Beer’s Bad Year (BUD)
The Wall Street Journal published an article yesterday about how the U.S. beer industry is expected to reach its lowest level in a quarter-century. Citing Beer Marketer’s Insights, the article said U.S. beer shipments fell by more than 5% in the first three quarters of 2023 and are expected to continue that trend in the fourth quarter. The article cited numerous drivers behind the decline of beer, including weight loss, Gen Z drinking less, cannabis, and Bud Light’s problems.
The article did not mention the impact of elevated price increases in beer. Attributing Bud Light’s sales declines to the industry’s decline means that Bud Light customers traded out of beer altogether. That seems improbable, but it would make BUD’s recovery in 2024 nearly impossible. We recently presented our Beer Industry 2023 Review and 2024 outlook. We did a deep dive into the factors impacting the beer sector’s declines in 2023 and what we think 2024 will bring. We also made several rating changes in anticipation of the comparisons of 2023. For the replay of our Beer Outlook call: CLICK HERE.
Traffic declines (SAM)
The on-premise channel has seen increasingly weaker traffic trends in 2023, likely negatively impacted by price increases. Difficult comparisons in January 2023 will likely lead to weak traffic trends to the beginning of 2024. The off-premise channel had traffic increases until it lapped YOY growth at the beginning of August, as seen in the chart below. Based on the comparisons, traffic trends will likely be negative, continuing into the first half of 2024. Traffic to both channels spiked in the most recent week due to the Christmas holiday falling on a different day of the week. Craft beer has a higher mix of on-premise sales than the other beer types.
Union wage win (LBLCF)
Members of the United Food & Commercial Workers (UFCW) ratified a new collective agreement with several grocery banners owned by Loblaw. The agreement covers 121 stores and 26,000 workers in Ontario. According to the UFCW, the agreement includes the best wage increases in decades for full and part-time workers. Over the five-year term of the agreement, full-time workers will receive a C4.60 per hour wage increase.
The agreement is the latest in a string of contract agreements that have seen workers achieve large gains in the Canadian grocery sector. Food inflation in Canada has been a top political issue, which has resulted in the CEOs of the major chains being summoned by government leaders to commit to lowering prices. The combination of wage pressure and a focus on lowering prices is an adverse environment compared to the first two years of the pandemic. Loblaw is on our short list.
