Anheuser-Busch InBev takes long-term view in US

Anheuser-Busch InBev takes long-term view in US

Anheuser-Busch InBev has said that it does not intend to close breweries in the US and is only part-way through a grand plan to refocus its beer business in the country.

Consumer demand for mainstream beer in the US remains in decline, amid high unemployment levels among young men. Today (9 November), Anheuser-Busch InBev said that volume sales of its beers to retailers in the US slipped by 2.2% for the nine months to the end of September. 

Budweiser has continued to lose market share in 2011, even though the rate of decline has slowed. A-B InBev's volumes outperformed those of its main rival, MillerCoors, but, for now, both companies are seeking to refocus their businesses on premium and super-premium beer. In terms of group volumes, success is currently judged on the rate of decline rather than the pace of growth. 

On A-B InBev's results conference call today, Bernstein analyst Trevor Stirling asked the brewer's CEO, Carlos Brito, at what point the firm would consider shutting breweries in the US. Right now, it appears that this is not part of the group's thinking. Brito said: "We're not closing breweries, we're reconfiguring some of the capacity footprint." 

A-B InBev has busied itself by shifting volume from this brewery to that, and Brito cited the recent decision to shunt one production line from Newark to St Louis as a classic example. "We've been very active trying to reshuffle and resize differetnt breweries," he told analysts today.

The other side of the coin for A-B InBev in the US is innovation and marketing. The group said today that its deal with the NFL looks to be translating directly into extra sales. Meanwhile, Brito told analysts that the firm has a stronger innovation pipeline with which to generate interest around its brands on a more regular basis.

When InBev acquired A-B in late 2008, Brito said, "the pipeline in the US was more geared towards big innvoation every three years like Bud Light Lime, but we also need more new news". 

Several analysts, while acknowledging A-B InBev's difficulties in the US, expect market conditions to improve in 2012. Sanford Bernstein said today that A-B InBev's results statement confirmed its thinking that, in 2012, the rate of volume decline in the US will slow, while price-mix will continue to be strong.

Brito said that he is not happy about A-B InBev losing market share in its core US market, but insisted that the group has a longer-term agenda to weight more of its sales in premium beer. When InBev arrived at A-B's door, Brito said that his opinion was: "We like the share position but we don't like the share composition."

Markets elsewhere in the world should help to relieve the pressure on A-B InBev moving into 2012. Brazil is a key market, but demand for beer has struggled there in 2011. A-B InBev expects momentum to improve next year once a 7.5% real terms increase in the national minimum wage goes through.

In addition, despite Budweiser's long-term sickness in the US, the brand is making inroads in many other markets, with global nine-month volumes up by 2.5%. A-B InBev reported growth for Budweiser in the UK, China and Russia and also has high hopes for it in Brazil, where the lager launched in the third quarter of this year. Around 40% of Budweiser volume sales now come from outside of the US.

Separately, there continue to be doubts about A-B InBev's commitment to Russia and Ukraine. These have become more pronounced due to turmoil on Russia's beer market and news that SABMiller and Anadolu Efes will combine their Russian operations, forcing A-B InBev's Sun InBev division into third spot on the market.  

Brito, though, left no doubt in the minds of conference call listeners. A-B InBev, he said, is "committed" to Russia and Ukraine. "We'll continue to fight to be the number two player in Russia," he said.

For the first nine months of 2011, higher pricing helped A-B InBev to increase global net sales by 4.2% on the same period of 2010, to US$29.2bn. Beer price rises also fed into operating profits, with normalised earnings before interest, tax, depreciation and amortisation (EBITDA) up by 5.9% to $16.55bn. So-called normalised net profits, which exclude currency swings and the impact of acquisitions and disposals, increased by 7.4% to $9.06bn.