As consumers turn to cheaper-priced offerings in a bid to save money as inflation accelerates, the head of Molson Coors Beverage said so far, most beer drinkers have not changed their buying habits.
Gavin Hattersley, CEO of the alcohol giant behind Coors Pure Organic Light Beer and Blue Moon, said in many cases people are choosing to forgo a night out and instead purchase a higher-end brew to enjoy at home.
"We haven't seen [a shift down to lower-price beers] yet," Hattersley said in an interview after addressing a Chicago business executive group in late May. "It wouldn't surprise me if it happens as inflation, gas prices and things start doing really bad. But we haven't seen it."
The divergence stands in sharp contrast to comments made last month by private-label manufacturer TreeHouse Foods and retail juggernaut Walmart.
Walmart told analysts that consumers are moving from brand names to private label substitutes in deli, lunch meat, bacon and dairy. TreeHouse Foods' CEO Steve Oakland noted around the same time that consumers are looking to private label "as they manage a higher cost macro environment and seek better value.”
The strength in beer is a much-needed reprieve for many of the category's iconic brands. For several years, Miller Lite, Coors Light, Bud Light and similar offerings struggled as consumers turned to spirits, wine, craft beers, Mexican imports, low- or no-alcohol brews and ready-to-drink products such as hard seltzer — or chose to skip drinking altogether.
But these beers have shown an uptick in consumption. Last month, Molson Coors noted continued strong U.S. performance for its Miller Lite and Coors Light brands, which collectively made up two-thirds of its roughly $10.3 billion in sales last year.
The company attributed the rebound largely to consumer interest in familiar names across the CPG landscape during the pandemic and a decision in 2019 by Molson Coors to differentiate how the brands are perceived by consumers. Coors is now being marketed to drinkers as a beer to relax with while Miller is associated with hard work. Hattersley said inflation could provide further tailwinds to help the brands' recent momentum.
A testament to the underlying strength of beer is that price increases haven't discouraged consumer buying. AB InBev said during its first quarter in May that consumers bought more of its beer and accepted higher prices. For its part, Molson Coors increased prices 4% to 5% in early 2022, which so far hasn't stifled demand.
"Part of it is that consumers are seeing 8% inflation, the prices of other things have gone up dramatically more," Hattersley said. Beer, the executive said, is still viewed by many as a bargain.
Food-at-home prices have jumped 10.8% during the past year — the largest 12-month increase in over 40 years — according to the latest U.S. Bureau of Labor Statistics’ Consumer Price Index data. Meat, poultry, fish and eggs saw the biggest 12-month increase of the major food groups, up 14.3% — its largest jump since May 1979. Dairy, meanwhile, has climbed 9.1% during the last year.
Since taking over the top job at Molson Coors in September 2019, Hattersley has moved to premiumize the company's products. This includes the rollout of Coors Pure, its first USDA-certified organic beer, and Light Sky, a lower-calorie version of Blue Moon.
The move has given its portfolio more higher-end options to complement Miller Lite, Coors Light and Coors Banquet in the middle and brands like Keystone and Miller High Life in the lower-priced segment.
"If [consumers] do trade down, we've got brands that are ready and waiting for them," Hattersley declared.
In the last few years, Molson Coors has cut about $5 billion off its net debt since buying the rest of its MillerCoors U.S. joint venture in 2016. The $12 billion deal caused its debt to soar but also helped double its overall sales.
With a stronger balance sheet, Hattersley said Molson Coors has invested in new seltzer production, packing lines and a smattering of smaller acquisitions like the purchase of Atwater Brewery in 2020 and a large minority stake in nonalcoholic beverage incubator L.A. Libations a year earlier. He said future M&A for his company will likely focus on smaller deals, noting "we haven't traditionally been great at big acquisitions."
Even though Molson Coors is best known for its beers, the company has aggressively expanded into other alcoholic and nonalcoholic categories to better respond to rapidly shifting trends and robust competition.
The Chicago-based company has partnered with Coca-Cola on Topo Chico Hard Seltzer and Simply Spiked, which is reaching shelves this month. It has also signed distribution deals for Zoa, an above-premium energy drink with natural ingredients, vitamins, electrolytes and amino acids, and La Colombe ready-to-drink coffee products.
Separately, Hattersley told the executive group that Molson Coors' hard seltzer business, thanks to the strength of its Topo Chico Hard Seltzer and Vizzy brands, doubled Molson Coors’ market share in the category during 2021 to 5.7%. It continues to gain share this year.
The strong demand, which has come as competitors like Boston Beer's Truly and AB InBev's Bud Light Seltzer struggle amid slowing consumer interest, vaulted it to No. 4 in the category from seventh in 2022. Hattersley predicted Molson Coors would pass Bud Light Seltzer into the third spot as soon as this year.