RUNNING HEAD: INDIVIDUAL CASE 1

Individual Case: Anheuser-Busch InBev SA/NV

Matthew Ray

BAM479-OA: Strategic Management

Professor Harvel-Jenkins

April 3, 2019
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CASE STATEMENT:

In this case study, I will evaluate SAB Miller’s parent company, Anheuser-Busch InBev SA/NV,

or AB InBev for short. AB InBev is the biggest brewery in the world, built on a history of

strategic acquisitions. In recent years, however, they’ve seen declining sales in the United

States, as well as an alarming loss of marketshare, though their global reach has at least

partially offset these domestic losses.

MISSION STATEMENT:

We are a company of owners.


We believe that you get out what you put in.



We strive to be the best.

Pursuing our Dream, committed to improving lives for more people in more communities.

For centuries, we’ve been bringing people together.


Through sports, through music, and through culture,

Creating moments both everyday and extraordinary

Seizing every occasion to serve up more of what people thirst for.



For this reason, we pour ourselves into our work.

From farm to brewery to market,

Taking pride and ownership in every step.

Crafting great beer from the best natural ingredients.

Paving the road for a better tomorrow that we’re proud to be a part of.

And celebrating the great times that bring us together.

We are AB InBev.

Bringing people together.

For a better world.

COMPONENTS COMPONENTS COMPONENTS COMPONENTS COMPONENTS

Concern for
Products or Survival, Growth
Customers Services Markets & Profitability Technology
Yes Yes No Yes No

COMPONENTS COMPONENTS COMPONENTS COMPONENTS

Philosophy Self-Concept Public Image Employees
Yes Yes Yes Yes
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AB InBev—the company that purchased SAB Miller—does mention customers in their

mission statement, if not directly. It mentions their “community” several times, which includes

their consumers, among others. The statement mentions their product, beer, several times, but

it never specifically mentions their market as specified against other competing companies.

As far as ‘Concern for Survival, etc,’ goes, the mission statement mentions it in passing,

at least. It didn’t exactly say it in technical or professional terms, but it does mention “Paving

the road for a better tomorrow that we’re proud to be a part of,” and, “For centuries, we’ve

been bringing people together.” These two lines, when considered together, give a nod both to

the longevity of the company and their hopes for future business. The company was a bit

underwhelming in this category, but they did at least mention it, so I count it as a ‘yes.’

The mission statement mentions that AB InBev’s beer if crafted from “natural

ingredients,” but it never specifies anything about those ingredients or the process they use to

brew it into beer, so they got a ‘no’ in the Technology category. Though, to be fair, beer has

been brewed since long before any modern technology was even dreamed of, so the company

isn’t exactly competing in a heavily technological industry. It would probably be a waste of

space to mention technological specifications because that’s not what people interested in a

beer company really care about.

Most of the mission statement seems to focus on the company’s Philosophy and Self-

Concept, so those categories are definite ‘yes’s.’ From the statement, you can infer that AB

InBev has a naturalist philosophy when it comes to brewing, and that they see themselves as a

salt-of-the-earth, community-focused company; a company that doesn’t just sell a product,

but gets actively involved in the betterment of the lives of its consumers. This brings us to

Public Image.

The mission statement mentions community involvement in some form or other several

times, which I think counts towards their public image. In fact, the entire mission statement

seems to be written as a means of portraying a public image since it really doesn’t get into the
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business side of the company at all. Considering the size of the company, the fact that their

mission statement is more of a public address than an internal message isn’t that surprising.

Finally, the first two lines of the mission statement, “We are a company of owners.


We believe that you get out what you put in,” seem to summarize their views on employees.

I’m not exactly sure what “company of owners” actually means—it seems a bit vague and

needlessly flowery—but that doesn’t take away from the fact that it addresses their employee

philosophy.

