Marketing

Cost of raw materials in drinks industry to reduce in 2023

Inflation in the beverage market is set to reduce in 2023 according to Barclays Global Consumer Staples report Cost Of Goods Sold.
The lowering cost environment, strong pricing and robust volumes so far indicate an optimistic beer sector for 2023 according to Barclays Global Consumer Staples report Cost Of Goods Sold.

The lowering cost environment, strong pricing and robust volumes so far indicate an optimistic beer sector for 2023 according to Barclays Global Consumer Staples report Cost Of Goods Sold.

COGS inflation was a thorn in the side of the beer sector last year, with aluminium, glass, barley and energy (natural gas) all peaking in 2022, on top of an already high level in 2021.

According to the just-released Barclays report beer companies are attempting to hedge their financial exposure to commodities on a 12-month basis.

However, in some emerging markets it’s only possible to forward buy on a shorter term basis or even at spot rates.

Many of these commodities materially reduced in price during 2022, such that hedging into 2023 will likely be at lower prices. As a result, we may be in the situation that COGS as hedged become cheaper in 2024 and perhaps towards H2 in 2023 in areas where 12-month hedging is less possible. Depending on the pricing abilities of the companies, this could lead to a year of significant margin improvement for the beverage sector.

COGS are expected to remain high in the short term. At this stage in the year, most companies have not commented on their expected inputs for 2023, with the exception of Heineken, who still expects input costs in the high teens per hectolitre.

The Barclays report is more optimistic on costs. Whilst some remain elevated (particularly glass), most have peaked and are now descending (particularly energy and aluminium). Similarly, the glass price is high partially due to the high cost of energy. If this has peaked, then it is not unreasonable to expect the price of glass to also decline.

Shipping costs have already plummeted and are expected to hit 2019 levels in April 2023 according to Talking Transport on the 25th of Nov 2022. As a result, COGS will likely increase significantly in H1 of 23 but then show a much lower increase in H2 ’23 followed by a flattening or even a decline in 2024, providing a far more constructive environment for margins in H2 ’23 or for the Full Year 2024.The lowering cost environment, strong pricing and robust volumes so far indicate an optimistic beer sector for 2023.

 

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