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Strong Beer Sales Say ‘Bottoms Up’ to Financial Markets

September 10, 2008 10:32 AM
by Anne Szustek
Sin sector stocks have not followed the usual trend of rising in a soft economy. But the U.S. beer market is the exception, as Americans are still buying beer despite lighter wallets.

Staple Suds Wash Away Economic Woes

U.S. beer sales for the first seven months of 2008 are up 1.4 percent since the start of the year, with more than 16 million barrels of domestic beer sold in the country during July alone, according to statistics from lobbying group Beer Institute.

Higher sales were reported across price segments. According to statistics compiled by Nielsen Research this summer, sales at grocery and convenience stores of “superpremium” beers, which include Michelob and Rolling Rock, have shown sales increases in the double digits. Budget beer sales are up some 4.8 percent and “below premium” beers were up 3.3 percent in sales volume year-on-year.

Historically, the so-called sin sector—alcohol, tobacco and gambling—is resilient in economic downturns. But during the current lull, gas prices have cut into budgets for travel to gambling destinations and stiff bans on indoor smoking have lessened the attractiveness of tobacco.

Shares of tobacco conglomerate Altria dropped 11 percent from the start of the year to July 25—roughly the same period as for the beer sales figures mentioned above. On the gambling front, Forbes writes that as of that same date, shares of Penn National Gambling were down 54 percent from the start of the year.

And as a whole, the alcohol sector—beer’s parent group in the trio of vice—is likewise proving to be less hardy than conventional wisdom on sin sector stocks would suggest.

InBev’s pending purchase of America’s Anheuser-Busch has helped keep Anheuser-Busch’s stock from going flat. Anheuser-Busch shares have shown a slight but steady increase since it announced July 14 that it had agreed to a $52 billion takeover bid from the Belgian beverage conglomerate.

But shares of Diageo, the world’s largest alcoholic beverage company, including foreign beers Harp and Guinness, showed a 16 percent decrease over the first seven months of 2008, reported Forbes. These figures do not include a breakdown into beers, wines and hard liquors, however.

Background: Consumers seek solace in life’s pleasures

Earlier this year, like the U.S. domestic alcohol segment, the discount segment of the fashion industry appeared largely immune to the economic downturn. The Department of Commerce’s April 30 report showed the most sluggish consumer spending since 2001. But Steve and Barry’s appeared to be bucking the trend. Queues at the retail apparel chain’s registers were some 20-people long at its Manhattan store, and the company posted a 70 percent increase in sales from the beginning of 2008 through the end of May.

But a dwindling cash flow underscored by its default on a $197 million loan led Steve and Barry’s to wind up filing for bankruptcy on July 9. Nonetheless, discount fashion could still hold promise, if Target’s decision to open “Bullseye Bodega” apparel outlets in Manhattan is any indication. Set to open on Friday, the store will feature budget-conscious offerings from designer labels such as Rogan Gregory and Sigerson Morrison. Target’s sales figures over the past few months have not fared as well, but as BloggingStocks’ Zac Bissonnette writes, “When the economic tide turns—as it always does—Target should be well-poised to capitalize."

Opinion & Analysis: Why domestic beer, and why now?

Within America, statistics suggest that consumers are tapping into their wallets for beer. This summer’s Nielsen survey showed that some 47 percent of respondents said that the economic slump has not affected their spending on beer at all. Another 40 percent said the flagging economy has cut into their beer purchases “just a little.” Industry groups representing the wine and liquor segments have also reported sales increases.

Nielsen’s vice president of beverage and alcohol, Nick Lake, gave his take on the figures in The Washington Post. “Why would you want to cut out beer? You don’t want to punish yourself just because the economy’s bad,” he said.

One possible reason for the uptick in beer sales during the economic slump is that as more people entertain at home, consumers are buying beer to take along to their friend’s house. As for dining and drinking out, tighter paychecks are prompting happy hour revelers to opt for a beer rather than a costlier cocktail.

Higher grain and fuel prices have translated into increases in beer prices of as much as 7 percent. On top of any import taxes, the extra shipping costs associated with import beers such as Diageo’s Harp and Guinness may be one reason why domestic beers are faring well.

Related Topic: The sale of “sin”

A 2007 study entitled “The Price of Sin: The Effects of Social Norms on Markets” suggests that organizations that, out of public relations concerns, do not include “sin sector” stocks in their portfolios stand to lose financially. Given the requirements for public disclosure of stock holdings, banks, pension funds and universities are less apt to invest in tobacco stocks, argues the study, led by the University of British Columbia’s Sauder School of Business. Because “sin stocks” have fewer institutional investors, individuals, hedge funds and some mutual funds may buy into the lower-demand securities to take advantage of the subsequently higher risk and reward.

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