VISION STATEMENT:

We’re a bunch of dreamers. But we don’t just aimlessly reach for random stars; we have
a vision that we share not just with our employees but also with our wholesalers,
retailers, consumers and partners. We want to brew great beers that can not only be
enjoyed responsibly but are also created with a low impact on the environment.
Everything we do, we do with a great sense of pride, integrity and purpose. We know that
our strength is in our people, so while our culture is competitive, it is also meritocratic.
These are our pillars. It’s what helps propel us forward toward our goal of being a
responsible brewer of the best beers in the country.

Ab InBev’s vision statement seems much more thorough than their mission statement.

While the mission statement was vague and flowery, the vision statement is focused and

informative. It leans heavily into the company’s philosophy and self-concept like the mission

statement did, but it does so in reference to the company’s “competitive” and “meritocratic”

culture, which gives us far more information about how that philosophy is actually applied

instead of just leaving it as a vague concept.

It also mentions that their philosophy is something that they stick to not just internally

(with employees) but also down their supply chain (wholesalers, retailers, and partners) and

even with their consumers. It then delves into the company’s environmental commitments,

something that differentiates them from many of their competitors. This would be relevant

information to add to the mission statement, I think, though it’s still good that it’s at least

mentioned here. The vision statement also mentions a specific goal, “being a responsible
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brewer of the best beers in the country.” This lets readers know that for one, eco-friendliness

is not just something they value, but an intrinsic part of their brewing process, and secondly,

that they aspire to make a product that is the “best.” This is something that most companies

say, but I feel that it’s still important to make that aspiration clear to people both inside and

outside of the company.

MILESTONES:

Anheuser-Busch InBev SA/NV is an international beer brewing and bottling company

based out of Belgium. Their brands include Budweiser, Bud Light, Corona, Castle, Labatt Blue,

and Michelab Ultra, among others. They operate on every continent besides Antarctica, and

sell many local brands along with their global and international brands. They are the largest

brewing company in the world, due in no small part to their various acquisitions, which include

Anheuser-Busch in 2008 (the company’s formative acquisition) and SAB Miller in a bid that

began in 2015 and closed in 2016 (Nurin, 2016). They are also one of the most sustainable

breweries in the world, with plans on becoming the most sustainable by 2025 (Troitino, 2018).

Tracking the milestones of the company is a bit hazy since it has so many pieces with different

origins, so I’ll just follow a few defining threads in the company’s past.

• “Interbrew was formed in 1987 from a merger of the two largest breweries in

Belgium: Artois, located in Leuven, and Piedboeuf, located in Jupille” (Companies

History, 2019)

• "AmBev (short for Companhia de Bebidas das Américas, or “Beverages Company of

the Americas”) was created in 1999 with the merger of the two biggest

Brazilian brewers, Antarctica (founded in 1882) and Brahma (founded in

1888)” (Companies History, 2019)

• “In 2004, Interbrew and AmBev merged, creating the world’s largest brewer, InBev”

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• "In 2006, InBev acquired the Fujian Sedrin brewery in China, making InBev the No. 3
brewer in China (the world’s largest beer market)” (Companies History, 2019)

• “On 18 November 2008, the merger of InBev and Anheuser-Busch was completed,
creating Anheuser–Busch InBev, the world’s largest brewer and one of the top five

consumer products companies in the world” (Companies History, 2019)

• AB InBev acquired SAB Miller in October of 2016, neutralizing its largest competitor
with the acquisition, which cost over $100 billion (Nurin, 2016)

Looking at the company’s milestones, it’s clear to see that their strategy is acquiring

companies to neutralize competition, gain greater international market share, and diversify their

brand holdings. The unique identity of the company, then, is a bit fractured given that they’re

made up of so many different parts, all with unique histories and brand images of their own.

Not to mention that many of those parts were built through strings of mergers, as well. In this

way AB InBev is much like many other modern companies. As Samuel Stebbins of USA Today

put it, “2018 is on pace to be a record-breaking year for corporate consolidation” (2018).

