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Tribune News Service
Tribune News Service
Business
Thomas Mulier, Elisabeth Behrmann

Costly beer and cars? Consumers, and profits, fine with that

Consumers seem undaunted by higher prices of everything from luxury cars to beer, letting companies like Anheuser-Busch InBev NV and BMW AG boost profits despite economic threats ranging from inflation to war to China’s Covid flare-up.

AB InBev, the world’s largest brewer, on Thursday reported profit growth that was almost twice as much as analysts expected. BMW AG’s first-quarter earnings rose 12% on strong demand for luxury cars. Revenue at Stellantis NV, formed by the merger of Fiat Chrysler and Peugeot, jumped on the back of strong demand for new high-end models like the Jeep Grand Cherokee.

With costs of many raw materials flaring amid bottlenecks, companies have been testing how much they can raise prices after years of subdued inflation. Russia’s invasion of Ukraine has exacerbated shortages, cutting off supplies of some auto parts and cooking oils, while China’s continuing Covid-zero policy has crimped demand and added to supply-chain woes.

Nestle SA increased prices at the fastest rate in more than a decade during the first quarter, lifting the cost for everything from Nespresso capsules to Purina dog chow to blunt the impact of surging food inflation on its profitability. Procter & Gamble Co. and Danone SA also started the year with price increases of about 5%.

Like Budweiser owner AB InBev, brewers Heineken NV and Carlsberg A/S have delivered sales growth ahead of analyst estimates, largely driven by price increases. So far, drinkers returning to bars after lockdowns have been undeterred by having to pay more, with costs of brewers’ raw materials such as aluminum and barley soaring.

“Inflation continues to move very fast and is moving above or faster than what the expectation was,” AB InBev Chief Executive Officer Michel Doukeris said by phone. It’s “a little too early” to gauge how resilient demand for beer will be, given most of the brewer’s price increases were implemented late last year, he said.

Home prices

Even U.K. home builder Barratt Developments Plc said Thursday that it’s been able to lift prices enough to offset higher materials costs.

Carmakers have significantly increased prices after a strong rebound in demand, as a semiconductor shortage has put a lid on vehicle production. With the number of buyers looking for a set of new wheels far outstripping supply, prices have soared for new and used vehicles.

Manufacturers including Volkswagen, BMW and Stellantis have also shifted production to their biggest money-spinners, like Porsche and Audi models. This week, VW Chief Executive Officer Herbert Diess said Europe’s biggest carmaker was sold out of electric cars for the year in its home region and the U.S. because of supply bottlenecks.

At the same time, carmakers are facing a price jump in everything from shipping rates to basic raw materials, a situation that’s set to remain tense as the war in Ukraine roils logistics and component production and China’s zero-Covid policies shutter plants. Passing on those increases as inflation burns through consumers’ wallets will be an uphill battle.

“Car prices still need to rise by 5%-10% and electric cars by more than 10% to compensate for current cost inflation,” Bank of America Corp. analysts including Horst Schneider wrote in a note. “Given the mounting pressure facing consumers, this may prove challenging.”

Some companies have warned of emerging strains. Last week, Unilever Plc forecast full-year revenue growth at the top end of its forecast, though it said profitability may suffer as consumers start to cut back on purchases. The Dove soap maker has covered about two-thirds of the cost increases it’s been facing with price hikes, Chief Financial Officer Graeme Pitkethly said at the time.

In some corners of the economy, European consumers are already hunting for bargains. They’re buying cheaper clothes as inflation crimps household budgets, according to Zalando SE, the region’s largest online-only fashion retailer.

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