Business

Anheuser-Busch's new strategy: sell more beer

Plans entail expanding customer base, acquisitions

Bloomberg

At Anheuser-Busch InBev, CEO Carlos Brito says, “efficiency was never an end in itself.”
Bloomberg At Anheuser-Busch InBev, CEO Carlos Brito says, “efficiency was never an end in itself.”

Anheuser-Busch InBev CEO Carlos Brito has a message for investors concerned about a repeat of Kraft Heinz’s financial meltdown last week — where ketchup went, beer won’t follow.

There are plenty of reasons to fear spreading problems. The two companies share board members and deploy the same cost-cutting mantra championed by private-equity firm 3G Capital.

And the Budweiser owner already had alarmed shareholders by cutting its dividend in October.

AB InBev eased some of those concerns Thursday when it reported earnings growth that trounced estimates, prompting a two-day stock rally.

The difference may run deeper — Brito said that while remaining fiscally prudent, he’s willing to invest in growth.

Shareholders aren’t telling AB InBev management, “Give us all the money you can in the form of dividends,” Brito said in an interview at the brewer’s headquarters in Leuven, Belgium.

“If you think about efficiency, the most efficient decision is to close down the company. Then costs go to zero,” he said. “But that’s not really why we’re here.”

In its results, AB InBev added a line to the outlook that suggests it’s distancing itself from Kraft Heinz’s bottom-line approach. Instead of just scything through overheads and raising prices to boost profit, it plans to ratchet up marketing spending in an effort to sell more beer.

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That would be a departure from the strategy of Jorge Paulo Lemann, AB InBev’s largest shareholder and a founding partner of 3G, which took over H.J. Heinz in 2013 with backing from Warren Buffett’s Berkshire Hathaway.

It later acquired Kraft Foods, combined the two companies and slashed costs to achieve industry-leading profit margins.

Last week’s $15.4 billion write-down on the value of assets such as the Kraft and Oscar Mayer brands, which prompted a 27 percent stock plunge, showed the limits of that strategy.

AB InBev previously pursued a similar recipe. Three decades of serial acquisitions, followed by extreme spending discipline, turned it into the world’s largest and most profitable brewer.

Yet the read-across from Kraft Heinz’s crash is limited, Brito said.

“Here, efficiency was never an end in itself,” he said. “It was a means to an end.”

The company’s shares have gained about 10 percent over the past two days, which “suggests increased investor confidence in AB InBev’s prospects, and perhaps greater appreciation of the important differences among 3G (Capital)-related companies,” Evercore analyst Robert Ottenstein wrote in a note to clients.

While running a tighter ship and taking aim at “nonworking money,” Brito said, the company remains committed to spending on innovation and marketing, including costly projects such as sponsoring World Cup soccer.

The company is stepping up efforts to court wine and spirit drinkers to beer, expanding a program it inherited when it acquired rival brewer SABMiller, under which it targets new types of customers.

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That includes pitching low-calorie Michelob Ultra to gym goers or non-alcoholic beer to lunchtime diners.

The focus on expanding the market for beer overall instead of pursuing further acquisitions contrasts with Kraft Heinz’s takeover thirst. Two years ago, Dove soap maker Unilever rebuffed an unsolicited $143 billion approach from the ketchup maker.

It’s also an acknowledgment that there’s not much left to buy for AB InBev, which already sells one-third of the world’s beer and had to make significant concessions to secure antitrust regulators’ approval for the SABMiller deal.

Under Brito, recent investments have focused on keeping AB InBev abreast of changing trends, rather than cost-cutting synergies.

The company has acquired about a dozen craft brewers in a bid to hire more entrepreneurial talent, is ramping up spending on technology and recently partnered with Tilray to research cannabis-infused beverages.

“I think we’re in a very different category,” Brito said. “It has its challenges, but compared to food and beverage, beer’s an amazing category.”

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