AB InBev has less of a unique identity as a whole, but is rather built on the identities of

the original brands that it owns. Bud Light is the All-American beer, Corona is a fun brand that

conjures to mind images of beachfront vacations, and so on and so forth. Each brand has its

own calling card, and AB InBev has been careful not to muddy the recognizability of these

brands in their acquisitions. This strategy has worked well for them thus far, but they have

taken it too far on more than one occasion and faced legal ramifications, something that will be

discussed in greater detail in the ‘Internal Weakness’ section of the case study.

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EXTERNAL FACTOR EVALUATION:

Key External Factors Weight Rating Weighted

Score

Opportunities
Largest domestic market share 0.10 4 0.40

Most popular brand in America (Bud Light) 0.10 2 0.20

Global market opportunities 0.09 4 0.36
Established market for sustainable products 0.07 4 0.28

Beer is popular with multiple demographics 0.05 3 0.15

Distributor Relationships 0.04 2 0.08
Acquiring craft breweries 0.04 1 0.04

Threats
Popularity of craft & imported beers 0.10 2 0.20
Competition from other large-scale breweries (i,e. 0.09 4 0.36
Heineken, Coors, etc)

Poor market growth 0.09 2 0.18

Antiquated brand image 0.07 2 0.14
Disinterest from younger consumers 0.06 2 0.12

Antitrust & Competition Laws 0.06 3 0.18

Poor publicity 0.04 3 0.12
TOTAL 1.00 2.81

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INTERNAL FACTOR EVALUATION:

Key Internal Factors Weight Rating Weighted

Score

Strengths
Well defined self-concept and philosophy 0.10 3 0.30

Strong corporate culture 0.09 2 0.18

Economy of scale 0.09 4 0.36
Multiple successful brands 0.08 4 0.28

Worldwide reach 0.06 4 0.24

Eco-Friendly brewing methods 0.05 2 0.10
Acquisition of main competitor (SAB Miller) 0.03 3 0.09

Weaknesses
Falling Budweiser sales 0.10 4 0.40
Loss of marketshare 0.10 3 0.30

Highly Leveraged 0.08 2 0.16

Legal Issues 0.06 2 0.14
Investment-tier Downgrade 0.06 2 0.12

Difficulties integrating with SAB Miller 0.05 1 0.05

Decentralized structure 0.04 2 0.10
TOTAL 1.00 2.82

- Sources: (Bhasin, 2018), (Chappatta, 2018), (Harrington, 2018), (Mickle, 2015), (Morgan, 2017), (Troitino, 2018)

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SWOT ANALYSIS:

Strengths:

Reading AB InBev’s mission and vision statements, it’s clear that their self-concept and

philosophy are both very well-defined, something that is immensely important for any

company, but especially one made up of so many independent parts. Poorly defined self-

concept and philosophy can be cancer to a company during a merger or acquisition as it can

cause friction between the two parties coming together. The fact that they were able to remain

structured and consistent throughout so many significant changes to their business structure

also speaks to the strength of their corporate culture.

Another strength that they’ve gained from their business strategy is an economy of

scale, which means that they can reduce the input costs of brewing and bottling by doing it on

a large enough scale to bundle their costs. This gives them a major competitive advantage

over smaller brewing companies because they can not only out-produce them, but they can do

it at a lower cost-per-unit. Their eco-friendly brewing methods are another strength because,

with the general direction the market’s headed, there is a good chance that eco-friendliness will

become the status quo in a decade or two. The “all-natural” aspect of their brewing also helps

them compete with the influx of independent craft beer brands that have sprung up and began

eating away at their marketshare over the past decade.

The fact that they have a global reach makes things like marketing efforts and the

introduction of new brand much easier. They never really have to worry about garnering

publicity, but instead only have to decide what to do with the publicity that they already have.

Combined with the fact that they own a diverse group of brands with origins around the world,

it puts AB InBev in a relatively safe position. It also means that they’re somewhat immune to

the normal peaks and troughs of the market. For example, Corona—marketed as the vacation

beer—may be popular in the spring and peak in the summer, but decline in the fall and hit its

trough in the winter. Bud Light, however, may have a completely different cycle in the market.

