Budweiser: Because You Deserve What Every Individual Should Enjoy Regularly

by Tony D'Altorio

Budweiser: Because You Deserve What Every Individual Should Enjoy Regularly

by Tony D'Altorio, Investment U Research

Friday, June 18, 2010

Anheuser-Busch InBev ADR (NYSE: BUD) controls about 22% of the global market. That makes it the world's biggest brewer.

Last month, the company reported better than expected first quarter profits. Earnings before interest, taxes, depreciation and amortization (EBITDA) rose 5.1% to $3.086 billion on a like-for-like basis.

But while that easily beat its earlier forecast, a closer look shows a less rosy picture...

Emerging markets carried all of that growth, plus some. Brazil especially helped with a 16% surge in beer sales. Meanwhile, volume actually declined in mature markets.

InBev CEO Carlos Brito admits to missing potential growth in the U.S. beer market. He also admits to missing signs for the current downturn in U.S. consumption... or the severity of its flagship Budweiser brand's waning popularity, for that matter.

To combat those shortcomings, the business has decided to focus on one key area. Dave Peacock, president of AB-InBev's U.S. operations, says, "Stabilizing Budweiser is so important to us."

True enough, but the question still remains whether they bring the business back or not.

Budweiser's Market Share

In 1988, the Budweiser beer brand's share of the U.S. market topped out at about 26%. But those sales then began a steady decline.

Anheuser-Busch did little to stop that trend over the years. It was too busy giving consumers the fewer calories they craved in the form of Bud Light, which more than made up for Budweiser's loss.

22 years ago, the fledgling Bud Light brand was just breaking through the 5% level. Yet by last year, it accounted for 19.3% according to Beer Marketer's Insights.

Meanwhile, Budweiser's market share fell to 9.3%, tanking nearly 10% in 2008 alone. So while the two brands are still the largest selling beers in the U.S., that could change.

Budweiser could easily fall into third place. After all, Coors Light managed to grow its sales slightly last year. It now claims 8.3% of the national beer market. And Miller Light isn't too much further behind with 7.7%.

Sure, in terms of overall beer market share, Anheuser-Busch InBev still looks pretty good. It has a 48.9% total share. Even MillerCoors, the joint venture between Molson Coors (NYSE: TAP) and SAB Miller ADR (OTC: SBMRY), only holds onto 29.5%.

But Budweiser's waning sales are still wearing down the bigger business. As Mr. Brito stated, the company has "to put a floor in it."

Make Mine a Budweiser, Please

Fortunately, BUD investors can say "Cheers" about the company's management at least.

The top-notch team skillfully handled a $52 billion mega-acquisition on the very eve of the global financial crisis. It also over-delivered on merger synergy savings and whittled away at the $54 billion debt mountain incurred from the acquisition.

InBev executives have also already shown their ability to grow sales and turn around slumping brands. It proved that much with Stella Artois in the UK. Previously, the beer's high alcohol content gave it a negative image of drunken rages.

But InBev designed a lower alcohol version followed by a slick marketing campaign. That sent sales rocketing up 130%, making it the fastest growing beer in the UK last year. Consequently, the company even has plans to roll out the brand here in the U.S.

Reviving Budweiser shouldn't be nearly as hard, and efforts have already begun. For the rest of the World Cup, consumers will see more of its ads than any other beer brand. The company created its "Budweiser United" marketing program just for the occasion.

Considering how soccer lags well behind football and baseball in popularity here in the States, reversing the slide in Budweiser's sales will take more than that. But AB-InBev is working on its core strategy for the turnaround.

It has already stated that certain elements of Bud's heritage are "non-negotiable." That includes its unique Beachwood aging process, red color and the Clydesdale horses.

Budweiser: A Classic Turnaround Story

Budweiser has a good shot of becoming what Mr. Peacock calls "a classic turnaround story, like Stella Artois in the UK."

The iconic brand already has several factors in its favor. For one, it can make huge efficiency gains by streamlining U.S. distribution. Currently, mostly third-party wholesalers control that industry.

Also, AB-InBev's exposure to emerging markets outstrips its peers. Its Brazilian branch, AmBev ADR (NYSE: ABV), has experienced strong growth already. And it has a decent chance of expanding its 50% stake in Grupo Modelo ADR (PINK: GPMCY), one of Mexico's two dominant brewers.

Over time, the bottle should still stop at Anheuser-Busch InBev. So investors should get set for a particularly strong brew.

Good investing,

Tony Daltorio

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