Advertisement
New Zealand markets closed
  • NZX 50

    12,105.29
    +94.63 (+0.79%)
     
  • NZD/USD

    0.5980
    -0.0025 (-0.42%)
     
  • NZD/EUR

    0.5531
    -0.0012 (-0.21%)
     
  • ALL ORDS

    8,153.70
    +80.10 (+0.99%)
     
  • ASX 200

    7,896.90
    +77.30 (+0.99%)
     
  • OIL

    82.43
    +1.08 (+1.33%)
     
  • GOLD

    2,227.90
    +15.20 (+0.69%)
     
  • NASDAQ

    18,264.00
    -16.84 (-0.09%)
     
  • FTSE

    7,960.93
    +28.95 (+0.36%)
     
  • Dow Jones

    39,767.38
    +7.30 (+0.02%)
     
  • DAX

    18,498.74
    +21.65 (+0.12%)
     
  • Hang Seng

    16,541.42
    +148.58 (+0.91%)
     
  • NIKKEI 225

    40,168.07
    -594.66 (-1.46%)
     
  • NZD/JPY

    90.3900
    -0.3900 (-0.43%)
     

Don't Count AB InBev's Budweiser Out Just Yet

You may think craft beer is where it's at, but if you ask AB InBev (NYSE: BUD), its three global beer brands (the most prominent of which is Budweiser) are doing just fine.

While it owns over 500 brands, megabrewer AB InBev has three global brands: Budweiser, Stella Artois, and Corona. Worldwide, revenues for the three brands rose by 7.3% in the first nine months of 2017 compared to the same period in the year before. This extends a trend of strong year-over-year revenue growth in global brands in the past three years.

Metric

FY 2016

FY 2015

FY 2014

Global Brands YOY Revenue Growth

6.5%

7.3%

5.4%

Data source: AB InBev 2016 annual report.

ADVERTISEMENT

But the story isn't all sunshine and roses. Fierce competition from craft-beer brewers (particularly in the United States) has tarnished the luster on AB InBev's crown as the world's largest beer brewer.

While its three global brands are doing just fine globally, that story is a little dicier in the U.S. In its third-quarter report, the company noted that revenues in the U.S. for the quarter fell 5.6% year over year and 2.8% for the first nine months. The situation has become alarming enough for the company to replace the head of its North American operations with a veteran of the company's Brazilian business.

It may be the king of brewers, but the kingdom is becoming increasingly restless.

A foamy mug of beer with a sheaf of hops beside it
A foamy mug of beer with a sheaf of hops beside it

Can globally recognized beers thrive in a world dominated by craft beers? Image source: Getty Images.

Consumers want their beer to be crafty

Clearly, there remain a few holes in AB InBev's global-brands armor.

The rise of craft beer has been meteoric. Not only are there more breweries in the U.S. than at any point in its history, but consumers are increasingly demanding unique and "crafty" beer choices.

Bar chart showing levels of awareness of craft-beer buzzwords among consumers
Bar chart showing levels of awareness of craft-beer buzzwords among consumers

Image source: Statista.

To combat this onslaught, AB InBev will have to up its crafty game.

If you can't beat them, join them

To give its three global brands a fighting chance in the war on craft, AB InBev has a plan: If you can't beat them, join them.

In October 2015, AB InBev's $103 billion takeover of South African brewer SAB Miller was completed. In doing so, the company became a true megabrewer, responsible for producing approximately one-quarter of all the beer consumed in the world. Those who buy its shares believe its global dominance will win the day, no matter what craft brewers do. But that doesn't mean the company is giving up its war on craft; it has eyes on the long game.

AB InBev has been busy in the past few years taking advantage of its market position, and putting its top three global brands through a process of "premiumization." In Q3, companywide top-line revenues grew 3.6% year over year -- nothing to sneeze at for a company of AB InBev's size. One of the major contributors to this growth was the continued premiumization of Budweiser, Stella Artois, and Corona.

This strategy has been particularly successful outside their home markets. One of the standouts in this push has been China, where Budweiser has continued to be a market leader. All the more impressive, AB InBev's Corona, Hoegaarden, and Franziskaner beers are considered "super-premium" brands in the Middle Kingdom, and all grew by high double-digit rates over Q3 2016.

Even in the U.S., there is cause for optimism. U.S. sales fell in the third quarter, but so far this year, revenue per hectoliter grew by 0.9% in Q3 and by 1.3% in the nine months ended Sept. 30, 2017. These results were the direct result of Budweiser's "American Summer" premiumization campaign. You may have noticed that the Budweiser logo was actually replaced on packaging by the word "America" around the Fourth of July holiday. Well done, AB InBev; well done.

Soon, the company will be introducing Budweiser variants that celebrate the repeal of Prohibition. Also around the bend, the U.S. division should begin to enjoy the benefits of Bud Light's friendship-themed campaign, an initiative that has brought singer John Mayer into the fold:

Video source: Bud Light YouTube channel.

In a world that increasingly demands craft beers, AB InBev is doing everything it can to give its global brands like Budweiser a fighting chance.

What you need to know

Craft beer's rise has been unprecedented. But AB InBev's global brands, Budweiser, Stella Artois, and Corona, are performing admirably worldwide -- far more important for a truly global brewer. Even in the U.S., sales per hectoliter are on the rise -- proof that the company's premiumization initiatives might just be doing the trick.

AB InBev's global brands remain at the top of a very big mountain. In the United States, Bud Light is the undisputed leader in domestic sales, bringing in over $2 billion dollars last year -- far ahead of the silver medalist Coors Light, with just over $1 billion. Craft-beer leader Boston Beer, owner of Sam Adams, brought in just $906 million in sales for fiscal-year 2016.

Rumors of Budweiser's demise have been greatly exaggerated.

More From The Motley Fool

Sean O'Reilly has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV and Boston Beer. The Motley Fool has a disclosure policy.