These alternate cycles would offset each other, especially considering that different places
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around the world have completely different seasonal climates, so sales would always be

peaking somewhere.

Their final strength is the acquisition of one of the ‘Big Three’ brewing companies,

Coors Brewing Co., AB InBev, and, formerly, SAB Miller (Nurin, 2016). With SAB Miller now

under the AB InBev umbrella, a major source of competition is gone, easing the load on AB

InBev and giving them an upper hand against Coors.

Weaknesses:

Sales of Anheuser-Busch beers has steadily declined since the company was acquired.

They still have two of the top three most popular beers in America, but doesn’t negate their

declining numbers. Budweiser lost it’s marketshare when light beers gained popularity, but

Anheuser-Busch was able to ride that wave to great success, releasing Bud Light, which

became the number one domestic beer. But even Bud Light hasn’t been impervious to the

encroachment of craft and imported beers; they’ve seen a 15% drop in sales since 2008

(Morgan, 2017).

From 2005 to 2014, shipments of imported beers increased 15% and shipments for

craft beers increased by a whopping 174%; in that same time frame, AB InBev’s shipments

backslid by 6%—the worst of which happened after Anheuser-Busch was acquired in 2008

(Mickle, 2015). AB InBev’s marketshare has also decreased by almost 5% in that time frame,

while craft beer’s marketshare has more than doubled, and imported bears have seen a more

modest rise, as well. AB InBev still had the controlling marketshare at the end of the period

with 44.7%, but the rapid growth of alternative options is still grounds for concern.

The company’s highly leveraged position is concerning, as well, especially to investors.

Their bonds have been downgraded to the lowest investment-grade tier, and experts predict

that it could cause noticeable issues in the market if their investment-grade sinks any lower.

Investors are concerned about the company's current debt-load, which is over $100 billion,

much of which will mature in the next decade (Chappatta, 2019). The company could face
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major issues if they become too leveraged and cannot provide adequate payments when

massive amounts of debts start coming due. A significant driver behind AB InBev’s leveraged

position is the amount of liabilities they took when they acquired SAB Miller. They may have

thought, at the time, that the increase in sales would offset the high liabilities, but, almost three

years later, that may not be the case.

On top of increasing debts, declining sales and marketshare, and integration difficulties,

AB InBev has had a steady string of legal troubles, mostly stemming from their aggressive

acquisition and growth strategy. While a certain amount of legal trouble is to be expected with

any firm as large as AB InBev, taken in combination with their other issues, the legal fees

represent an ill-timed drain on the company’s money and resources. New internal measures

should be taken to assure that the company avoids coming up against antitrust and/or pro-

competition legislation.

Finally, all of these issues can really be difficult for a company as large as AB InBev to

deal with effectively due to the natural decentralization that occurs with such massive growth,

especially when that growth involves acquiring completely independent companies. Even

when things are running smoothly in one region, they could still be thrown into turmoil by low

profit margins or high legal fees in a completely different region. This can be difficult to deal

with due to linguistic and cultural barrier across different regions.

Opportunities:

AB InBev’s efforts to become the most sustainable beer company in the business could

be a major opportunity. With an ever-growing market of consumers interested in

environmentally friendly products, defining themselves as an eco-friendly, natural brewery

could strike the right chord with a lot of consumers. The company aims to make not just their

brewing eco-friendly, but also the power consumption in their facilities and the materials used

in their packaging (Troitino, 2018). The company plans to accomplish this by 2025. This could

be a major selling point in the near future.

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Another great opportunity they have comes in the form of their marketshare. They have

the largest domestic (and global) marketshare of any brewing company in the world. This gives

them a dominant market position, which allows them to exploit their vast resources and push

the envelope in a way that other companies can’t for fear of losing competitive ground. This

ties in with the fact that Bud Light is the most popular brand in America and Budweiser is the

third most popular (Harrington, 2018). With both marketshare and brand popularity, AB InBev

has built itself up to be extremely difficult to compete with, though their mishandling of the

Budweiser and Bud Light brands since their Anheuser-Busch acquisition could use

improvement. Sales have been declining for a decade now, that’s too long to put all the blame

on the market.

