Pricing decisions tough for brand owners as aluminum shortages bite – analysis | Beverage industry analysis
Widespread aluminum shortages last year have compounded the miserable 12 months for brewers and soft drink makers who rely on metal for packaging. As the results for the first quarter of this year arrive, CEOs and key executives explain to analysts the effect of these shortages on their business costs and shed light on their influence on prices in the months to come.
Yesterday, Monster Beverage Corp CEO Rodney Sacks complained that his company has been forced to source aluminum cans from South America and Asia due to “current supply constraints in the aluminum can industry ”. The problem, he told analysts, was not so much the cost of cans, but rather the resulting increase in freight and logistics expenses.
“We have always tried to manufacture and sell in the regions to avoid excessive shipping costs,” Sacks said after Monster’s first quarter results. “We had to take a break this year to meet consumer demand.”
Shipping costs were also on the mind of Keurig Dr Pepper CEO Bob Gamgort last week. Speaking following the announcement of his company’s own figures for the first quarter, Gagamort reported that aluminum prices continue to rise and that KDP has seen “a spike in transportation and logistics costs “.
Behind the complaints from Sacks and Gamgort are record prices for aluminum caused by a number of factors. The trade dispute between China and Australia has disrupted the global aluminum market (China is the world’s largest buyer of the metal while Australia is a major producer of raw materials, bauxite and alumina) while in the drinks, the shift to grocery sales during the coronavirus pandemic has increased demand for some formats. In October last year, Molson Coors Beverage Co CEO Gavin Hattersley said the lack of thin 12oz cans for hard seltzers had forced his company to suspend some slow lines.
The biggest beverage brand owners are protected from fluctuations in aluminum prices, at least in the short term, by a hedge – meaning they freeze prices for months or years to come. However, the main headache right now is rising transportation costs, as shortages force companies to source further afield. As KDP’s Gamgort pointed out, shipping costs “cannot be covered”.
However, the sharp rise in the price of aluminum will eventually catch up with even the most covered companies. Monster’s Sacks yesterday predicted a “significant” increase in aluminum costs for the company, citing an 80% price increase for the metal in the United States and 70% in Europe compared to 12 months ago .
The effect this will have on the price consumers will have to pay for their drinks is difficult to assess, but the coming year looks set to bring significant pricing challenges for beverage brand owners affected by aluminum shortages. . Management rarely comes out and says price increases are underway, but last month PepsiCo CEO Ramon Laguarta revealed that he expects more “rational” prices in the coming months because of the additional costs. aluminum. By that reasoning, PepsiCo’s head means it doesn’t want a flurry of promotional offers down the soft drink aisle, and would rather have time to mitigate these rising costs.
“There is probably a high probability that the market will remain as rational for the next few quarters, and that is what we are trying to do on our own,” Laguarta said. “I expect the rest of the industry to take a similar stance.”
His fingers will be crossed in a number of executive suites that he is right.
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