Anheuser Busch Companies (BUD)

[FUNMAN]

10 years after deal, A-B InBev struggles to grow in U.S.


https://www.stltoday.com/business/columns/david-nicklaus/years-after-deal-a-b-inbev-struggles-to-grow-in/article_c62c5da4-5aa5-5755-9395-6627faa4f25e.html


13 hrs ago
By: David Nicklaus
David Nicklaus is a business columnist for the St. Louis Post-Dispatch.


St. Louis got the shocking news on a Sunday in July 10 years ago: The brewery was being sold.

Anheuser-Busch’s board had fought the overtures from Belgium-based InBev for weeks before accepting a sweetened offer worth $52 billion. Much of what would happen later, after the deal closed in November, was predictable: Jobs lost, key functions moved out of St. Louis, civic feathers ruffled.

A decade later, the merger announced in July 2008 also looks inevitable. Big beer companies had extended their dominance in the U.S. market about as far as possible, and growth was slowing. The path to further profits lay in international consolidation, something A-B had been slow to embrace.

The global Anheuser-Busch InBev has delivered solid financial returns, with per-share profit up 37 percent since 2009. It’s hard to imagine the old A-B doing as well, especially with domestic sales of Bud Light and Budweiser steadily declining.

Tom Pirko, managing director of California consulting firm Bevmark, says the merged company has done “a marvelous job” of cutting costs and building brands — including Budweiser, which is gaining market share in countries outside the U.S.

The old Anheuser-Busch management, by contrast, “were dinosaurs waiting for the asteroids to hit and wipe them out,” Pirko says.

If that sounds harsh, remember that the industry was changing in 2008. Miller and Coors, the No. 2 and No. 3 U.S. brewers, put their operations into a joint venture that closed two weeks before the announcement of the A-B deal.

North America remains A-B InBev’s biggest market, accounting for 23 percent of beer sales and 31 percent of operating profit, but it has multiple challenges.

The U.S. market has shrunk, with wine and spirits gaining “share of throat” at beer’s expense. Craft brewers also have stolen sales from the big brands.


“Anheuser-Busch InBev has lost a lot of volume but has made a lot more money” in the past decade, says Eric Shepard, executive editor of industry publication Beer Marketer’s Insights.


That’s not a long-term formula for success, though. “You can’t lose barrels forever and make more money,” Shepard adds. “That math doesn’t continue to work.”


A-B InBev’s strategies include growing the craft brands it has acquired, such as Chicago-based Goose Island, and positioning fast-growing Michelob Ultra as a lifestyle brand for fitness enthusiasts.


For Bud Light — still the best-selling U.S. beer — stemming the decline is about the best outcome the company can hope for. “It seems like they have lost the magic formula they once had,” Shepard says.


A-B InBev’s corporate formula seems to include a blockbuster acquisition every few years. It bought Mexico’s Grupo Modelo in 2013 and London-based SABMiller in 2016.


Analysts sometimes speculate that its next big deal will be outside beer, perhaps even involving a soft-drink giant like Pepsico or Coca-Cola. Company executives have said repeatedly that they remain focused on beer.


Robert Ottenstein, an analyst at investment firm Evercore ISI, analyzed several possible acquisitions in a report last year. Among those that make sense for A-B InBev, he wrote, are the beer businesses owned by U.S. drinks company Constellation Brands, French wine producer Castel or Guinness owner Diageo.


Each of the three poses some hurdles. Constellation, in particular, raises antitrust issues; A-B InBev sold it the U.S. rights to Corona so it could buy Modelo.


It’s a good bet, though, that if sales in its biggest market continue to slip, A-B InBev’s executives will find something, somewhere, to buy. They didn’t build the world’s largest brewer by being satisfied with the status quo.