A quick demonstration of the power of relative prices:
More beer is being drunk in Australia for the first time in at least 15 years, stoking sales at Foster’s Group Ltd. and Lion Nathan Ltd., as higher taxes curb demand for rival products, analysts at Citigroup Inc. and Goldman Sachs JBWere Pty say.
Before you go on...should we really trust investing advice from analysts at Citigroup right now? They've done so well for themselves.
Ok, sarcasm gone, read on.
Sales of pre-mixed alcoholic drinks, such as bourbon and cola in a can, have slumped 30 percent since the taxes took effect in April as consumers switch to beer or bottled spirits they can mix themselves, Citigroup said in a note to clients today, citing AC Nielsen research. Pre-mixed drinks, with annual growth of 16 percent from 2002 to 2007, had been the fastest growing segment of the alcohol market before the tax.
Prime Minister Kevin Rudd almost doubled the tax on so- called ready-to-drink products in April as part of a push to curb binge drinking among the nation’s youth. The higher excise, which was forecast to boost government revenue by A$2 billion ($1.3 billion), took effect immediately, although it needs to be passed through parliament to be made permanent.
“Beer industry volumes are growing 2 percent to 3 percent currently, having been broadly flat for the previous 15 years,” Andy Bowley, an analyst at Citigroup, said in a note to clients today. “At least half of industry growth stems from consumers switching out of RTDs,” said Bowley, who rates Foster’s “buy” and Lion Nathan “hold.”
