Well, this is not encouraging.
Heineken’s chief executive has warned that “off the charts” cost inflation will further push up the price of a pint and said the risk of outright shortages was growing as brewers face persistent challenges delivering beer to pubs, restaurants and supermarkets.
Dolf van den Brink told the Financial Times that it was impossible to gauge how much consumers would reduce consumption in response to additional price rises, adding that the usual models the sector used to try to predict behaviour were breaking down.
Van den Brink’s comments about models are worth noting. While basic economic truths remain unchanged (thus if demand exceeds supply, either prices will go up or supplies will run out — and they may still run out in the end anyway), the problem of modeling how those truths will manifest themselves in the current — how to put it — complex environment is not easy. How then to plan a response must be more difficult still. If I had to guess (and it’s not much of a guess), a lot of old assumptions are being junked, at least for now.
No one should deny for a moment that the pandemic posed a serious challenge. However, beyond what seemed (to me) to be a fairly obvious need for an initial (and probably brief) lockdown while an attempt was made to get the measure of this new disease, the current inflationary surge is in part a reflection of the fact that too many governments failed to do much in the way of (to use an off-puttingly chilly term) a cost–benefit analysis before letting their authoritarian reflexes take over. There was an excuse for that in the early weeks of the pandemic, but diminishingly so thereafter. It should, by the way, be stressed that the cost side of that equation was much more than financial. The lockdowns (and their less draconian variants) came at a human cost, too, not least in terms of physical and mental health, something that their advocates often seemed to downplay.
Today’s environment is also a reminder of something else that those orchestrating the coercive side of the response to Covid-19 appeared too ready to brush aside. The consequences of their actions were bound to include the unpredictable, including a strong likelihood of unknown as well as known unknowns. That called for more humility and more flexibility than has — shall we say — always been on display.
But back to that expensive beer.
The FT:
“In my 24 years in the business I’ve never seen anything like it, not even close,” van den Brink said of the cost inflation. “Across the board we are faced with crazy increases.”
He added: “There’s no model that can handle this kind of inflation. It’s kind of off the charts. So it’s anybody’s guess . . . what the impact is going to be on volumes due to all these price increases.”
. . . Heineken said it expected input costs to rise by a “mid-teen” percentage this year and also said there was “increased uncertainty” about a midterm forecast for profitability. The company said it would update guidance for 2023 later this year.
Heineken, whose brands include Amstel, Tiger and Moretti as well as its namesake lager, joins rival Carlsberg in sounding caution over inflationary pressures, which threaten to hinder their recovery.
In the wider food and drinks sector dozens of companies, including Kellogg and PepsiCo, have also said they are passing on mounting commodity, energy and packaging costs to consumers, threatening living standards.
Van den Brink said there was rising concern in the industry about availability as the global supply chain crunch drags on.
“There’s a lot of focus on pricing and inflation, [but] there’s also this whole notion of ‘can you actually get it at any price’,” he said.
“There’s such shortages of truck drivers, everybody’s scrambling to get their products moved. Ocean freight is completely out of sync.”
So far, he said, there had only been “pockets” of shortages, although the risks were “going up daily because of the global supply chain disruption”.
Senator Warren will, doubtless, soon be complaining about the bad behavior of Big Beer.