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Tuesday, May 04, 2010

Beer as Economic Indicator

"MMMMMM.... Beeeeeeeer." - Homer Simpson

Molson Coors gives us the only economic data point we need to know this morning to evaluate the true state of the economy, emphasis mine:
"Molson Coors says its first-quarter profit climbed 38 percent on a tax-related gain. But consumers bought less of its beer and costs rose, causing adjusted results to miss Wall Street's expectations.

Molson Coors Brewing Co. sold 3.8 percent less beer worldwide. It blamed the decline on high unemployment and a slow recovery in consumer confidence."

Forget all the mumbo jumbo with super extended unemployment benefits, increasing retail sales, government dominated mortgage markets, ISM, PPI, etc etc etc.

You need to know one thing:  consumers don't buy "3.8% less beer" if things are getting better.

Q.E.D.

-KD

note: no positions in beer company stocks.  long 2 assorted six packs (not MolsonCoors) in my fridge


25 comments:

oddlot said...

magic hat has a beer called "wacko summer seasonal". i recommend, if you're into that sort of thing. $10 for a 6-er here in the city.

Kid Dynamite said...

i actually have Magic Hat's mixed spring sampler in my fridge. i didn't really like most of it though. i don't think the summer seasonal one is a part of that sampler, but I may be wrong.

Daniel said...

There is no way to spin this. Not good. Not good at all.

oddlot said...

there is a beet on the label and the beer is red-colored. i don't like #9, which seems to be their most popular. the BTV brewery is a fun visit though.

Anonymous said...

Is it really necessary to end comments about beer with Q.E.D.?

~~vlcccashmachine~~

Kid Dynamite said...

i don't get it, VLCcashmachine... this isn't a comment about beer, it's a comment about the economy

Anonymous said...

I was just teasing you, Kid...

~~vlcccashmachine~~

Anonymous said...

I always thought with enough beer you could solve anything.

~~vlcccashmachine~~

Kid Dynamite said...

my sarcasm detector is off. sorry

Gregory said...

Actually if you look at the total beer market, the large domestic premium brewers (SABMiller and ABInBev) are facing decreasing volumes and losing market share (they still account for 83%), but craft brewers (Sam Adams and the like) are seeing volumes increase and their share of the market is increasing. Total beer sales are not down, people are just buying less Coors Light and more Long Trail.

J Johnson said...

That is interesting, I would have thought more people (in difficult times) drink more Coors. I would expect Magic Hat (or any micro-brew) to show decreased sales in levels of high unemployment and hurting economy...but with the sustained levels of high unemployment, perhaps people are cutting back on all beer consumption.

Get your point though, seems like there would be an increase if things were truly getting better. I will do my part:)

Jon said...

Would those be Pawtucket Patriots in your fridge?

I'd say I'm long a couple bottles of Hennepin, but that would give the impression that they'll be around for a while, which they most certainly will not. The best analogy would be to the relationship Goldman traders have with the stocks they front run. Long, but short lived.

Kid Dynamite said...

gregory - great point, and it would actually be a BULLISH economic indicator if people were shifting from Coors Light to Long Trail and Sam Adams... although i would need to see some real data to agree with you. The reason I don't think it's true is that for Molson Coors's 3.8% decline in sales to be explained by a transition to smaller craft brews, it would mean that sales of the Long Trails of the world would have to increase EXPONENTIALLY...

in case I'm not making sense, Coors's volumes are orders of magnitudes higher than the craft brew guys'

Gregory said...

You're absolute right..I realized after I posted. Craft brewers account for about 4% of the market so they by no means absorbed all of the lost volume at Miller. Miller's 3.8% decline in sales would probably equate to a 1.5% decline in overall beer volume based on their market share. While there is a shift going on in the overall market toward niche domestic beers and away from traditional big brands, it's certainly not enough to account for the total drop.

Maybe whiskey sales picked up?

Anonymous said...

I'm not convinced this has a direct correlation to the trend of overall consumer spending in the US. For one, volumes didn't decline heavily during the peak of the recession. Two, we know that some of the volume decline relates to market share loss when we look at craft brewers like SAM (growing revenue by mid single digits plus) or even at the craft segments within SABMiller. Lastly, there are lots of other indicators that are flashing positive signals such as chain store retail sales, weekly RevPAR, credit card spending data, sales tax receipts, etc

I'm open to other interpretations though. KD, do you really think things are getting worse on an economy wide basis?

oddlot said...

don't forget that all the big brewers have been buying out the crafts. molson coors is long of blue moon and others in their 40-brand portfolio

Transor Z said...

I think there has been both a shift to sub-premium (textbook substitution) AND decreased sales.

But what I'm having trouble finding is sales of Mike's and other spirit-based alternative beverages. They were eating into beer before the recession, weren't they?

Time for a martini.

getyourselfconnected said...

When I saw this one posted at Clusterstock I was afraind they may not credit you, but they did.

For the record I am WAY LONG budweiser. Like very long.

Kid Dynamite said...

guys - i'm not going to do the work for you one this one.. it's quite clear to me that this is NOT a substitution effect, but if someone wants to prove me wrong - go for it. The increase in SAM's sales isn't even a fraction of the decrease in TAP's sales.

anon - to answer your question - i think the vast majority of the so called "improvement" is solely based on government spending (housing, cash for clunkers, extended UI, ZIRP) and that there cannot possibly be a real recovery as long as unemployment remains elevated and mortgages remain underwater. I also think there is a massive backlog of foreclosures, so the stats are overstating the wellness of the housing market.

if there's one thing i'm pretty confident of, it's that house prices are not going to rebound anytime soon,.

HighOnPoker said...

Correct me if I'm wrong because my financial education is now 10 years old with little maintenance, but aren't alcohol stocks the type that go opposite the economy. Aren't people more likely to buy beer when they are unemployed or underemployed and self-medicating, like how McD's benefits when the economy goes to shit. If so, then wouldn't the decrease in beer sales be a sign of economic recovery?

HighOnPoker said...

And this comment is merely to allow me to get future comments by email...

Transor BLAAARK said...

guys - i'm not going to do the work for you one this one.. it's quite clear to me that this is NOT a substitution effect, but if someone wants to prove me wrong - go for it.

Sorry, Prof. My dog ate my homework. Actually, we had a party last... BLAAAARRGH!

Transor Sober said...

Found it. Sorry about the mess on the floor, Prof. - TZ

The US beer market decelerated in the fourth quarter as brewers focused on price at the expense of volume. The trend towards sub-premium brands and larger format packages continued with growth in larger multi-pack can packs reflecting the continued effect of the weak economy. There also continued to be a significant new product activity in the beer packaging as brewery customers seek to innovate in response to loss of market share to wine and liquor.

For the first time in a while we did see wine and spirit sales trending up in the fourth quarter which could be the consumer’s reaction to the recent price increases in beer. With beer being a volume based business we’ll see how long this trend continues. For the full year, US beer volumes decreased about 2.4% with domestic beer down about 1% to 2% and imports down in the mid single digit range. As we commented previously, with consumers trading down there continues to be a shift towards lower priced domestic and canned beer over higher priced imports and bottled beer.

http://seekingalpha.com/article/190183-graphic-packaging-holding-company-q4-2009-earnings-call-transcript?page=2

Kid Dynamite said...

wow Transor - quick shift from drunk to sober.. only 4 minutes difference in the comment timestamps? well done.

HOP - who knows. i guess we'll see.

Transor Z said...

wow Transor - quick shift from drunk to sober..

Acting!