Why Budweiser Is No Longer The King Of Beer

Budweiser Bud Light Modelo Corona some of the biggest names in beer all owned by the same company Anheuser-Busch inbev ABN Bev is the world's largest Brewer with 500 brands in over 100 countries it holds about 40 percent of global market share and a market cap of 88.6 billion dollars our portfolio continues to evolve as consumers preferences they evolve and we are leading Innovation across most of our markets but American consumers have changed their drinking habits and total consumption of beer has dropped 30 percent over more than four decades as a result ABI has shifted its strategy towards premiumization and profit prioritization focusing on expanding into new beverage categories other than simply just beer between 2011 and 2021 ABI and Molson cores the two leading Brewers in the space experienced a combined 17 drop in U.S market share beer industry resilient gaining share of throat globally our performance is very good 60 percent of our markets growing volume not only revenues but growing volumes and beer premonizing for the first time in 33 years ABI decided not to renew its Super Bowl ad rights in alcohol for 2023 and some analysts think the decision may be related to the company's biggest brands Budweiser and Bud Lights lagging performance a telling indication of the company's shifting Focus ab and Bev brought in 54.3 billion US dollars in Revenue in 2021 but with the onset of a craft beer Revolution overall beer volume share declining and now inflation a looming threat the company born from a series of massive billion dollar Acquisitions has grown enormously from beer to the largest in beverage and perhaps at the expense of the beer industry and its original heritage before it became the Behemoth it is today ab and Bev began as lefa a beer brand based in Belgium in 1860 Eberhard Anheuser and Adolphus Bush both Pioneers in the Beer World partnered to form the Anheuser-Busch Brewing Association so even in the 1890s already the company known as Anheuser-Busch was already a very hard ball dominant player in what was called the shipping business trying to ship be beyond your own local market it was located in St Louis but he had aspirations to ship beer to everywhere in the world the company's aggregated acronym ABN Bev is itself a mashup of several individual company names the results of a flurry of Acquisitions and mergers in a 160-year span a b is Anheuser-Busch inbev stands for interbrew and ambev the latter two merged in 2004 before acquiring Anheuser-Busch in 2008. it grew even larger with its 2016 acquisition of Sab Miller to date the company is home to the largest and most recognizable brands in the world in the U.S market which represents one-eighth of the company's business Budweiser is known as the king of beers with Bud Light being an equally recognizable successor so bud and Bud Light both have storied roles in the history of American brewing and they are both still the king killers in the market ab and Bev built that reputation on the back of its long-standing presence as an American Beer that survived even through the prohibition and grew its marketing to symbolize American life and culture the brand even temporarily changed its name in 2016 to America Budweiser's marketing has been historically aggressive and ABN Bev has poured Millions into ad campaigns largely heralded by its dominance of the Super Bowl the televised sporting event is the advertising industry's foremost time of year and the most expensive prices for 30-second ad spots average six and a half million dollars and Budweiser and Bud Light are some of the biggest Spenders it's estimated the company spent about 50 million dollars for the 2019 season Bud Light is still the number one brand in this country and most people find that very hard to accept even though people talk about it as a dying brand it's still the largest brand that we have in the U.S beer industry today and it's been that way for for decades in the last several years however Budweiser has lost favoritism over the crowd and ABI is seeing much better growth elsewhere the beer industry is controlled by three companies ABI Molson cores and constellation that means the Beer Market is dominated by the big guys hardly a new narrative in American capitalism but it does mean tension especially in the industry's current climate of shrinking consumption a move to Premium Plus beers or craft product output alongside categorical expansion and alcoholic beverages as a whole now today it's doing what every company in the beverage industry is doing because you really cannot think of Brewing as a separate business anymore it is simply part of the beverage industry and so it is picking up Beverages and beverage fads and just as fast as it can despite an aggressive acquisition strategy ab and Bev's total sales volume of 83.8 million Barrels in 2020 is less than what it was 40 years ago but total sales have increased in other words fewer cans but more expensive cans so what does this mean in the last several years the beer industry has seen its growth slow as early as the 1980s we sell about 200 million barrels of beer a year in the United States and that's been relatively constant even as the U.S population has grown and so beer has moved from about 60 share of the U.S beverage alcohol Market to now dropping below 45 share in the last year or so as for what it means for ABI cost cutting measures and spending redirection have become strategic Staples a reverberation of its prominent leadership not many consumers have heard of 3G Capital it's a Brazilian American Investment firm which owns and operates some of the largest conglomerates in companies in the world including Burger King and craft Heights along with some of the world's largest Brewers Brazilian Rama interbrew and Sab Mueller it was the force behind the interbrew and ambev deal that led to a b and Bev itself Carlos Britto was CEO of ABI from 2008 to 2021. 