Sunday, June 26, 2011

A cold one for the economy...  

Forget buying a house/car/phone to help get our economy going.
But in fact, mounting evidence suggests that beer in particular, and the beer industry that surrounds it, may be as good for growth as excess sobriety. In some of the world's toughest investment climates, beer companies today are building factories, creating jobs, and providing vital public services, all in the pursuit of new customers for a pint. It's the brewery as economic stimulus: a formula even a frat boy could love.

In a time of unprecedented global prosperity, there are an ever-growing number of beer guzzlers worldwide. Liesbeth Colen and Johan Swinnen of the University of Leuven report that beer consumption in China in 1980 was minimal. By 2005, however, the country consumed more than 40 billion liters per year. In 1961, Brazilians drank 630 million liters of beer; in 2007 that number was 7.5 billion liters.

And it isn't just those in booming economies: Even the poorest of the poor will spend money on alcohol. Abhijit Banerjee and Esther Duflo of MIT have shown that people living on a dollar a day or less can spend 6 cents or more of that on alcohol and tobacco. Add those pennies up and you get a potential market worth billions of dollars a year. Robust demand in even the poorest places is one reason that breweries invest where other industries fear to tread. In just the last few months, Heineken won a bid for two state-owned breweries in Ethiopia for $163 million; Rwanda's stock exchange recorded its first-ever initial public offering that involved a local brewery; and SABMiller dropped an additional $15 million on top of an initial $37 million investment in its brewery operation in Juba, the main city in the aspiring breakaway country of Southern Sudan.

These investments aren't just good for Big Beer. In Juba, SABMiller's brewery will provide tax revenue, lease payments, more than 200 local jobs, and increased demand for local agricultural produce. In more stable markets, breweries can be a considerable economic force. In 2005, East African Breweries was the first company in Kenya to reach $1 billion in market capitalization, and the company paid about $44 million in corporate income tax last year. [More]
Of course, one larger question is whether this effect would be more beneficial without beer marketing's essentially mobster-modeled wholesale monopolies for the giant brewers.
Wisconsin’s craft brewers, who were not consulted while the measure was being framed, account for only about 5% of sales, but their share is increasing. “Everything in this bill is designed to make it harder for small craft brewers to grow,” complained Deb Carey, a co-owner of New Glarus Brewing. “It is a slimy piece of legislation.”
“We are losing assets and we are losing control over our products,” Carey added. “This debate boils down to the fact that the wholesalers do not want a drop of beer going to market in Wisconsin without them making their 30 percent profit from it. That’s it.”
As explained by Think Progress, “The provision will make it much more difficult for the Wisconsin’s burgeoning craft breweries to operate and expand their business by barring them from selling directly to restaurants and liquor stores, and preventing them from selling their own product onsite. The new provision treats craft brewers — the 60 of whom make up just 5 percent of the beer market in Wisconsin — like corporate mega-brewers, forcing them to use a wholesale distributor to market their product. Under the provision, it would be illegal, for instance, for a small brewer located near a restaurant to walk next door to deliver a case of beer. They’ll have to hire a middle man to do it instead. [More]
It is also interesting to note that WI governor Scott Walker is framing his image as a low-government, free enterprise champion. Unfortunately, like his exempting of supportive unions from his public-union busting, it would appear that political stance is subject to financial persuasion.

Which makes an attractive business model.
The price-cost breakdown of mass produced beer in 1996: 
(Consumer Reports, 1996)
Retail and distributor markup 36.4%
Taxes and Shipping 17.2%
Packaging 16.5%
Labor and Production 11.7%
Advertising and Management 8.2%
Brewer Profit 6%
Ingredients 4%

Cost breakdown for Mass-produced six-pack (in 1996):
Ingredients .16
Labor and production .47
Packaging .66
Advertising and Management .33
Brewer profit .24
Retail and distributor markup 1.46
Taxes and shipping .69
Total $4.01
A six pack is 72 oz by volume, a case is 2.25 gallons [Source]

This is the best data I could come up with quickly. Obviously monopolies are good for profits.


 Is it me, or is it thirsty in here?

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