out of the world’s second largest brewer SABMiller plc (SBMRY.PK). The maker of some of the best selling adult beverages reported that shipments have fallen in the third quarter with demand dropping most in the U.S. and European markets. The results are troubling because they go against the conventional wisdom that brewers are particularly resistant to recessions. The logic being that as economies get worse people will be more inclined to drown their sorrows in their favorite, relatively inexpensive beer. Up until this latest report, the conventional wisdom seemed to be holding true.

Consumers of beer are now cutting back on purchases as they are conserving cash in fear of an ever worsening economy. This could possibly be attributed to a decline or scaling down of holiday gatherings or just severe declines in drinking while out at restaurants and bars. The joint venture of MillerCoors in the U.S. saw sales decline 2.3%. Even more distressing, the company’s flagship beer, Miller Lite, sold 7.5% less in the quarter, while Coors Lite picked up 1% in sales which is actually slower than its recent growth trend. The company’s “premium lite” category saw a drop-off of 2.4%. Interestingly, craft and import sales grew 1.6%, buoyed by double digit growth in the Blue Moon brand. There is a burgeoning craft beer culture that approaches wine in its sophistication, perhaps this group is less sensitive to the economic current.

Europe is also feeling the effects as Carlsberg has announced plans to cut jobs as the economic challenges worsen. The company plans to accelerate its restructuring efforts first announced in 2008. MillerCoors is reporting a 22% drop in sales for its Russian market, although they have always been more of a vodka culture. It certainly seems that Anheuser-Busch was bought at a great time for their shareholders. Readers will recall that we were very optimistic about the InBev acquisition of Anheuser-Busch from the BUD shareholders' perspective. Well, since the merger was consummated in November the new company (Anheuser-Busch Inbev NV) is down by about 30%.

What does this all mean? Unfortunately, that no area of the economy is going to remain unscathed by this already 13-month long recession. We have known for some time that investor sentiment is as bearish now as it has been in decades, but this is yet more evidence that consumers are extremely pessimistic as well. Ockham Research is slightly negative on the 7 brewers that we cover (click on chart to enlarge), as you can see from the industry scatter plot. These companies have been helped by the prevailing sentiment as discussed earlier that brewers are resilient to downturns, but as of this latest data that theory is starting to show cracks. For further proof, the kegerator at our office here at Ockham has been empty for the last few weeks: now this is getting serious!

Comments

[Moon Kil Woong:]

The theory sex, drugs including alcohol, gambling, and all other vices rise when the market goes down is getting its face punched in. Do you think everyone went to Vegas during the great depression? Nope. What brokerages are feeding the average investors is so much lies just to get a trade it makes me sick.

Thanks for the article. Don't buy vice stocks hoping they will benefit from the downturn. They won't. You might as well invest in something wholesome and beneficial to society instead. That way you will be contributing to its eventual recovery by proving that markets can place capital efficiently. To prove that we need to rid ourselves of some large bank executive nut jobs, some very bad mutual and hedge funds, and some terrible brokers and brokerages.

TARP is doing a dis-service by keeping them around.

Jan 17 07:30 PM

[adAstra:]

I take it you haven't heard. The porn industry filled out a petition for a bailout too due to economic hardship. Guess sex isn't paying either.

Jan 17 08:56 PM

[User 265729:]

At this rate we'll be back to the 20's and 30's with more than just the stock market...

I can smell the moonshine brewing in the backwoods already.

Bottoms up!

Jan 17 09:09 PM

[User 265729:]

Something you might find interesting from Bloomberg on the topic:

Film, Porn Shoots Sought by Los Angeles Homeowners Hit by Slump

www.bloomberg.com/apps...

That's right -- people need cash so much in L.A. that they are renting out their homes for porn shoots to raise a buck.


On Jan 17 08:56 PM adAstra wrote:

> I take it you haven't heard. The porn industry filled out a petition
> for a bailout too due to economic hardship. Guess sex isn't paying
> either.

Jan 17 09:11 PM

[User 265729:]

Forgot... As I recall, a few weeks ago InBev said that they were cutting management at St. Lois. Although part of the buyout, not a good sign of theng to come for that industry.

Jan 17 09:14 PM

[Steven Hansen:]

i lived in the giant sandbox for several years. brewing your own beer is easy and cheap - and you can get pretty creative using cooking malts instead of using grains directly. i brewed mine in plastic garbage cans or igloo containers. and if you like english bitter, you don't have to bottle either (a small igloo fits in the refrigerator). the only specialty ingredient you need is yeast - and you need to make sure everything is sterile.

there is no reason to cut back consumption when you need it the most.

Jan 17 09:48 PM

[User 265729:]

You are NOT in the Top 10...

You are the Top 1

Finally, something positive and productive comes from Seeking Alpha!


On Jan 17 09:48 PM The hand wrote:

> i lived in the giant sandbox for several years. brewing your own
> beer is easy and cheap - and you can get pretty creative using cooking
> malts instead of using grains directly. i brewed mine in plastic
> garbage cans or igloo containers. and if you like english bitter,
> you don't have to bottle either (a small igloo fits in the refrigerator).
> the only specialty ingredient you need is yeast - and you need to
> make sure everything is sterile.
>
> there is no reason to cut back consumption when you need it the most.
>
>

Jan 17 11:20 PM

[wundr:]

There is a lot more for people to choose from in the current recession.
Beer has become expensive.
Panama Red is back in town!

Jan 18 12:59 AM

[lesamis:]

Has anybody looked at stem cell research coming back into vogue, when we can duplicate our own organs to gain back hyouth and health (at a price to b e sure, but doable and investable big-time)?

Jan 19 04:17 AM

[Did U Think...:]

On Jan 17 07:30 PM constructe wrote:



> Don't buy vice stocks hoping they will benefit
> from the downturn. They won't. You might as well invest in >something wholesome and beneficial to society instead. That >way you will be contributing to its eventual recovery by proving >that...

Putting your money into something should be done because you think it will turn a profit not because you are trying to benefit society. I bet you have lost a LOT of money in 2008 with the way you think.

Anyone that doesn't know what to do SHOULD BE IN CASH right now. Cash is king. Stocks are still plummeting and they will continue to plummet in 2009. This is because S+P earnings are plummeting. Just get to the sidelines and don't worry about the train leaving the station for at least the next 2 quarters. If you wait until stocks crash before you buy then when the train finally does leave the station you will be traveling first class.
.

Jan 19 02:07 PM

[Gedankonomist:]

This may be good news. In a recession/depression, don't people drink more? Alas, perhaps Jack Daniels is booming.

Jan 20 10:11 AM