In late-February, Anheuser-Busch InBev released its full-year results for 2018. The group posted a 4.8% increase in sales on an organic basis from the 12 months, with volumes coming in flat.
Here, just-drinks considers AB InBev’s performance over the last five years.
Anheuser-Busch InBev Sales 2014-2018 – Reported
Over the past two decades, the business that is now called Anheuser-Busch InBev has been successively expanding and transforming itself: the reverse takeover of Interbrew by AmBev in 2004; the acquisition of Anheuser-Busch in 2008; buying Grupo Modelo in 2013; and, finally, the US$103bn purchase of SABMiller in 2015. That spending spree created a company – sometimes jokily referred to as Megabrew – with more than 500 beer brands, including seven out of the global top ten, and 18 that command more than $1bn a year in retail sales.
It looks like an impregnable position of dominance, but the challenges have, if anything, only increased in number over the past three or four years, not least because of the difficult macroeconomic environment AB InBev has to face in SAB’s backyard, the South African market.
Add in a stuttering US beer sector with rising costs, difficulties in other mature markets and tough trading conditions in Brazil and Argentina, and the company finds itself in arguably its most testing phase since the turn of the Millennium.
With such a large and diverse business empire, the future solutions will have to be many and varied, including the possible spin-off of some of its regional entities (starting in May with the proposed IPO of its Asia-Pacific operations), the continuation of the company’s ongoing premiumisation programme and – perhaps most fundamentally – the evolution of the AB InBev corporate culture, with the partial adoption of the philosophy of its most recent acquisition, SAB.
There is already evidence that the premiumisation strategy is gathering pace: 2018 revenues rose 4.8% to $54.62bn, even though volumes were essentially flat (up 0.3%); in the first quarter of 2019, that trend continued, with sales increasing 5.9% to $12.59bn and volumes up 1.3%.
Anheuser-Busch InBev Volumes 2014-2018 – Reported
Regional Performance Trends
Charting the long-term regional trends for AB InBev is problematic because the company keeps buying things, and then has to reorganise the way in which it reports the figures from its various geographies. Regions were revised following the SABMiller takeover, and have changed again in 2019.
That said, we can detect a steady rebalancing of revenue share from west to east. North America accounted for just over 37% of global sales in 2014, but that figure fell as low as 27.6% in 2017 before a mild recovery to 28.4% in 2018.
By contrast, Asia-Pacific’s sales scarcely made up more than 10% of the global total in 2014, but they have since risen consistently, reaching 15.5% in 2018. Meanwhile, the three LatAm regions have maintained a fairly constant collective share – gains in Mexico offsetting declines in Argentina and Brazil – while EMEA’s share has shrunk since 2016, not least because of the ongoing pain experienced in South Africa.
AB InBev’s most recent of full-year results, covering 2018, embody these longer-term trends. Revenues in North America were down 0.8%, reflecting a mainstream beer segment under continuing pressure and increased costs (rising aluminium prices and higher transportation costs). While the likes of Budweiser and Bud Light continue to wrestle with their rivals for share, ‘above core’ brands such as Michelob Ultra are faring altogether better – simultaneously giving the company a mainstream challenge and confirming the sense of its premiumisation strategy.
The group moved earlier than many of its rivals to trim costs in the US, announcing the shedding of about 300 jobs in September 2017 in craft and imports division The High End, after deciding that its structure had become too complex.
More recently, the company has become embroiled in a row with rival Molson Coors about the use of corn syrup in the latter’s brewing operations. When an AB InBev Superbowl ad poked fun, Molson Coors hit back strongly, accusing its larger rival of conflating corn syrup (used in brewing as a fermentation aid) with the high-fructose corn syrup blamed by many for contributing to the obesity crisis in the US. A lawsuit ensued and, while the row may soon blow over, many questioned the wisdom of AB InBev attacking its rival and potentially lowering the reputation of beer among US consumers when the sector is already ceding share to spirits.
Among the three Latin American regions, Mexico has been a standout in recent years, thanks largely to the performances of local beers Corona and Victoria. In 2018, the country was the biggest contributor to AB InBev’s volume and value growth.
Now, company CEO Carlos Brito is looking to build on that success, confirming in early-2019 the imminent opening of a $800m, 12m-hectolitre (with the scope to double that capacity) brewery in central Mexico. AB InBev is also eyeing the ending of retailer Oxxo’s exclusivity deal with rival Heineken in the country. Especially strong in the honeypot of Mexico City, Oxxo could open up new growth avenues for higher-priced beers such as Michelob and Stella Artois.
The company’s performance elsewhere in the region has been more patchy, in line with some unhelpful macroeconomic trends, particularly in the key destinations of Brazil and Argentina.
AB InBev’s global premiumisation efforts have found some success in the European markets that form part of its EMEA region, and the brewer has also been protected from the volatility of the Russian market by its apparent unwillingness to expand its operations there.
But, the group’s travails in Africa have been the main regional headline since its takeover of SAB. Revenues in South Africa were flat in 2018, but volumes were down in the mid-single digits – a trend that continued in the first quarter of 2019 amid shrinking margins. The key remains AB InBev’s determination to stick to its premiumisation strategy despite the impact on consumer spending power from South Africa’s continuing economic woes.
Historically, the business here has relied on low-priced brands such as Castle and Carling Black Label to preserve its dominance of the market (volume and value share in the high 80s in percentage terms). AB InBev would like to change this over-reliance on the lower end of the market, turning consumers on to the likes of Budweiser and Beck’s. Keeping its nerve and making the strategy work will be key to turning its fortunes around in South Africa.
