Reports of rising volumes at the world’s largest brewers in the first quarter of 2024 have offered hope that the trend of declining unit sales might finally be reversing in Europe, as summer weather and sporting events could spell good news for the beer sector.
Carlsberg reported a “solid” Q1, with 0.2% volume growth in western Europe and 2.2% across central and eastern Europe and India. Meanwhile, Heineken reported 1.6 % volume growth across Europe and 4.7% growth globally, which CEO Dolf van den Brink called “an encouraging start to 2024”.
Molson Coors reported a 0.2% decrease in volume from its combined EMEA and APAC division but said “brand volume” from the division was up 1.9% “driven by growth in central and eastern Europe as inflation pressures ease, partially offset by challenges in the UK off-premise”.
Meanwhile, Anheuser-Busch InBev (AB InBev) reported a 0.6% decrease globally amid the ongoing pressure on its business in North America but, in Europe, volumes were up “by mid-single digits”.
Why had there been a decline in beer volumes in Europe?
Laurence Whyatt, head of European beverages research at Barclays Investment Bank, said declines in volumes shouldn’t be read as innately bad news for companies.
“It’s not uncommon globally to see declining volumes in beer. In developed markets, we tend to see per capita consumption decline and, as countries urbanise and modernise, wealthier people tend to drink less, but they tend to drink better.”
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By GlobalDataWhyatt points out that Europe was starting from a high per capita consumption level, and saturated markets are more likely to see decline. Population demographics are slowly changing, too, he explains. “Birth rates are now at repeat replacement levels and have been for some time, so it is only really immigration that is driving increased populations, and they are not typically large beer drinkers. Naturally, you are going to get lower volumes, lower volume growth, or in some cases, volume decline.”
There have been additional aggravating factors, however, including increasing costs for brewers. Rabobank analyst Francois Sonneville points to “several factors such as higher natural gas prices in Europe, higher grain prices due to poor harvests and disruption of flows from the Black Sea, and more recently, increased wage costs”.
Much of this inflation was driven by the war in Ukraine, which impacted the availability of grain, as well as energy prices and the cost of essential raw materials for brewers, including aluminium.
After Russia’s invasion of Ukraine, brewers initially passed higher costs onto buyers enjoying the return to on-trade consumption post-pandemic. However, the cost-of-living crisis quickly saw consumers tighten their purse strings again and brewers began to experience a downward trend of volume sales.
“Beer, which had always been seen as price inelastic suddenly suffered from volume loss,” Sonneville says. “Maybe in Europe, Heineken and Carlsberg had been too aggressive in passing on higher costs but it kept their beer brands ‘reassuringly expensive’.”
A summer of sport could change the trend
The first quarter of 2024 does appear to be encouraging and a sport-heavy summer gives reason for beer brands to be optimistic. The UEFA European Football Championship starts on 14 June, while the Olympics start in Paris the following month, on 26 July.
“We do think there is some sort of element of positive volume growth coming out of Western Europe this summer from both easy weather comps and the sport events,” Carlsberg CEO Jacob Aarup-Andersen said in a recent earnings call.
In 2023, the company saw a decline in volumes in western Europe of 2.3% and a fall in central and Eastern Europe of 4%, compared to its 0.2% and 2.2% growth in the opening quarter of 2024 respectively.
The weather will be a defining factor for the beer sector this year, particularly following the disappointing summer for some European markets in 2023, Whyatt says. “Sporting events, particularly the European Championships, could well have a good impact, but the much more important driver is whether we get sunny weekends. The weather is far more important than any outcome of the football.”
Hopes for a warm summer could coincide with consumer willingness to spend. Already, there has been a move towards premium beers in the off- and on-premise, as the lockdown shift to off trade purchasing meant that consumers felt able to spend more on less.
Heineken noted this shift when it reported its first-quarter results. Where the Amstel brewer saw volumes in Europe fall 3.6% in 2023, it saw growth of 1.6% this quarter. Its first-quarter report noted its European growth was attributable to the off-trade market, and stated its European “premium portfolio outpaced the total portfolio, driven by Heineken, Birra Moretti, Desperados, Messina, El Aguila and Texels”.
Sonneville expects the trend to continue, as cost-of-living pressures ease, and wage increases make buyers feel better off.
“What we have seen in 2H23 and start of 2024 is that employees are getting more wage increases to match (or beat) inflation. This is predominantly the case for lower salaries, but the overall picture at the consumer is improving and the willingness to pay the higher beer prices increases,” he says.
“The result on the cost side is that brewers are still seeing their costs creep up marginally (at a much lower pace then in 2022/23) as falling commodity prices (natural gas, barley) are offset by higher wages. At the same time, consumers that could ill afford beer in 2023 suddenly have more money in their pockets and return to the pubs and retail isles. Now all the brewers need is a good summer and an exciting EURO24.”
