Finance time

Inside a Dierbergs store in Wildwood, Pete Kraemer was walking the beer aisle, spending part of the morning checking out details like the stiffness of cardboard boxes holding Bud Light and the chill of Michelob Ultra.

Kraemer was spending his day as a deliveryman, inspecting beer coolers and loading six-packs. For Anheuser-Busch’s vice president of supply — boss of breweries in the U.S. and Canada — it was a big change of pace.

After taking over Anheuser-Busch, Belgian brewer InBev started requiring A-B’s employees — from support staff up to top-level executives like Kraemer — to get out of the office and into stores to see the details and logistics that go into selling beer.

"There are millions of details," said Kraemer. "Everything has to be right."

The excursion back in September was just one peek into a transformation at Anheuser-Busch, as a newly merged company tries to reconcile InBev’s cost-saving predilections with Anheuser-Busch’s vaunted and money-hungry marketing machine.

Today marks one year after InBev officially took control of the St. Louis brewer, which it had been eyeing as a prize for years.

By plunking down $52 billion to buy Anheuser-Busch, InBev gained control of the dominant U.S. brewer but also locked itself into a deep dependence on the United States. North America now yields about one-third of Anheuser-Busch InBev’s beer sales by volume and 40 percent of its revenue. Before the takeover of Anheuser-Busch, North America chipped in only about 5 percent of InBev’s revenue.

Anheuser-Busch InBev has "kind of put all their eggs in one basket," said consultant Tom Pirko.

The purchase gave InBev size in the United States, the world’s richest beer market, and a sprawling network of 600 beer distributors that is widely considered the world’s best.

But on Anheuser-Busch InBev’s first birthday, it’s clear that size alone doesn’t equate to a pass onto Easy Street. In the midst of a recession that is slicing into beer sales around the globe, tough competitors — including independent craft brewers and Chicago-based MillerCoors — have their own game plans to take advantage of any stumbles by Anheuser-Busch InBev, the world’s biggest brewer.

And there are stumbles. Both Bud Light and Budweiser — Anheuser-Busch’s No. 1 and No. 2 brands, respectively — are suffering drops in sales. Bud Light has been cloaked with a "drinkability" advertising campaign that critics — and even many A-B wholesalers — said did not resonate with drinkers.

The stumbles come at an inopportune time. Bud Light, the country’s best-selling beer by a wide margin, appears headed toward its first annual sales decline. Some analysts worry that the brand is in serious trouble, with a loss of identity and appeal among cash-strapped drinkers.

As Bud Light goes, "so goes Anheuser-Busch," said consultant David "Bump" Williams.

And as Anheuser-Busch goes, so go the fortunes of the mothership, Anheuser-Busch InBev, the world’s biggest beer maker. The outcome will go a long way toward deciding whether the tie-up between InBev and Anheuser-Busch was wise in the first place.

BIG PICTURE

This year has been full of disruption back at One Busch Place. As InBev swept into power, layoffs and retirements decimated whole departments. But Anheuser-Busch has not stumbled as badly as critics predicted.

Even with the past year’s shrinkage of U.S. beer sales, Anheuser-Busch InBev has held its own, said London-based analyst Rob Mann. "They’ve got a plan and they stick to it. They don’t panic."

And the company is not standing still, rolling out new advertising campaigns for Budweiser and the first national TV blitz for Natural Light in 25 years. It introduced Bud Light Golden Wheat, touting it as an important addition to the "Bud family."

By some measures, Anheuser-Busch may have outperformed its rivals. The company said it captured market share in the U.S. over the first nine months of 2009. A 10-month survey by Nielsen Co. showed similar results, crediting Anheuser-Busch’s cheaper beers for growing in a rough economy.

"They’ve done a fairly remarkable job of keeping it together, of moving it forward," said Pirko. "I give them credit for being able to hold firm. The company actually looks pretty good right now in how it’s performing."

