All said and done, $46bn isn’t a lot of money to offer for what was, until quite recently, the world’s biggest brewer: it’s just a tad more than Microsoft bid for ailing internet portal Yahoo, before walking away in a huff.
But then, Anheuser-Busch – maker of Budweiser and Bud Lite – isn’t what it was, and nor for that matter is the beer market it serves. Just when innovative thinking and energy are at a premium in a stagnant market, it has allowed itself to slip behind, to third position.
There are a number of reasons for this, none of them particularly good ones. AB has global brands only in name: overwhelmingly, its formidable firepower is concentrated in the US market, where growth and therefore margin growth is sluggish. A solution, explored with reasonable success by the likes of InBev, SABMiller and Heineken, has been to embark on a round of global consolidation. Belgian-based InBev, for example, has experienced a reverse takeover by Brazilian-based AmBev. Heineken has engaged with Carlsberg in a break-up of Scottish and Newcastle. South African Breweries has, of course, got together with the US’ second largest brewer, Miller, and latterly Molson Coors. The driving force behind this activity has not only been economy of scale, but a scramble, directly and indirectly, for the only real growth markets – developing countries.
All this has left A-B floundering. Its mild, slightly insipid-tasting brands – rather like Hershey’s chocolate – suit American palettes just fine but experience trouble in travelling abroad. The UK, where Bud – despite long penetration and substantial spend and distribution – is still a fairly minor player, is a case in point.
Appearing to realise that organic expansion overseas was a forlorn hope, A-B has latterly been linked as a bit- part player in the international takeover drama. It was, for example, rumoured to be dabbling in the Scottish & Newcastle break-up; presumably with a view to seizing the BBH subsidiary, which enjoys an enviable position within the growth markets of Eastern Europe.
But the interest seemed half-hearted, and therein lies another flaw in A-B’s nature. While not exactly a family-owned enterprise, it is certainly family-controlled. Five generations of Buschs have created a company fiercely proud of its paternalistic traditions. And correspondingly unwilling to jeopardise those traditions by engaging in over-size merger operations that might skew control of the company.
It’s tempting to draw a parallel with another American icon, the Wall Street Journal, which until recently was controlled by the Bancroft family. US Family-controlled businesses simply don’t seem to do global expansion very well these days, unless they happen to be headed by Rupert Murdoch (and he’s only technically American anyway).
All this, of course, makes A-B an extremely interesting target acquisition for InBev, a company whose culture could not be more different if it tried. InBev is aggressive, cosmopolitan and expansionist where A-B is cautious, folksy and paternalistic. Unlike A-B, it has a thought-out global strategy, which has got it to where it is today: number one.
But there are many things it does not have, which it covets in A-B. Unrivalled market share and distribution in the US of course, not to mention the 50% stake in Mexico-based Modelo (whose Corona brand is the top-selling foreign lager in the US) and a 29% stake in China’s top brewery, Tsingtao.
The boys from Brazil
And then there’s A-B’s enviable commitment to, and understanding of, branding. If only the same could be said of InBev, which is all about cost-cutting and achieving ‘efficiencies’. InBev has given a new meaning to lean management which is aptly summed up by its bullish Brazilian chief executive, Carlos Brito: “We say the leaner the business, the more money we will have at the end of the year to share. I don’t have an office. I share my table with my vice-presidents. I sit with my marketing guy to my left, my sales guy to my right, my finance guy in front of me.”
God Almighty, the Busch patriarchs may exclaim, as they survey A-B’s bleak future under InBev control. And for good reason. The InBev boys may be good at cost-cutting, but their connoisseurship of brands is, to say the least, a little shaky.
Look no further than Stella Artois. All right, Stella’s Jekyll and Hyde personality as a brand is not the exclusive responsibility of its present management. Its positioning as the UK top premium lager has always been covertly threatened by the Mr Hyde persona of “Wife Beater”. But only over the past three years (since Interbrew became InBev) has Mr Hyde truly gained control, threatening to entirely undermine the brand’s premium positioning.
There are, of course, mitigating circumstances. The UK beer market is very tough, making discounting an attractive option – especially for the supermarkets, which now control distribution in the majority of the market. All the same, InBev has connived in undermining Stella’s premium status, preferring the steady flow of profits to long-term brand integrity.
Some would go further. Pointing to Beck’s Vier and the specialist Artois brands like Artois Bock, they assert that InBev has effectively conceded Stella is now no better than a mass-market, session brew.
If so, that raises some interesting questions about Bud, Bud Light and Michelob, should they ever enter Interbrew’s portfolio. Budweiser may like to see itself as the King of Beers, but in the UK at least, it is a roi fainéant that has failed to exert any proper authority, despite extravagant expenditure on the brand. People may love the advertising, but they spurn the insipid rice-brewed beer and Americana that goes with it.
So, what we have here are two premium poseurs that in reality are middle-market beers. I wonder how InBev’s UK management will juggle that portfolio.