Beer Fears

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Beer Fears

NEW YORK -- Beer and gasoline often mix in retailing, but industry observers say high gas prices could break up the pair, according to a CNN/Money report.

Analysts caution that the post-Hurricane Katrina gas price volatility doesn't bode well for the beer industry on two counts. First, the escalating price of gasoline is pressuring companies on the back end of their business by boosting their utility bills and hiking transportation costs.

Most beer companies don't directly distribute product to retail outlets, UBS analyst Nik Modi told CNN/Money. Instead, a bulk of the distribution is done by independent distribution companies. But beer companies still get hit with the gas price inflation.

"Anheuser-Busch operates 13 facilities in the United States," Modi said in the CNN/Money report. "They do run their own delivery fleet to transport goods from the plants to these distribution companies"

St. Louis-based Anheuser-Busch accounts for more than 50 percent of the domestic beer market, with leading brands such as Budweiser, Bud Light, Michelob, and Busch.

The second problem is the deepening impact of higher gas prices on consumers' disposable incomes, CNN/Money reported.

"On the sales volume side, gas is a bigger problem for Anheuser, which has a 60 percent share in the convenience store sector," Modi told CNN/Money. "Convenience stores typically attract lower-income consumers and these people are hardest hit by the increase in gas prices."

According to the 2005 Convenience Store News Industry Report, beer sales in convenience stores totaled $15.6 billion in 2004 and accounted for 12 percent of all in-store sales dollars, ranking it second in terms of in-store category sales for the industry after cigarettes.

Nationwide, about 74 percent of convenience stores sold beer last year, making it a vital retail channel for overall beer sales, CNN/Money reported. .

"If 40 percent of all gas purchased is with cash, that leaves much less money in the pocket to buy other things, including beer," said Modi in a CNN/Money report.

Separately, in a recent Smith Barney survey of beer wholesalers, 75 percent of those polled said they believed gas prices have impacted beer volumes.

"Wholesalers believe the working man's disposable income is under pressure from higher gas prices and that beer purchases are suffering as a result," the report said.

According to CNN/Money, wholesalers indicated that sales at convenience stores could be the most impacted because some consumers are no longer purchasing a case of beer along with their gas.

"Consumers may be less willing to make an impulse purchase of beer in the convenience and gas channels," the report said.