Beer strategic review 2003 - Just Drinks
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Beer strategic review 2003

11 Mar 2003

The world’s top brewers are facing tough questions over the need to continue delivering growth in an on-going global downturn. Over the coming weeks Chris Brook-Carter, in conjunction with leading beverage analyst Canadean, will examine the options open to the world’s key players. This week we investigate Interbrew and Anheuser-Busch.

The world’s top brewers are facing tough questions over the need to continue delivering growth in an on-going global downturn. Over the coming weeks Chris Brook-Carter, in conjunction with leading beverage analyst Canadean, will examine the options open to the world’s key players. This week we investigate Interbrew and Anheuser-Busch.


Interbrew
nterbrew clings proudly to its self appointed title as the world’s local brewer – “local core brands are at the heart of a beer business,” it says – and its strategy remains to focus marketing efforts on key local brands worldwide, as well as acquiring leading brewers and developing Stella Artois, its flagship brand.


The company has continued to seek out acquisitions in the past two years, both major and minor, in markets that it wishes to build a foundation for future development. Canadean, in its Beer Strategic Review 2003, says the company has been keen to foster a balance between growth in developed and emerging markets. And says: “In the last couple of years there has been a swing towards the mature markets; in 2000 the ratio between the mature and emerging markets was 57:43, whilst in 2001 it was 61:39.”


In an ideal world Interbrew seeks to be either the number one or number two beer operator in each of the markets it functions in and Canadean says: “On the whole, this strategy appears to be working well, indeed Canadean and many beverage analysts alike believe that it reflects an advantageous risk/growth profile.”


In developed markets Interbrew is well set in the UK – with both Beck’s and Stella in the fast-growing premium category – and has also entered Spain in February last year through an agreement with Mahou San Miguel for a 12.6% stake in Damm. In the US, its position is expected to improve as its Canadian, Mexican and Belgian imports do well.


Meanwhile in developing markets, Interbrew is dedicated to growing its operations in Central and Eastern Europe, and despite low consumer purchasing power, profits in the medium term look healthy. “Interbrew will be keen to maintain the strong growth reflected in the Czech Republic and Croatia, and similarly concerned with improving fortunes in Romania and Bulgaria,” says Canadean.


Having said all that there are concerns about Interbrew’s strategic direction. The company has come under fire in the past for over-paying for its acquisitions. Most recently its share price fell following rumours of a bid for the Italian beer maker Peroni. And, as Canadean points out, the company is sensitive to criticism that it overpaid for its acquisition of Beck’s.


There also seems to be some confusion still about how Beck’s will sit in the Interbrew portfolio. Canadean asks: “Has Interbrew lost faith in Stella? Analysts believe it is hedging its bets with the Beck’s brand.


“A new strategy will have to be formulated so that the two premium brands do not cannibalise each other.”


That said, the Beck’s acquisition has added considerable weight to operating profits and with the world’s premium beer market set to grow, Interbrew stands to gain well with both Interbrew and Stella under its control. Indeed, Canadean questions whether the company’s local brewer approach is set to last, asking whether the local brands provide the sort of returns demanded by shareholders. “Would margins be improved if Interbrew now concentrated on selling their premium beers in more markets with which they are familiar? They would then move away from being “the world’s local brewer”.


Anheuser-Busch
Anheuser-Busch’s vision is to be “the world’s beer company”, “to enrich and entertain a global audience” and to provide “superior returns to shareholders”.  And all the indications are that the last 12 months have been another successful period in the company’s history. Indeed, in February this year it reported its 17th consecutive quarter of double-digit growth, an impressive achievement for any drinks company in the present economic environment. In doing so it also recorded record sales and earnings for both the fourth quarter and full year 2002.


Its strategy differs according to the market it is operating in. Domestically though its centers around three approaches: to grow market share through increased focus in profit per barrel; to focus on cost control; and to sharpen its wholesaler focus. Internationally it aims at areas of the world that have “significant profit potential” and to do this it has sought investment in leading brewers with growth potential as well as building the Budweiser brand.


“Throughout International markets A-B’s strategy continues to be one of expansion into those most profitable markets. It seeks instant high volume growth, via local brewing (either fully-owned or contract brewing), with pricing strategies designed to achieve the overall objective,” says Canadean in its report.


At home, the domestic beer segment performed particularly well. Net sales increased by 5.7% for the year while profits increased 9.3%. Domestic beer revenue per barrel grew 3.5%, reflecting the continued favourable pricing environment and the introductions of Michelob ULTRA and Bacardi Silver, the company’s RTD brand.


Abroad, A-B has been keen to increase its presence in South America, as market growth conditions are favourable (appropriate demographics, growing economies, low per capita rates and high consumer perception of US brands). It has teamed up with CCU in Chile, whilst already operating with this company in Argentina. This modus operandi has also been reflected in China, teaming up with the nation’s largest brewery Tsingtao to form a strategic partnership.


In fact, the international results were strong in 2002, with net income for the international beer segment up 32.5% in the fourth quarter, driven by the performance of the company’s Mexican operation Grupo Modelo.


The company’s strategy hinges on the success of it core brand Budweiser. “The Budweiser brand is key to growing international markets whilst its significant marketing spend coupled with dedicated sales teams are a clear indication of this strategy. A-B does make it clear, however, that it does not intend to flood every market with Budweiser, it therefore carefully chooses its target markets,” says Canadean.


But this reliance on the one brand for growth does pose problems. “It is suggested that due to the consolidated environment of the international market, A-B will have to invest heavily to achieve its primary vision – its marketing budget is not a bottom-less pit,” Canadean points out.


The report goes on to ask if the proceeds from the sale of a theme park could not have been ploughed back into the beer division, which, it argues, may have been more beneficial in terms of profit generation than investing it behind its “secondary” business division.


Furthermore there are doubts as to why the company continues to invest so heavily in the UK when its strategy is to invest in growth markets. “This does not quite fit its international strategy as the UK beer market has been in a state of saturation for some time.”


The international development of Budweiser has also been seriously hindered by the on-going trademark dispute with the Czech brewer Budejovicky Budvar. “Resolution of its legal dispute with Budejovicky Budvar should become a priority as international brand presence has already been significantly diluted over the years,” says Canadean.


It goes on: “This should drive international profits further, and generate a more consistent brand message across the globe. This will help marketing teams develop international strategies that can be distributed across markets, generating greater economies of scale (important given the state of the industry), which in turn can be ploughed back into brand investment.”


Finally the merger of SAB and Miller Brewing to form SABMiller last year, opens up a new challenge to Anheuser as it must now also be ready to fight for market share at home as well as developing itself overseas.