They also have a wealth of global opportunities with all of their international holdings.

Their global acquisition and merging strategies have put them in a position where they have

successful brands on every populated continent, as well as global brands. This gives them a

wide potential market to sell both local and global brands to, which is helped by the fact that

beer is popular among many different demographics and market segments. There is obviously

a cutoff depending on local drinking regulations and laws, but even considering that, people

can still legally drink for most of their lives, and many of them do. This gives AB InBev not just

a wide geographical area to market to, but also a diverse population within that area.

An advantage of AB InBev’s large scope and longevity is that it has access to a massive

number of distributors, and it has considerable sway over those distributors given the

popularity of its brands. This is a relationship that AB InBev can use to gain visibility and edge

out competitors, though they must tread carefully or risk facing pushback from pro-competition

laws, depending on regional business legislation.

The acquisition of craft breweries is so low on the opportunity scale because, while it is

a potentially viable option, the appeal of craft beer in the market is largely due to the

independent image of craft breweries. If AB InBev were to acquire a craft brewery, that image

would obviously be destroyed. The acquisition would have to be done with the utmost care so
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not to alienate the brewery’s consumer-base in the process or else AB InBev would just end up

with another source of liabilities with no valuable assets or added profits to offset them.

Threats:

As mentioned earlier, the popularity of craft and import beers has risen sharply over the

past decade or so, and in all that time, AB InBev hasn’t had an answer for it. They’ve tried

doubling down on their All-American image for their domestic brands, but the reaction from

consumers has been mixed at best and they continue to lose ground to independent and

foreign breweries. The silver lining is that other large-scale breweries like Coors Brewing Co.

are losing ground as well, so AB InBev is still at least on equal footing with its main

competitors. This provides little comfort, though, in a time when profits are falling. AB InBev

could try either partnering with other large-scale competitors to shore up losses or partnering

with independent breweries to cut into the craft beer market. Either way, with pressure from

both large-scale and independent competitors, AB InBev needs to formulate some kind of

battle plan.

This is all at a time when the market for beer overall hasn’t been ideal. “The

International Wines and Spirits Record calculated the global market for all alcoholic drinks

contracted 1.3 percent in 2016 — far greater than the average decline of 0.3 percent in the

previous five years. Beer led that decline by falling 1.8 percent” (Morgan, 2017). AB InBev is

up against both rising competition and poor market conditions, and given that their overall

sales for all US brands were down 5.6% in 2017, it’s clear that these obstacles are taking their

toll on the company—at least in the US, AB InBev’s “most important market,” according to

CEO Carlos Brito (Meyersohn, 2017).

Much of AB InBev’s struggle in the US is likely due to their brand image, which seems

to have lost its pull on American consumers. While their beers remain popular with older

demographics who grew up on them, the company has had trouble connecting with younger

consumers, who prefer the aforementioned craft and import beers. This could spell even more
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trouble down the line as older consumers reach an age where they can no longer drink as

much and eventually pass away, leaving a market full of consumers who aren’t particularly

interested in beer from large-scale breweries.

Amidst all of these issues, AB InBev’s acquisition based strategy has come up against

both legal and public opposition on several occasions for exhibiting monopolistic and

anticompetitive behavior. On one such occasion, AB InBev incentivized distributors to sell their

beers, promising they, “could offer some independent distributors in the U.S. annual

reimbursements of as much as $1.5 million if 98% of the beers they sell are AB InBev brands,”

and that “Distributors whose sales volumes are 95% made up of AB InBev brands would be

eligible to have the brewer cover as much as half of their contractual marketing support for

those brands, which includes retail promotion and display costs” (Mickle, 2015). This was met

with outcry from independent brewers who felt that it was anticompetitive.

