The Top 5 Open Secrets about AB InBev

The AB InBev machine has secrets that they are obligated to share with you.

The outpouring of grief and drama every time AB InBev buys an independent craft brewer is starting to wear me out.  The internet just seems to explode with news articles, twitter feeds and conspiracy theories.  There just seems to be so much energy spent on trying to guess what they will do next and what their underlying strategy is.  This is a silly waste of time.

AB InBev is a publicly traded company.

They are traded on both the Brussels and New York stock exchanges and because of that they have an extreme and overpowering responsibility to publicly disclose financial results.  In the interest of full disclosure to shareholders they are also obligated to present their current/future strategies for growth, and it’s here that things get really interesting.

Corporations are like armies except that when they are publicly traded, the battle strategy is placed on a flashing billboard.

#5 Brand Strategy is broken down into geographic segmentsb05
Never heard of Skol beer?  Doesn’t matter,  it’s all the rage in Brazil.  The company is organized around 6 geographic zones in 25 countries.  This geographical diversity produces multiple revenue streams that allows them to offset the high operating expenses from one region from the fat profits from another.  Essentially Latin American consumers, and the revenue they produce, could be supporting the craft beer acquisition spree in the U.S.

#4 They are a money machine
A year over year (Q2/2014 to Q2/2015) comparison demonstrates that their long term corporate debt has increased from 43 to 44 Billion USD, while interest payments have dropped slightly.  Profit (EBITDA) is up from 5.0 to 5.3 on decreased revenue of  21.5 from 22.8 billion.  They are well run company.  They are selling less beer by volume which results in less revenue and still managing to make more money.

#3 SAB Miller has to happen
Companies, like countries, are either growing or dying. For AB InBev to grow they SABMiller.svgneed significant revenue growth.  They are attempting to appease shareholders with a 1 billion USD share buyback and increased dividend payouts.  These are very good to great starts but will not be sustainable without mergers and acquisitions.  Note however that not all revenue has to be from beer.  PepsiCo invested in fast food (KFC, Taco Bell) and Harley Davidson makes jackets and boots.  The AB InBev machine needs immediate growth, the SAB Miller purchase has to happen.

#2 They Fear Independent Craft Brewers
To their own admission, independent craft brewers can innovate faster than AB InBevtumblr_n6czvnsnFD1smswl1o1_1280.  Innovation is critical to survival for any organization, and our beer universe has changed dramatically in North America.  New beer varieties, packaging, seasonal brews are all things we take for granted perhaps but for a large behemoth like AB InBev it is daunting.  They are not good at rapid product change.  Why?  It goes against the grain of a large corporation to manage an operation with so much change, so much risk.  Remember, corporations are run by people with careers, families and bills to pay.  That’s why committees and focus groups are created.  The career risks associated with “wild ideas” and the decision whether to “run with them” are best relegated to someone or something else.  This corporate cowardice results in a risk averse governorship or severely slows down the innovation cycle.

I copied these “Weasel Words” from the AB InBev June 30, 2015 Interim Report
“Also, innovation faces inherent risks, and the new products AB InBev introduces may not be successful, while competitors may be able to respond more quickly to the emerging trends, such as the increasing consumer preference for “craft beers” produced by smaller microbreweries.

#1. They are “very pleased” to buy your local Craft Brewer
If your brewer has significant/growing market share and most important of all – if it has a distribution network then AB InBev has probably already analyzed your home team.

Goose Island Bourbon County Brand Stout - to some, the taste of Black Friday.
Goose Island Bourbon County Brand Stout – to some, the taste of Black Friday.

We can debate all day about the credibility of a particular craft beer after it has “sold out”.  Truth is, it will be difficult or impossible for innovation and quality to survive under complete AB InBev ownership.  The entrepreneurial culture is not compatible with corporate clown culture, just ask Ben or Jerry after Unilever bought them. No matter, the growth machine needs to buy craft brewers for their products, market share and distribution channels.  They simply can’t do it themselves.

More poetry from a June 30, 2015 AB Inbev presentation
 “Craft strategy is working – very pleased with the growth from our recent craft acquisitions “

So what should we do? Well, the AB InBev machine has to grow, but we can all do our part to support our local independent brewer.  At Sommbeer we celebrate all good beer no matter who makes it.  We do however hold a special place in our heart for those gems crafted by a skilled, risk taking and independent brewer.

 

Cheers my friends

David
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David

Founder at Sommbeer
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Faith, Family and Beer always in that order.
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