3G capital is notorious and at times controversial for its aggressive cost-cutting tactics zero-based budgeting is a core philosophy and it's why ABI has prioritized profitability and price per barrel versus volume share when inbev came in their immediate goal was to just simply clean out the fat of which again there was a lot of fat and naturally that rankled people who'd been there for years there were a lot of layoffs more tension for the first time the people of St Louis felt as if it was not their company anymore you know certainly beer share loss puts pressure on you know everyone in the beer industry you know there's only so many shelves so many trucks and when you have an infrastructure that is losing to another industry that's going to cause challenges for everyone you know in terms of what retailers or Distributors focus on um so you know while this may be good business decision for some of the companies it pressure on the industry as a whole to you know find ways to maintain a system that was built when you know beer had 60 share and now has a much lower share point than it once did profitability also took priority partly due to a hefty debt load of 123 billion dollars the company accrued after the Sab Miller deal reducing that debt is crucial the company's strategies have been working insofar as its interest in profitability is concerned it's Q3 2022 earnings reflected a 12.1 percent increase in total revenue from Q3 the year prior even as it sells beer at higher prices the shrinkage of beer albeit slow continues into 2022 with increased interest in spirits and other categories that are gaining market share hiking prices of beer are partly to blame which has been famously driven by Anheuser-Busch you go back 20 or 30 years and beer costs now controlling for inflation about what it did a few decades ago in contrast hard liquor has gotten a lot cheaper so you know if we started a point in the mid 90s and looked today the hard liquor is about 25 percent cheaper relative to beer than it was and that means some percentage of Beverage alcohol drinkers are going to shift their consumption based on price while Abi's overall revenue and growth have fared well this year its stock has been steadily declining since 2016. raising concerns from investors about the long term so Abi's reputation is deep seated and Global reach spans far and wide and in an industry that's seen many changes in the last two decades that means constant adaptation it has also poured a whopping 5 million dollars in lobbying efforts in 2021 alone company has done a remarkable job I think of maintaining its Stranglehold on beer Trekkers in the United States and I don't mean that there are no choices I there are something like 9 000 breweries in the U.S they are the dominant players and the the con the convoluted distribution stream that is mandated partly by federal but also by state law they're kind of the thugs in the room and I they'll never go away that's just who they are in 2017 the company responded with a new segment in its business Beyond beer in order to officially penetrate categories beyond the one it got its start in when craft beer began Rising ABI acquired craft brew Alliance among others in 2019 and created a craft business unit when Celsius grew popular it launched Bud Light Seltzer and acquired Rita's neutral and kombucha we are here to offer consumers in different occasions something so they can stay with us in our portfolio that's we're in business for and Cocktails were the fastest growing Spirits category in 2021 with 1.6 billion dollars in revenue and U.S sales volume of craft beer increased 7.9 percent this same year even the non-alcoholic category has risen 0 alcohol by volume beer boasts a market value of 328.6 million dollars up 19.5 percent from August 2021 ABI in Molson cores have lost a combined 17 percent of market share since 2011. indicating the growing footprint of these other categories beer really used to dominate the youngest legal drinking age categories so 21 to 34 and we've seen with the Millennials and and kind of coming up next gen Z that that hasn't really been the case Abi's roots are in beer but time competition a fierce cost cutting strategy and sweeping industry shifts have driven it to evolve from beer to beverages intentions have risen between small independent Brewers and big beer brands if you're a beer maker in the United States they're your worst enemy because they completely dominate The District the very complicated distribution chain for beer the most recent marked change for Abi's business is the retraction of its Super Bowl ad rights and alcohol a foothold of 33 years prior ABI has not officially stated why but some analysts believe it's an indication of the company's desire to expand its footprint elsewhere and constantly evaluate higher growth opportunities while consumers are shifting towards premium Brands ABI has been able to meet those changes in 2021 it saw growth across multiple premium labels Michelob Ultra has performed in the double digits and Stella Artois grew by seven percent in Q3 2022 trading up is this effort on the part of Brewers to get people from lower price sub premium beers into higher premium prices and it's worked brilliantly that all begs the question what are anheuser's iconic Brands like Budweiser and Bud Light meant to become as they lose popularity are they to keep their accessible inexpensive Heritage or is it time to modernize it's a question ABI has grappled with as early as 2018. recently the company has seen better growth for those brands in the international market where they have curiously taken on a more premium Persona than their domestic Brethren Budweiser grew by 8.9 percent in China its largest market in Q3 this year altogether while volumes have slowly declined industry experts insist ABI and the Beer Market are not going anywhere anytime soon though competition has gotten fiercer Abi's margins have only gotten larger in the last several years it powerful indication of its size and influence on the market as a whole I do think that people should think about Brewing not so much as a separate business but as a as a player in a brutal very competitive larger beverage business

Channel: CNBC

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Keywords: CNBC, CNBC original, business, business news, finance, financial news, news station, money, money management, markets, stocks, brand, health, setbacks, groceries, food, bud light, budweiser commercial, craft beer, bud light commercial, budweiser, anheuser busch, king of beer, cheap bear, craft beer and brewing, craft beer vs normal beer

Id: Q1ATjEgjcnA

Length: 13min 56sec (836 seconds)

Published: Tue Nov 29 2022