The increasing popularity of craft beer could prove to be an opportunity, rather than a threat, for Anheuser-Busch InBev (BUD, Financial). The company is now the biggest craft beer producer by volume in the U.S. following a number of acquisitions.
Alongside its growth potential in craft beer, the company’s marketing efforts have gained a boost from the World Cup and from a deal with the Major League Baseball Players Association. A restructuring and increased focus on efficiency could lead to improved margins, while innovative new products may help to lift the performance of slow-growing brands.
Having declined 33% in the last year versus a rise of 8% for the S&P 500, the stock appears to have recovery potential.
Innovation
A potential catalyst on the company’s financial performance is innovation and the release of new products. New varieties of the company’s core brands are proving popular among existing and new customers. For example, the release of products such as Budweiser Freedom Reserve and Bud Light Orange has helped to lift the performance of existing brands which have been struggling to deliver growth.
The company’s structure is changing in order to provide greater flexibility in responding to evolving customer tastes. It is bringing its marketing function and its venture capital arm that focuses on developing new products, ZX Ventures, under common leadership. This could help it to capitalize on new growth opportunities, while the creation of a Chief Non-Alcohol Beverages Officer position and a Chief Owned-Retail Officer job role could lead to greater innovation in future.
A restructuring could make the business increasingly efficient. It is simplifying its geographic structure by moving from nine to six management zones. It has also been able to deliver $2.5 billion in synergies since the acquisition of SABMiller. It anticipates that there will be a further $700 million of synergies from the deal that will be delivered before October 2020.
Focused strategy
While Budweiser and Bud Light are among the company’s biggest brands, its focus on a "premiumization" strategy has provided improved growth across its extensive portfolio of beer brands. It is aggressively promoting higher-priced and higher-margin products such as Michelob Ultra, which was the top share gainer in the U.S. market among all beer brands in the second quarter, as it seeks to maximize profitability and also diversify its income stream. The effect of this has been an increase in organic revenue of 4.7% in the previous quarter at a time when volume rose by 0.9%.
The company’s marketing strategy is also set to include more focused ads following a deal with the baseball union. It will allow current players to appear in the company’s beer adverts. This follows a successful World Cup advertising campaign, where the company was able to activate more than 40 of its local brands in over 40 markets.
Changing tastes
The performance of the company’s major beer brands is being negatively affected by the increasing trend of consumers moving to craft beer. Beer volume in the U.S. declined by 1% in 2017, while craft beer volume increased by 5%. Despite the number of brewpubs, microbreweries and regional brewers increasing from 2,898 in 2013 to 6,266 in 2017, brewers with less than 10,000 barrels capacity recorded a rise in volume of 30.8% in the first half of 2018. In contrast, brewers with over 1 million barrels of capacity recorded a fall in volume of 2.5% in the same time period.
In response to the growing popularity of craft beer, Anheuser-Busch InBev has acquired 12 craft breweries. When combined with its distribution network, this has allowed the company to become the biggest craft beer seller by revenue in the U.S. so far in 2018, suggesting that the company is capitalizing on changing consumer tastes. Although further acquisitions may be limited due to objections from craft beer trade groups and potentially from consumers who favor smaller producers, the company’s business model appears to be relatively flexible.
Outlook
Changing consumer tastes could present Anheuser-Busch InBev with a growth opportunity. Past acquisitions of craft breweries may catalyze its financial performance alongside improving efficiency and a reorganization. The company’s marketing efforts may also be boosted by the deal with the Major League Baseball Players Association, as well as the continued impact of the World Cup.
An increasingly innovative product line-up and a premiumization strategy could boost the company’s profitability. Greater efficiency as well as further synergies may also prompt a successful recovery. After underperforming the S&P 500 in the last year, a turnaround could be ahead.
Read more here:Â
Stocks That Fell to 3-Year Lows in the Week of Oct. 5Â
Stocks That Fell to 3-Year Lows in the Week of Aug. 10
Anheuser-Busch InBev Stock Falls 1.96% as Trade Wars Escalate
