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Can Beer & Soda Makers Survive Trump Tariffs With Price Hike?

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President Donald Trump’s tariffs are being taking a toll on beer and soda makers. The Boston Beer Company, Inc. (SAM - Free Report) recently said that it will be raising prices in the second half of the year. The Coca Cola Company (KO - Free Report) recently increased its soda prices and Molson Coors Brewing Company (TAP - Free Report) , which own Miller Coors, too had decided to hike prices of its beers for Chicago-area retailers.

Higher tariffs on aluminum have started pinching the profits of beer and soft beverage manufacturers. Understandably, the higher prices are now being passed on to consumers. This comes at a time when both the beer and soft drink market is already struggling given that an increasing number of Americans are preferring wine over beer, while bottled water is fast eating into the market share of carbonated soft drinks.

Consumers to Feel the Heat of Tariffs

Beer and soft beverage makers have been under pressure since Trump announced 10% tariffs on imported aluminum. And finally it seems to be taking its toll on the manufacturers with production cost escalating. Earlier this week, Coca Cola announced that the company was raising its soda prices because of increased aluminum costs.

James Quincey, CEO of the Coca-Cola Company, said that he expects the bottlers and retailers charging more to make up for the price hike. The decision to raise price, that too in the middle of the year, comes just a week after Coca Cola posted earnings and revenues beat in the second quarter.

It’s not only Coca Cola but beer manufacturers too have started feeling the heat of tariffs. Miller Coors has hinted at increasing its beer prices for the Chicago-area retailers for both bottled beer and canned beers as a result of escalating aluminum prices. It is expected that beer drinkers in Chicago will now have to pay around $1 more for a case of Miller beer.

Much like the Molson Coors-owned Miller beer, The Boston Beer Company too will be increasing its prices by up to 2% in the second half of the year. The Boston Beer Company has a Zacks Rank #2 (Buy).

According to The Beer Institute, the trade group, which represents the largest beer companies in the United States, aluminum tariffs will cost U.S. breweries $347 million a year. Moreover, 60% of the beer made and sold in the United States comes in aluminum cans and bottles.

Beer and Carbonated Beverages Already Suffering

Bothe the carbonated soft drinks and beer industry have been suffering for a while now. An increasing number of health-conscious Americans are preferring bottled water and energy drinks over carbonated soft drinks. In fact, bottled water has become the highest selling beverage in the United States for two years in a row now. This has seen almost all beverage companies like Coca Cola, PepsiCo, Inc. (PEP - Free Report) , Dr Pepper Snapple Group, Inc. and Monster Beverage Corporation (MNST - Free Report) redesigning their portfolio along these lines.

Moreover, craft beer too seems to be losing its appeal with Americans preferring wine over beer. Per market research firm IRI Worldwide, worldwide sales of craft beer across large-scale retail stores grew only 1.7% in the first half of 2018. This is already taking a toll on prominent beer manufacturers like Molson Coors and Anheuser-Busch InBev SA/NV (BUD - Free Report) , which are struggling to cope with declining demand for craft beer. Anheuser-Busch particularly has been struggling to attract beer drinkers. The company revenues fell 3.1% in the second quarter on the back of lower volumes

Now, Trump’s tariffs have only added to the woes of both soft beverage and beer manufacturers. Given this situation, the decision to raise prices comes is understandably to survive the burden of tariffs. And in all likelihood, the increased prices are going to be passed on to the consumers.

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