Though it’s nearly 25,000 miles around, the world can feel like an awfully small place sometimes. For the beer drinker, global walls continue their constrictive shifts as breweries band together in a dizzying array of mergers and acquisitions. Despite extraordinary growth on the part of American craft brewers, global breweries continue to lose market share as drinkers turn their attention to spirits and other beverages. Based upon recent transactions and industry buzz, 2007 appears poised to be another year where brewing conglomerates and industry titans will further divide and sub-divide the brewing pie in search of elusive profits and market share.
The New Face Of Anheuser-Busch
While industry analysts have long predicted that market leader Anheuser-Busch would have to respond to the hurried globalization pace set by other members of the brewing industry, few could have plotted the strategy the company pursued in 2006. In the lead up to the retirement of A-B’s first non-Busch leader, Patrick Stokes, the brewery single-mindedly pursued strategic distribution agreements and targeted acquisitions of brands and breweries. Deemed by some as the ‘funnel strategy,’ A-B’s efforts were an obvious attempt to placate the well-covered grumblings of distributors who have been clamoring for higher margin brands.
In February, A-B announced it would become the exclusive American importer of the Grolsch beer brands, effective April 2006. Anheuser-Busch quickly followed up the announcement in March with news that it would also take over importation of Tiger Beer, effective May 2006. The agreements allowed the foreign breweries access to A-B’s network of nearly 600 wholesalers.
In a well-publicized deal in May, A-B purchased the Rolling Rock brands from InBev USA for $82 million. A-B managed to keep out of the fracas regarding the future of the historic Latrobe brewery that followed transfer of the brands, which A-B now brews at its facility in New Jersey. In August, Anheuser-Busch announced an extension of its 10-year alliance with Japanese brewer Kirin. In addition to brewing, importing, and distributing the Kirin Inchiban and Kirin Light brands in the American marketplace, A-B also assumed marketing and selling responsibility for the brands. According to the terms of the agreement, Anheuser-Busch assumed full oversight of the Kirin brands in the United States, while Kirin retains trademark rights for the brands.
After completing these deals, the company announced that the next Busch generation would resume control of day-to-day operations in the A-B boardroom. On November 30, August Busch IV succeeded Patrick Stokes as A-B’s president and CEO. While it is far too soon to pass judgment on the success of the Fourth’s reign, his leadership has clearly directed the company to reinvent parts of its marketing and distribution lineups. In the face of continued market pressures applied by the globalization of the beer industry and continued conglomeration, A-B’s new approach appears novel by comparison. A-B is clearly focusing on distribution and importation agreements, while other big players, including InBev, SABMiller, and Heineken have instead focused on purchasing minority or majority stakes in global breweries.
In early 2007, Busch IV was eager to pronounce A-B’s 2006 distribution efforts a success. The company recently released early numbers for 2006 that put overall shipments to wholesalers at 102 million barrels, up 1.2 million barrels over 2005. Wholesaler sales to retailers grew at 1.1 percent in 2006, with the newly acquired and alliance brands contributing half a point of growth to both shipments and wholesaler sales to retailers. “Anheuser-Busch achieved increased shipments in 2006 due to the success of its initiatives to grow core brands, led by Bud Light, and by expanding its portfolio of products including the addition of the Rolling Rock brands, and imports Grolsch and Tiger,” said August Busch IV in a press release announcing the results.
Despite the flurry of deals, A-B does not appear ready to rest yet. In late November, A-B announced it would enter into an agreement with InBev to become the exclusive U.S. importer of several premium European import brands, including Stella Artois and Beck’s. The teaming up of these two brewing powerhouses followed longstanding rumors of merger talks between them. Instead, A-B will take over importation, sales, and distribution of the brands, excluding the Labatt’s products, starting in February 2007.
“We are pleased with our sales and marketing initiatives, including the recently announced agreement to become the exclusive U.S. importer of select InBev European brands, and believe these efforts will position Anheuser-Busch for growth in volume and earnings in 2007,” concluded Busch in a press release. The deal also allows InBev to continue its divestiture of focus of direct oversight of and responsibility for brands in the American marketplace.
Without taking a breath, A-B quickly followed up this blockbuster news by announcing a new production, distribution, and sale agreement with its longtime partner, Grupo Modelo. The companies announced that A-B would serve as the sole importer of Modelo’s line of beers, including Corona, in China starting in January 2007. “We are very pleased with this association, which offers excellent long-term growth opportunities for Grupo Modelo’s brand portfolio in China, a very important market for our company,” said Carlos Fernández, chairman of the board of directors and CEO of Grupo Modelo in a press release.
Perhaps the most shocking deal was left for last. In January 2007, A-B and Czech brewer Budejovicky Budvar announced a detente in hostilities between the companies in the form of another exclusive importation agreement. The terms of the deal give Anheuser-Busch the right to import Budvar’s flagship beer, renamed Czechvar in the United States marketplace. In return, Budvar gains access to A-B’s distribution network, with the possibility of expanding distribution beyond its present 30-state range.
The deal signals an incredible groundshift from the combative days of August Busch III, who fiercely fought Budvar in courtrooms in more than 40 countries around the world. While the agreement specifically does not impact existing litigation or trademark disputes between the two brewers in other countries, the partnership clearly represents a changing of the old guard. “After years of differences, this is a meaningful step for two great brewers to form a relationship that is good for both of our businesses,” said August A. Busch IV in a press release. “[T]he agreement represents a historical turning point between our companies,” said Budvar’s CEO Jirí Bocek. “We have managed to move away from discussions between lawyers and towards a practical dialogue, which is going to be beneficial to both sides.”
Where Things Stand
Beer industry experts remain divided over what effects these deals will have on Anheuser-Busch’s overall financial outlook and the American marketplace. Observers will closely watch A-B to determine whether its new list of brands turns out to be an arsenal or just a confused jumble. There is clearly some market overlap between the brands, notably between Tiger Beer and Kirin and Grolsch and Stella Artois. But with the agreements in place, it’s hard not to be impressed with the range of the portfolio A-B can offer wholesalers and in turn the drinking public. In addition to the brands mentioned above, A-B now either controls or has a financial interest in the following beers: Corona Extra, Corona Light, Beck’s, Beck’s Light, Bass Pale Ale, Harbin Lager, Hoegaarden, and Leffe.
August Busch IV is right to be impressed with his newly assembled portfolio and the diversity of approaches the newly added beers will support. In his statement following the InBev announcement, Busch said that “[w]e live in a world with diverse cultures and lifestyles, and this provides additional variety for our consumers. These well-known import brands complement our company’s leading portfolio of American premium beers and enable our company to better compete. This is consistent with our stated strategy of enhancing our participation in the U.S. high-end beer segment.”
Anecdotally speaking, a recent vacation confirmed for me the power of the A-B portfolio. While in Florida, I visited several local accounts, ranging from regular taverns to upscale restaurants. A-B has long maintained a strong presence, if not control, over the flow of beer in the state, but this experience was different. At several spots, A-B’s local wholesalers were taking full advantage of the portfolio. In addition to the standard A-B offerings of Bud Light and Budweiser, consumers could try the brewery’s own better beer products, including Michelob AmberBock, choose its craft beer partners, including RedHook IPA or Widmer Hefeweizen, or sample an import beer, such as Kirin or Grolsch.
It’s easy to see how devastating this approach can be, especially in places where craft beer has yet to gain a true foothold. Local restaurants can simply rely upon A-B’s handful of products to cleanly cover all the major category angles. In terms of building a platform for running the American marketplace, A-B has achieved impressive strides in 2006 and early 2007.
–article first appeared in March 2007 issue of Beverage Magazine.