The worst is yet to come for European households as the rising costs of food and beverages continues. Interestingly, EU food and beverage producers have increased their prices by an average of 14% since the beginning of 2021.
This has also impacted investors, as the MSCI Europe Beverage index rose 8% over the past two months. Christophe Barraud, the Chief Economist, Strategist, and Bloomberg top forecaster, explained on August 11 that the beverage sector, usually highly valued, reached its most expensive level in 17 years as prices increased relative to the broader market.
“The MSCI Europe Beverage Index 8% over the past 2 months, clearly topping the MSCI Europe’s 4.2% advance – Bloomberg. That’s made a historically highly valued sector the most expensive in at least 17 years relative to the broader gauge.”
Beverage market growth
Like all global beverage markets, the European one was also heavily impacted by the onset of Covid-19 and lockdowns, hurling multiple obstacles at the industry. Moreover, beer consumption has been trending down primarily due to the aging population in the EU and younger generations drinking less; as per Mordor Intelligence, beer sales in Europe plunged by 42% in 2020.
On the other hand, there is an increasing demand for craft beer. Overall, the beverage industry is projected to grow at a 3.5% compound annual growth rate (CAGR), with Germany dominating the beverage market.
As retail prices have not fully adjusted to the rising inflationary shocks across Europe, buyers can expect that producers will pass on higher raw materials costs to the end consumers.
This could indicate that the beverage producers have more room to run, but investors looking to enter need to be cautious as lofty valuations frequently don’t last for long.
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