New approach brews at world’s biggest beer firm
THE CEO of Anheuser-Busch InBev, Carlos Brito, has a message for investors concerned about a repeat of Kraft Heinz’s financial meltdown last week: where ketchup went, beer won’t follow.
There are plenty of reasons to fear spreading problems. The two companies share board members and deploy the same cost-cutting mantra championed by private-equity firm 3G Capital. And the Budweiser owner had already alarmed shareholders by cutting its dividend in October.
AB InBev eased some of those concerns on Thursday when it reported earnings growth that trounced estimates, prompting a two-day stock rally. The difference may run deeper, as Brito said that while remaining fiscally prudent, he’s willing to invest in growth.
Shareholders aren’t telling AB InBev management, “give us all the money you can in the form of dividends”, Brito said in an interview at the brewer’s headquarters in Leuven, Belgium.
“If you think about efficiency, the most efficient decision is to close down the company. Then costs go to zero. But that’s not really why we’re here.”
In its results, AB InBev added a line to the outlook that suggests it’s distancing itself from Kraft Heinz’s bottom-line approach.
Instead of just scything through overheads and raising prices to boost profit, it plans to ratchet up marketing spending in an effort to sell more beer.
That would be a departure from the strategy of Jorge Paulo Lemann, AB InBev’s largest shareholder and a founding partner of 3G, which took over HJ Heinz in 2013 with backing from Warren Buffett’s Berkshire Hathaway.
It later acquired Kraft Foods, combined the two companies and slashed costs to achieve industry-leading profit margins. The recent $15.4bn write-down on the value of assets like the Kraft and Oscar Mayer brands, which prompted a 27pc stock plunge, showed the limits of that strategy.
AB InBev previously pursued a similar recipe. Three decades of serial acquisitions, followed by extreme spending discipline, turned it into the world’s largest and most profitable brewer. Yet the read-across from Kraft Heinz’s crash is limited, Brito said. “Here, efficiency was never an end in itself,’’ he said. “It was a means to an end.”
The company’s shares have gained about 10pc over the past two days, which “suggests increased investor confidence in its prospects, and perhaps greater appreciation of the important differences among 3G-related companies”, Evercore analyst Robert Ottenstein wrote in a note to clients.
While running a tighter ship, the company remains committed to spending on innovation and marketing, including costly projects like sponsoring the football World Cup.
The company is stepping up efforts to court wine and spirit drinkers to beer, expanding a programme it inherited when it acquired rival brewer SABMiller, under which it targets new types of customers. That includes pitching low-calorie Michelob Ultra to gym-goers.