(Bloomberg) -- A slump in confidence and demand in China has hit the sale of beer at two of the world’s largest brewers.
Anheuser-Busch InBev NV and Carlsberg A/S both reported a decline in volumes that was worse than expected as cautious Chinese drinkers cut back on spending. Further slowdowns in consumption in Argentina and a continued weak consumer environment in the US, one of the largest beer markets in the world, didn’t help either.
AB InBev, the maker of Stella Artois and Budweiser, said volumes dropped 2.4% in the third quarter, more than was estimated by an analysts consensus compiled by Bloomberg. Denmark’s Carlsberg said organic volumes fell 0.2%, which it blamed on damper sales in Western Europe and Asia.
Shares of AB InBev fell as much as 5% in early trading, with not even a $2 billion buyback that was double what analysts expected boosting the stock. Carlsberg’s shares rose as much as 2.9% in local trading, buoyed by the fact that its volume drop in China was less than its bigger rival and it maintained guidance. Both companies’ shares are still down this year and are underperforming the Stoxx 600 Index.
“It’s clear that consumer confidence is hitting new lows,” said Carlsberg Chief Executive Officer Jacob Aarup-Andersen, speaking about China in an interview with Bloomberg. He said stimulus measures from the Chinese government, which aim to counteract the damaging economic effects of a property downturn, have yet to improve consumer behavior.
Marketing Spending
Consumer companies are grappling with customers in many markets globally reaching their spending limits and cutting back, after a period of high inflation left them feeling the pinch. In China, an early surge in spending that followed the ending of the world’s strictest Covid lockdowns has since dropped back significantly. This decline in Chinese demand is hurting a wide range of industries from luxury and consumer goods to mining.
In a bid to win back customers and lost market share, many consumer goods makers are finding they have to limit price increases where they can to ease pressure on consumers and increase advertising budgets.
Carlsberg said its marketing in China is targeted toward supermarkets to encourage consumers to buy beer to drink at home. “Bars and restaurants are suffering quite significantly in this downturn,” said Aarup-Andersen, who added that Carlsberg was still managing to grow market share in the mainland.
AB InBev has been plowing money into marketing globally, especially in the US where it had to recover from a marketing mishap that involved Bud Light. Its brand Michelob sponsored Team USA at the Paris Olympics and its no-alcohol beer Corona Cero was an official sponsor of the global sporting event.
Revenues in the US rose 1.8% during the quarter, it said, which was better than analysts expected. The brewer’s performance in China, where its strategy to date has focused on ‘premiumization’ or selling more upmarket beers, was very soft though with revenue declining by 16.1% and volumes down 14.2%.
Profit Outlook
The third quarter for AB InBev was “weak but not terrible”, wrote RBC Capital Markets analyst James Edwardes Jones, in a note, adding that the company’s updated forecast that profit will come in at the top end of guidance was “satisfactory”. North America was better than expected too, he said.
Carlsberg maintained its profit guidance for the year, as strength in other markets offset the lower volumes in China and also France and the UK, which were both affected by washout summers.
For both brewers, sales of non-alcoholic beer remained a bright spot as people increasingly turn away from alcohol. Sales of alcohol-free brews rose 6% as Carlsberg while AB InBev said volumes of Budweiser Zero grew by a low 20s percentage. Both companies have been investing in products beyond beer, with AB InBev pushing sales of seltzers such as Brutal Fruit and and Nutrl.
Carlsberg is expanding its soft drinks business further through the acquisition of Britvic, and deepening its bottling partnership with Pepsico.
--With assistance from Joel Leon.
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