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If there is a single overriding lesson to be learned from just-drinks' analysis of Anheuser-Busch InBev's performance over the last five years, it is one more obvious than a pint of IPA at a Champagne tasting. Put bluntly, that lesson is: Global expansion + cost reduction = increased profitability.
What lessons can be learned from Carlos Brito's steering of Anheuser-Busch InBev over the last five years?
Of course, A-B InBev is the master of takeovers, having effected dozens of them, large and small, over the last two decades. So many businesses have been absorbed by the company, in fact, that it warrants breaking them into categories of large and small, or perhaps more precisely, international and national.
In the international group, the largest deal has obviously been SABMiller, the integration of which is still in motion after a year and a half. As per the just-drinks analysis, the takeover provided A-B InBev with a portfolio of over 500 brands, including "seven of the world's top ten and 18 that generate more than US$1bn a year each in retail sales".
In an increasingly-internationalised beer world, that's no small achievement.
That said, not all of those brands are in the greatest of health in all markets, so it's worth examining the company's actions during its post-acquisition periods. In the same fashion as Interbrew did following its merger with AmBev, and the resulting company InBev did following its takeovers of both Anheuser-Busch and Modelo, the focus of the post-SAB A-B InBev has been on cost-cutting, the now quite extended series of which, with one year's exception, has allowed the company to grow revenue disproportionately to volume.
In 2014, for example, volumes in the post-Modelo takeover period rose only 0.6%, whereas gross profits were up 7.9%, thanks in no small part to $730m in cost savings since the completion of the Modelo purchase a year earlier. It being a much larger company, the SAB takeover two years later provided A-B InBev with even more opportunities, with $262m in cost-cutting reported in the last three-quarters of 2016, despite the deal's completion in October of the same year. By the time all is said and done. the anticipated eventual total of synergies and cost savings has been set at $2.8bn.
On the smaller, more nationally-oriented side, A-B InBev has been equally active, with multiple acquisitions of craft breweries in the US, Canada, Mexico, the UK, Italy, Brazil, China and beyond.
The key to their handling of these purchases would appear to deliver a lesson in brewery management: Step one is to establish a unique division - The High End, in A-B InBev's case - to oversee smaller and more niche breweries separately. This recognition that breweries like Golden Road in the US, Camden Town in the UK and Birra Del Borgo in Italy require different handling than, say, Budweiser and Stella Artois, allowed The High End to contribute sales of $4.6bn in 2017.
On a more macro level, it makes sense for A-B InBev to be active pretty much everywhere where beer may be legally sold. This being the case, the markets the group has so far not particularly focused on is telling.
As noted in our look at the past five years for Carlsberg, Russia has been a particularly volatile market of late. It is interesting to note that A-B InBev has not been in any great rush to either strengthen or expand its position in the country. Indeed, as observed in the performance trends analysis for A-B InBev, the brewer has been helped significantly by operating principally in fairly steady and established regions, proving that stable markets can and do offer, well, stability.
Further, in markets that have wavered from time to time, A-B InBev has proved itself able to adjust in order to maintain revenue streams, even if sometimes that comes at the cost of volumes.
In China, where overall beer sales have been in decline for some time, the company has adjusted by appealing almost exclusively to consumers of premium and super-premium beers, thereby mining segments of the Chinese beer market that are still growing. In 2016 and 2017, this resulted in sales increases in the country of 2.5% and 7.3%, respectively, despite low or negative volume growth.
On the potentially negative side of things, the year 2016 - the lone exception to the cost-cutting success stories noted above - bears examination. In that year, which the company itself deemed disappointing, group sales were up by 2.4% while global volumes dropped 1.4%. (This is leaving aside the effects of the integration of SAB.) Even though A-B InBev's 'Big Three' brands - Budweiser, Stella Artois and Corona - appeared to buck the trend, posting combined growth of 6.5%, one has to wonder whether the year was an aberration or an omen.
Further to the Big Three scenario, in markets such as North America, Brazil and parts of Latin America and Europe, the company has compensated for declining volumes by increasing prices, a strategy that has so far managed to keep revenues up in most such regions. That said, when price points in markets such as Canada and the US begin to equal or even surpass those demanded by heavily-hyped and desired craft beer brands, one has to wonder if there is an end point approaching for this strategy.
Indeed, if that point is approaching, A-B InBev will need to demonstrate that even the world's largest brewer can be nimble enough to adjust on the fly to market situations.
Sectors: Beer & cider, Company results
Companies: Anheuser-Busch InBev, Carlsberg, Grupo Modelo, SABMiller
