Good Beer Hunting

Bear Market for an Eagle — AB InBev Hits a New Low Amid Poor Sales, Unclear Direction


As the year lurches toward its end, 2018 is shaping up to be another particularly difficult one in the U.S. for the world’s largest brewer. This fall has offered changes and setbacks for Anheuser-Busch InBev, culminating most recently with its third quarter results that showed 2018 revenues down 1.4%, sales to retailers decreased by 2.6%, and sales to wholesalers experiencing a 3.4% drop. These numbers coincide with a stock price that has declined bout 40% over the last 52 weeks. And this all came about at the same time the multinational conglomerate announced it was cutting stockholder dividends in half. The company’s stock just recently hit a five-year low, and debt had reached $109 billion.

When sharing Q3 results, AB InBev CEO Carlos Brito said the company would work to reverse these trends through a dedication to five commercial pillars, including an effort to stabilize mainstream Lager brands, the largest source of production and volume for the company.

That’s easier said than done, of course, as those beers in particular have seen flat or declining growth for years. Bud Light, far and away the best-selling beer in America, lost 8.4% of off-premise volume from 2013-2017 in IRI-tracked grocery, convenience, and other stores. Budweiser was down 12.6% and Natural Light declined 11.1%. In most cases, a successful year is now one that minimizes volume loss year-to-year. Busch Ice has been a lone bright spot among these “mainstream” Lagers, growing 53% in IRI sales over the same five-year period, though the brand has flattened in 2018.

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The idea of reversing these trends may sound great, but AB InBev’s problem is representative of a larger issue with the light beer category. Case sales have declined an average of 3.1% from 2014-2017 and market share fell from 44.5% in 2016 to 43.7% last year. The problem sits outside Lager and light beer, too. When comparing the first three quarters of 2018 to the same timeframe in 2017, AB InBev’s portfolio of brands was down 2.2% in IRI stores.

So, what is a multinational conglomerate to do? Aside from the generational success of Michelob Ultra, it’s been hard for AB InBev to get a win.

According to one report from New Zealand’s Business Live, global aspirations may finally include cannabis. In an interview with an unnamed spokesperson, the outlet reported that prospects in the U.S. and Canada are being closely monitored. Marijuana just became legalized in Canada this year. If and when AB InBev gets involved, they’ll be notably late to the party. Constellation Brands began its investment last year. MillerCoors is developing pot-infused drinks. So is Heineken, though its ownership of Lagunitas. Diageo is preparing its own entry into the market.

The late arrival of AB InBev into cannabis was one of the actions lamented to GBH in a recent report about changes within the company’s “disruptive” investment arm, ZX Ventures. In that story, sources described to GBH a culture that made innovation and high-risk speculation difficult, effectively neutering the originally-stated purpose of the venture capitalist-like section of the company.

This ties back to several generic, c-suite-sounding goals mentioned by Brito as the “pillars” his company would use to reinvigorate growth, which include “building winning brands” through connections with customers and leading through innovation. What that means, exactly, is purposefully open-ended, especially as ZX has been shifted into a role to more directly support AB InBev’s brands.

“It’s now a disruptive arm for the parent company,” a former employee told GBH. “The idea of putting a lot of money into something you think won't really hit for three or four years and will be really huge is not something they have the appetite for.”

While not tied to an effort of boosting poor Lager sales, one move still on the table is the eventual acquisition of Craft Brew Alliance. After a judgment at the end of October allowed AB InBev to formally complete its purchase of SABMiller, the financial and legal opportunities for the company to once again get into M&A with breweries resurfaced. In its coverage of the story, Brewbound reported that industry insiders “believe the company could once again become a more active dealmaker for both breweries and distributors.”

AB InBev already owns a 31.4% stake in CBA, which maintains a collection of eight beer and cider companies, but also has the exclusive right to purchase remaining shares through August 2019. Not only does AB InBev have an attractive purchase price locked in through next summer, but an agreement requires AB InBev to pay Craft Brew Alliance $20 million for international distribution and an additional $5 or $6 million for "international royalty payment."

“For a parent company notoriously fickle about spending and creation of profit, the idea of spending millions beyond an already agreed upon contract may not be the most palatable move,” GBH reported last month. That move could come at a time when AB InBev's High End division has struggled to find success. By IRI-tracked off-premise numbers, volume growth has essentially gone flat for the totality of the craft brands, though those figures don’t include the sizable draft presence that beers from Elysian, Golden Road, Goose Island, and others have nationwide.

It’s all has created an awkward song and dance that has seemingly become an annual refrain from the world’s largest brewer: sales numbers by dollars look good thanks to normal price hikes, but volume in the U.S. continues to be a problem. As a pivotal part of AB InBev’s global strategy, the modern American market simply continues to be something of an enigma.

As numbers and stock price continue to trend downward, the change of calendar from 2018 to 2019 offers yet another attempt to reset. Whether AB InBev’s New Year’s resolutions actually pay off is an entirely different proposition.

—Bryan Roth