World: Optimism around brewing industry recovery challenged by several headwinds

The brewing industry’s performance in 2021 so far has been extremely impressive with beer volumes recovering a very large proportion of the 2020 pandemic impact. However, at the same time the optimism surrounding the recovery is being challenged by several headwinds, including major disruptions to supply chains globally and escalating costs across almost all markets, RMI Analytics said in its early November report.

During the pandemic, the governments injected record amounts of financial stimulus into the global economy and this strategy has achieved its stated purpose in supporting the economy through Covid-19. However, it could be said the stimulus strategy has been too successful as economies are performing amazingly well and commodity markets have risen dramatically as demand for goods rebounds faster than the supply chain can handle now. Effectively we are now experiencing a new phase in the recovery which is focused on containing the pace of the economic recovery.

Central Banks are now considering interest rate hikes as a means in slowing the mounting inflation concerns. These interest rate increases are forecast to begin in 2022 and mainly aimed at suppressing inflation, but in the process they could further stall economic recovery.

For the brewing industry this gives pause for concern, as economic growth is normally strongly correlated to beer growth and, therefore, continued strong economies would be a positive factor for the brewing industry. Unfortunately, strong economic growth brings with it other challenges, including growing inflation and these impacts are beginning to show across the economy and certainly within the brewing industry.

Evidence of these headwinds is starting to show up in the financial results from major brewers. Last week, the top 3 brewers reported their Q3 financial performance with lower volumes than in the first half of the year. The RMI Analytics’ beer growth estimate for 2021 is +4.5% and although still realistic, there is less optimism about exceeding this estimate. Purposely, the analysts’ estimate had been conservative as they were waiting for more results from brewers and now with those results through Q3 the situation looks more like a slowing recovery as we limp to the finish line for 2021.

The strong first-half 2021, although impressive, may have been too much of a good thing, as now inflation and supply chain disruptions are indicating the recovery is slowing. Let’s hope this slowdown is short-lived and we get back to fast growth like in the first half of 2021, the analysts said.