The soaring cost of making beer cans has forced the London-listed SABMiller on to the back foot in its long-running US price war with Anheuser-Busch, the company behind America's most popular beer, Budweiser.
Aluminium prices have almost doubled in the last year to about $3,000 (£1,586) a tonne, mirroring other commodity price rises. SABMiller, which brews the number-two US beer, Miller, admitted that, unlike some rivals, it had not hedged against this rising cost and would not start doing so at current aluminium price levels.
The group generates 16% of profits from the US, where about half its beer is sold in aluminium cans. Sales elsewhere in the world are predominantly through returnable glass bottles. SABMiller, which acquired the Colombian brewer Bavaria for $7.8bn six months ago, revealed yesterday that it had sold 176m hectolitres for the year to March 31, equivalent to 31.7bn pints. Adjusted pre-tax profit for the year rose 18% to $2.6 bn.
Despite good growth opportunities elsewhere, the chief executive, Graham Mackay, said conditions for US Miller business remained tough. "Both volume and profitability are difficult to predict for the year ahead ... Commodity costs have risen significantly. Within this context, Miller maintained firmer year-on-year pricing than its [US] competitors."
Miller sales to the US drinks trade dropped 1%, with operating profit down 7%. SABMiller said the US price war with Anheuser had intensified in the last 12 months with sustained price discounting. Competition has been so intense that both brewers have resorted to television ad campaigns critical of their rival. Some of the televised criticisms have ended in high-profile lawsuits.
SABMiller's finance director, Malcolm Wyman, said as well as rising production costs, Miller's pricing was at the mercy of the market leader, Anheuser. "Miller is operating in a very strong, price-competitive market. Prices are, in fact, set by its competitor that has a 50% market share and is also a price leader. So in fact we do have limited visibility when it comes to price growth and revenue growth."
Many US can-manufacturing contracts require drinks companies to buy the aluminum required for production, leaving them bearing the cost of price moves. The London-listed Rexam, the world's largest can maker, does not buy any of the aluminium it uses for production in the US.
Rexam started passing on a surcharge to European customers last month to mitigate spiralling aluminium procurement costs. In February the company also said a rolling three-year hedging programme meant the company's exposure to aluminium price volatility was substantially reduced.