Whatever the short-term challenges of AB InBev’s expanded operations in Africa, the company is also keen to focus on the longer-term potential of the continent, amid population and economic growth, and increasing urbanisation. In August 2018, the brewer said it expected Africa to contribute some 20% of its total global volume growth within ten years. Recent developments include the construction of a new brewery in Mozambique, announced in August 2018, and the launch of Budweiser in the high-potential market of Nigeria four months earlier.
AB InBev’s activities in Asia-Pacific over the past five years have been the closest thing to an outright success story, as CEO Brito’s “bet” on premiumisation on the previously volume-driven China market has paid off. In 2018, sales in the country rose 6.1%, with volumes up 2.1%. The brewer’s share in China also expanded, with positive trends continuing into the first quarter of 2019.
Attention is now shifting from China to other markets in South-East Asia.
The group’s much-trailed and anticipated announcement in May 2019 that it will seek a minority listing for its APAC business on the Hong Kong Stock Exchange raises all kinds of questions about the company’s future direction in the region. The proceeds are likely to be used to pay down some of the company’s considerable debt but, more interestingly, are also set to fund further regional growth and M&A activity, partially as a response to recent activity from rivals including Heineken (China Resource Enterprise tie-up in China), and Carlsberg (Habeco in Vietnam; Cambrew in Cambodia).
Speculation is rife on the precise detail: Will the company join forces with Thaibev in running Sabeco in Vietnam in return for an equity stake? Or will it do a similar deal with Kirin to target San Miguel in the Philippines? The result will be key to AB InBev’s likely plans to repeat its China premiumisation success story elsewhere in the region.
Brand Performance & Development Trends
Amid all the talk of premiumisation efforts and the snapping up of a formidable roster of craft beer brands around the world, AB InBev’s trio of global giants – Budweiser, Stella Artois and Corona – continue to be the main drivers of growth. The threesome grew their collective sales by 9% in 2018, continuing a long-term trend. With Budweiser continuing to launch in new markets such as Nigeria, and Stella eyeing new opportunities in Mexico, there could well be more to come.
Corona’s momentum since the acquisition of Grupo Modelo in 2013 has been relentless, but CEO Brito is keen to highlight the brand’s relatively-undeveloped global potential, with market share remaining below 1% in most markets outside Mexico.
AB InBev’s reaction to the craft beer threat has been to cherry-pick an array of acquisitions in the US and beyond, beginning with a state-by-state series of buys from Washington and Oregon to California and Texas, then graduating to similar purchases in South Korea, Mexico, Canada, Colombia, Brazil and the UK. The establishment of The High-End division in the US to handle these craft brands reflects an adaptive approach that recognises their distinctive needs, compared to the powerhouse names like Bud and Stella.
AB InBev also holds a 31.6% stake in Craft Brew Alliance as a result of a 2016 deal between the two companies. But, there is now pressure for a sale of CBA following the Boston Beer Co/Dogfish Head merger in mid-2019. With AB InBev’s buy-out option set to expire in August 2019, will the group buy CBA outright – or walk away?
The company has so far maintained a conservative, cautious approach with regard to the potential for cannabis in the beverage sector, deterred somewhat by the complex and evolving legal picture on both sides of the US/Canada border. But, the company stepped off the fence to some extent in December 2018, when its Canadian subsidiary Labatt signed up for a $100m research partnership with Tilray to explore the potential for non-alcoholic THC and CBD beverage products.
That’s a toe in the water compared to Constellation Brands’ $4.2bn investment in the nascent category, with Brito signalling his continued caution in early-2019, hinting that the impact of cannabis on beer sales may not be all it seems.
The aftermath of the SAB acquisition – with all the unforeseen challenges that it has brought – signalled a new phase for AB InBev, one where the focus was more on reducing its debt burden and closing small, strategic deals, such as UK e-commerce business Atom Group and US beer rating website Ratebeer.
Between 2001 and 2015, AB InBev’s share price quadrupled in value; since buying SAB, however, that price has almost halved. With debt levels still high, analysts have signalled their desire to see stability, rather than another game-changing acquisition. The deceptively-simple corporate model employed to date has been: buy, reap synergies, reduce cost and drive efficiencies (ZBB or Zero Based Budgeting is a favourite tool), keep targets and bonuses stretched to drive short-term performance (which then translates into long-term performance).
Could that philosophy be undergoing a subtle change?
While few observers doubt AB InBev’s flair at turning a deal, the company’s brand-building competence and ability to drive organic growth have been explicitly questioned, with some suggesting that its corporate culture stifles the kind of creativity and long-term thinking needed to build credible brands with durable equity. But, Brito has spoken of an unexpected synergy that came with the SAB purchase – intellectual synergy. SAB’s previously unimplemented Category Expansion Framework had been designed to drive the long-term expansion of the beer sector as the company – and its consumers – continued to evolve. Targeting growth in areas such as premium, flavoured and other beer, the programme was a necessity for SAB, given its dominance of the local South African market, but has now been adopted by AB InBev on a global basis.
Could this introduction address concerns over short-termism and brand-building shortcomings? The future experience in South Africa provided macroeconomic challenges can be overcome, could give us the answer.
The other key battlefield in the months and years ahead for AB InBev is on the other side of the world, in South-East Asia. As the company prepares to float part of its regional business, and plots what to do with the cash, could it provide a template for other parts of the group’s global empire? Might Africa, in the longer term, also benefit from this approach?
AB InBev is unrecognisable today from the disparate strands of the company pursuing their individual strategies in the pre-consolidation days before the Millennium. It’s just as likely that a very different AB InBev will emerge from the changing times of the next decade or more.