Sky-high grain prices have helped fuel riots and unrest around the world, and have even contributed to the Arab revolutions. But apart from their daily bread, commodity costs are driving up the price of an equally beloved item: beer.
Such is the case with Companhia de Bebidas das Americas (ABV), the leading beer company in Brazil. The firm, generally known as AmBev, was the first in its industry to raise prices 6% to 7% last year in response to the worldwide grain shortages. Since it owns 68% of the market in its home country, it can generally get away with that until its competitors are obliged to follow.
However, HSBC analyst Lauren Torres says that this time around the other beers have been slow to raise their prices. That accounts for the flat volume growth in the first quarter, after double-digit increases last year.
A truck carries Antarctica brand beer at the entrance of AmBev’s factory in Rio de Janeiro, Brazil. AP View Enlarged Image
“When that happens, there’s a quarter or two of disruption, where (AmBev) loses market share,” Torres said. “But then typically they regain it back when the competition follows. We do believe that in the second half of this year, you’ll see AmBev take back that lost market share.”
Foreign Business
Brazil isn’t AmBev’s only market. Since 2004 the firm has been majority-owned by global beverage giant Anheuser-Busch InBev (BUD), and it distributes Budweiser and Stella Artois in Canada, where it holds a leading 42% market share. It also sells various beer brands in 12 other Latin American countries and is the regional distributor of PepsiCo’s (PEP) namesake soft drink.
Canadian volume suffered in the first quarter as it faced tough comparisons with last year, when the Winter Olympics were held in Vancouver, British Columbia. But AmBev saw 23% volume growth in its Quinsa division, which covers southern South America, and 13% growth in Hila-ex, which covers a smattering of tropical American countries.
Overall, the company beat analysts’ views with earnings of 41 cents a share, up 37% from a year earlier. Sales climbed 17% to just over $4 billion.
In the May 4 conference call discussing the quarter, officials credited new bottle sizes and product rollouts for their success. The CEO also mentioned plans to launch Bud in Brazil in the second half of this year.
Mostly, though, investors seem to be betting on the secular growth of Latin America in general and Brazil in particular.
“In the markets where the company has a sizable share (30%-plus) of the market (Brazil, Bolivia, Uruguay and Canada), beer is expected to grow in total between 2010 and 2015 by 4% CAGR (compound annual growth rate),” Euromonitor analyst Jeremy Cunnington said in an email to IBD. “95%-plus of that growth is coming from Brazil.”