What's going on?
Anheuser-Busch InBev, the Belgian-based company that is the world’s biggest beer maker, announced on Monday that it will try to stem falling US beer sales by appointing a new head of its North American operations… gulp!
What does this mean?
The current head of North America is leaving after only two years in the role and will be replaced by an AB InBev veteran. The change comes after the company – brewer of Budweiser and Stella Artois – said recently that its US sales fell over 5% in its most recent quarter (versus a year ago).
The rise of craft breweries and the increasing popularity of imported Mexican beer have fermented problems for established beer brands like AB InBev’s. A general shift to wines and spirits is also to blame.
Why should I care?
For the market: Falling US sales is a big deal for AB InBev.
Last year, AB InBev acquired rival SABMiller in a $100 billion deal aimed at helping the company diversify away from the US and gain exposure to emerging markets. America remains, however, AB InBev’s biggest profit generator, accounting for more than a third of its profits. AB InBev says it will spend billions on reinvigorating growth in its top market – but it needs to make sure the benefits outweigh the costs.
The bigger picture: Buying competitors and cutting costs is, arguably, not a sustainable strategy.
Brazilian private equity firm 3G is AB InBev’s largest shareholder. It grew the company into the world’s biggest brewer via a series of huge acquisitions, including buying Anheuser-Busch in 2008. With each acquisition, 3G aggressively stripped out costs, thus boosting profit – a strategy it has employed with other companies like Kraft-Heinz and Burger King. The problem comes when all the extra costs have been stripped out and years of underinvestment in a product – like fairly bland beer – leaves a company without new ways to boost profits and vulnerable to innovative (e.g. craft-brewed) competition.