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Sticky Prices?

Beverage News
10.20.2008

Beer in the Store

No, I’m not talking about the market for sweet Australian “sticky” wine; I’m talking about the story on CNN.com last night that explored the phenomenon of food and beverage prices remaining high rather than decreasing with inputs such as oil and wheat.

The article claims that competitor prices dictate the market more than inputs in some markets, such as soda, but doesn’t affect other markets like beer as much. “For example, both Anheuser-Busch Cos. Inc. and SABMiller’s U.S. unit have been raising the price for beer, with neither one too worried that the price hikes will push customers to their competitor…For prices to drop, consumers have to hope that companies’ competitive juices start flowing again.”

Competition can be a tough thing to find in an industry dominated by mega-corporations, so who knows how long it will be until large beverage companies find the motivation to lower prices. The article says, “If companies keep their prices at current levels, they can reap higher profit margins. But if one company starts cutting prices to lure customers away from competitors, it could start a price war.” It doesn’t help that the beverage industry exploits the perceived connection between price and quality, with higher ratings leading to higher prices. With this situation, lowering prices could signify to consumers a loss in quality or financial troubles for the company, neither being things a beverage company wants to communicate to customers.

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