A similar incentive program prompted a Justice Department investigation in the late

1990’s, though no legal action was taken. They also had to meet with the Senate Judiciary

Subcommittee on Antitrust, Competition Policy and Consumer Rights before their acquisition

of SAB Miller (Holtz, 2015). The acquisition was deemed legitimate. While these issues don’t

always end in legal action, they still cost money, slow down business, and create bad publicity.

INDUSTRY ANALYSIS:

Rivalry Among Competing Firms:

The amount of major competitors AB InBev faces has shrunken considerably in the past

decade or so due to largesse mergers within the industry. Miller Brewing Company, one of their

biggest competitors in the past, was split when AB InBev purchased SAB Miller in 2016 (Owler,

2019). The Miller brand went to Molson Coors Brewing Company, while the company itself went

to AB InBev. Since then, AB InBev’s main competitors in the brewing industry have been the

aforementioned Molson Coors, based out of the US, and The Heineken Company, based out of
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Switzerland. It is worth noting, however, that AB InBev’s revenue last year, at about $54.6

billion, was more than both of these companies combined.

AB InBev also faces competition in the United States from Constellation Brands—though

they are an importer and not a brewery in and of themselves—and from the British beverage

company Diageo, though it is not quite as much of a competitor as the others (Yahoo, 2019).

Diageo owns popular beer brand Guinness, though their main focus is in liquors and spirits not

beers, with brands like Smirnoff and Johnny Walker (Diageo, 2019).

For craft and foreign breweries, the beer industry may be highly competitive, but for a

company the size of AB InBev, it’s more about maintaining marketshare than taking aggressive

action since they’re already large enough to warrant attention from antitrust authorities around

the world. The only competitive worry they may have stems from millennials’ changing drinking

preferences, which has boosted the marketshare of craft and foreign breweries. Their shares,

though, are still several times smaller than AB InBev’s, so they aren’t very fierce competition at

the moment.

Potential Entry of New Competitors:

There are several significant barriers to entry to the brewery industry. Modern

technology has partially offset some of these, but many still stand. Firstly, most developed

nations carefully regulate the production and sale of alcoholic beverages, and this is on top of

the usual regulations associated with food production. They also require companies to have

specialized permits in order to operate (TTB, 2018). Any company not able to meet the

regulations or procure the correct permits, then, would not be able to enter the industry.

Brewing is also quite expensive. It requires a lot of equipment to brew on a large scale,

and that equipment must be carefully maintained in order to meet health and safety regulations.

These costs can become even more substantial if there is a major issue with equipment
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(Dimension Funding, 2018). Because of the capital needed to acquire the necessary

equipment, a place to house said equipment, and a dedicated maintenance team, many

interested parties would have to concede before even getting far enough along to worry about

the costs of supplies, labor, and distribution.

Most large scale breweries are owned by a select few companies, and many of their

smaller competitors are bought up once they become profitable enough to compete. Given this

dynamic, most new entries into the beer industry would be from companies or individuals with

enough capital to buy and/or repurpose existing breweries to produce their brand, or from

foreign breweries breaking into a new market. This means that the industry is relatively

exclusive.

Potential Development of Substitute Products:

AB InBev faces significant competition from substitute products. The most direct

competition would be from other types of alcohol, including wine and liquor/spirits. Beer has

been steadily falling out of consumer preference in America over the past two decades, while

wine has remained relatively consistent and spirits have grown increasingly popular (NBWA,

2019). In 2001, 46% of consumers preferred beer while only 18% preferred spirits. By 2017,

beer preferences had fallen to 40% while those for spirits had risen to 26%. Beer’s loss of

popularity to substitute products has been slightly offset, however, by the overall rise in alcohol

consumption in the US. In a study ranging from the years 2001-2002 to 2012-2013,

researchers found that alcohol use in the general population increased by about 11%, from 65%

of adults consuming alcohol in 2001-2002 to 73% consuming in 2012-2013 (Walton, 2017).

