Big companies need to justify heavy price increases to avoid consumers turning away and looking elsewhere – this week’s results announcement from three major drinks companies – AB InBev, Diageo, and Heineken – show how pricing power, and therefore brand strength, is the markets’ new area of focus.
Why the trend matters to marketers
How to sell marketing across the organisation is a vital topic for the marketing discipline in 2023. This week’s company earnings calls from some of the world’s biggest drinks groups are a confluence of different marketing stories, but the most salient is that now investors are hoping to see that companies are able to support any pricing increases made over the last year.
Those that have been successful tend to have strong brands, supported by healthy marketing investments, given that unlike some of the FMCG giants, very few alcohol brands can be considered truly essential to human life.
AB InBev, Diageo and Heineken all reported results this week:
AB InBev held firm across its portfolio despite a 10.5% drop in US revenues over the quarter largely due to a boycott of the Bud Light brand. Overall, the company’s revenues over the course of the quarter grew 7.2% to reach $15.1bn; the company’s underlying profitability grew by 5%. Volumes declined 1.5% year on year. the results stress the importance of a 12.8% increase in sales and marketing ( to reach $3.5bn) over the first half of 2023 versus the same period last year.
Diageo, with a resilient mix of spirit brands, and the distinctiveness-fest that is its singular Guinness beer brand, annual net sales 6.5% (10.7% on a reported basis) to reach $17.1bn. Much of this was driven by a price increase of 7.3% supported by a marketing budget increased by 5.6% versus the previous year. Volumes are down on a reported basis by 7.4%, but operating profits grew 7%.
Heineken, meanwhile, came in for some pressure from analysts and investors after a 6.6% growth in revenues over the first half of the year accompanied a 6% dip in volumes off the back of price increases of 11.8% in the first half. Operating profits were down 8.6%, causing the company to downgrade its full year forecasts.
Generally, all three companies tell the same story, but Heineken came in for criticism largely because of a big dip in operating profits largely because of weak demand across Asia, and especially in the key market of Vietnam.
But it all boils down to the companies’ perceived abilities to pass on higher costs and meet analysts expectations in doing so profitably, or at least more profitably than expected. The other side of this is the ability to premiumise, by growing revenues from more expensive brands that are less easily substituted for cheaper alternatives.
Emerging techniques in marketing, such as econometrics, are becoming more mainstream as the pressure mounts on companies to protect share, grow, and pass on price increases and brands seek to model their advertising output according to modelled outcomes rather than just as a percentage of revenues.
The idea behind this is that strong brands are less price elastic so can better support prices in a crisis, and therefore need to look ahead at what they seek to achieve rather than back at what worked before.