Last year, the company started touting a strategy of tagging line extensions onto Bud Light, using the iconic name as a jumping-off point. Meanwhile, Budweiser would also get line extensions such as Budweiser American Ale. The idea would be to charge higher prices for the new beer, thus grabbing larger profits if Bud drinkers switched to the new brews loan until payday.

Bud Light Lime hit the market last year and quickly became the biggest beer launch in years. Bud Light Golden Wheat followed this fall. The offshoot brands, in the works long before InBev made its play for Anheuser-Busch, are keeping its U.S. sales from falling too far, particularly as Budweiser sales have slipped 10 percent in the past year.

But one of the biggest challenges for Anheuser-Busch InBev in the coming year will be getting the Bud Light "megabrand" — including Lime, Golden Wheat and standard Bud Light — rolling fast enough to offset Budweiser’s inexorable slide over the past two decades.

"You’ve got to get Bud Light working," said Nick Lake, vice president at Nielsen Co. "If you look at Anheuser-Busch overall, to me that’s the glaring issue. Anheuser-Busch has spent billions of dollars to build brand equity for Bud Light."

"Focus" is now the name of the game at Anheuser-Busch InBev. The company has about 300 beer brands, but concentrates its marketing dollars on a few massive brands — including Budweiser, Stella Artois and Beck’s — it believes can win consumers’ allegiance across the world.

"Give them their due," said Tony Ponturo, A-B’s former vice president of global media, sports and entertainment marketing. Anheuser-Busch has been "pretty aggressive on the Bud family of brands," despite cutbacks in some sports marketing venues and on smaller brands.

Before the takeover, Anheuser-Busch had been paying close attention to niche beverages such as maple vodkas, skin-care waters and Korean sweet potato liquor. Those days are presumably over.

"They’re definitely looking at the big picture," said Harry Schuhmacher, editor of Beer Business Daily.

"The joke in the industry is, ‘Do they even remember that they own part of Craft Brewers Alliance?’" Schuhmacher said, referring to one of country’s largest craft brewers that is partly owned by Anheuser-Busch.

TOUGH COMPETITION

One thing seems certain: Anheuser-Busch’s top competitor is not running scared from Anheuser-Busch now that it is owned by InBev. Chicago-based MillerCoors, a joint venture between London-based SABMiller and Canadian brewer Molson Coors, is pushing hard to pry drinkers from Anheuser-Busch’s clutches.

MillerCoors has been cutting costs almost as aggressively as Anheuser-Busch and is giving its larger rival the toughest competition it has seen in decades. MillerCoors has introduced packaging innovations such as cans that indicate when Coors Light is cold. It has stuck with a consistent "cold" theme for Coors Light, and reaped impressive sales growth.

It also has pushed Coors and Miller distributors to merge overlapping territories to become more efficient. As a consequence, distributors carrying Miller and Coors beers are closing the performance gap with their Anheuser-Busch rivals.

Anheuser-Busch declined to make executives available for interviews for this story.

MillerCoors — with about 30 percent of the U.S. market, compared to Anheuser-Busch’s roughly 50 percent — has some of the hottest brands in the market, including Blue Moon, Keystone Light and Coors Light.

MillerCoors is "making A-B dance to their tune," said Williams. Watching Bud Light lose ground to Coors Light, Anheuser-Busch’s independent wholesalers are wondering if they have the hot brands to fend off the competition, he said.

In response, distributors — responsible for acting as the middlemen between brewers and retailers — may be looking beyond St. Louis. They are increasingly going outside A-B’s stable of products to grab brands from other brewers, such as Yuengling.

Among A-B wholesalers, money isn’t in short supply. "It’s their time and attention," said consultant Joe Thompson. "The anxiety that distributors have is causing them to go out and get any brand they can."

The danger is that A-B distributors — many of them second- or third-generation family businesses — will be distracted from their main mission of selling "Bud" brands. That would hurt Anheuser-Busch as it tries to keep up with drinkers’ changing tastes.

"You look across the board, and the flagship brands are heading south," said Williams. "I think (distributors) are worried that there’s no plan in St. Louis to stop the hemorrhage."

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