AB InBev also faces competition, though not quite as direct, from nonalcoholic beer and

soft drink companies. The popularity of beer depends at least in part on the prominence of

alcohol as a cultural mainstay. Recent years have seen that prominence increase, but that may
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not always be the case. As sobriety comes in and out of style, breweries may gain and lose

ground to companies that develop nonalcoholic drinks like soda.

Another indirect substitute product is marijuana. In the US, the drug has circulated

illicitly for years, but recent legalizations have caused a notable impact in alcohol use. A study

from 2006 to 2015 found that “counties located in medical marijuana states showed almost a 15

percent reduction in monthly alcohol sales” (Pellechia, 2018). As new legislation expands legal

use of the drug beyond medicine and into recreational use, breweries, distilleries, and wineries

may see even more significant dents in their sales.

Bargaining Power of Suppliers:

In the brewing industry, the bargaining power of suppliers is moderate to low. Beer is

made from barley, hops, water, and yeast, none of which are particularly rare (Beeriety, 2009).

Barley and hops can both be grown in several different climates and regions, and there is no

shortage of water or yeast in the developed world. Specialty hops for certain beers can be

expensive, but AB InBev doesn’t use such ingredients in their products.

AB InBev enforces an eco-friendly policy on all of their suppliers, as well, so their

suppliers are more interested in conforming to AB InBev’s standards than the other way around.

If they find suppliers unsatisfactory, they can easily just cut them off (since they have a multitude

of different suppliers) or strike up business with another farm and reduce their intake from the

unsatisfactory supplier. AB InBev and its large-scale competitors are all international

conglomerates with no shortage of possible options for their supply chains, so their suppliers

don’t have much bargaining power.

When it comes to the ingredients of beer, the cost of switching from one provider to

another is negligible. As long as the new provider grows the same type of barley and hops,

there would be virtually no difference in switching from one provider to the next. Suppliers do
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have some power, however, since backwards integration is not a very feasible option in the

brewing industry. Farming isn’t a particularly profitable industry as a whole, and growing only

one or two crops would make a farm even less profitable. It would take several large-scale

farms to fill the quota necessary for a large brewing company, and it would be unrealistic for

brewers to purchase so much farmland when the only crops they need are barley and hops.

The suppliers, then, have at least some bargaining power, but the lion’s share lies with the

breweries.

Bargaining Power of Consumers:

Our textbook states that consumers are the most powerful under the following

circumstances:

1. If they can inexpensively switch to competing brands or substitutes

2. If they are particularly important to the seller

3. If sellers are struggling in the face of falling consumer demand

4. If they are informed about sellers’ products, prices, and costs

5. If they have discretion in whether and when they purchase the product (David &

David, 2017)

All of these criterium are met in the case of AB InBev’s consumers, so it’s safe to say

that the consumers have significant bargaining power. Consumers can switch between major

beer brands without much difference in price, or switch to craft brands if they’re willing to pay a

bit more. Other types of alcohol are typically priced and packaged differently than beer, though

there are equally affordable wine and spirit brands. Soft drinks could be considered a substitute

as well, and they are generally less expensive than beer. In most states, marijuana is still not

legally accessible save for medicinal purposes, so, for now, it is not competitive in recreational

use. This is true in most developed countries outside of the US, as well.
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Millennial and Gen-X consumers could be considered very important to AB InBev since

they are the ones who would carry the company into the future. Their large-scale departure

from AB InBev brands has been a major source of concern for the company. This plays into the

next point: consumer demand for big beer has been declining for years. As I mentioned earlier,

consumers are seeking out smaller-scale alternatives more and more, leaving international

brewing companies at a loss (Morgan, 2017).

Consumers are obviously very well-informed about the products, since brewing is a

tightly regulated business that requires significant transparency about product ingredients and

effects. They are also informed about the prices of AB InBev beers, and those of their

competitors. They may not know exactly what the costs are for producing beer, but most

consumers have at least a general understanding that the production cost per-bottle is relatively

low (as is the case with most mass-produced food items).

Legal-aged consumers also have complete discretion over their purchases of beer,

barring restrictions individuals may face for irresponsible use of the substance. Consumers can

pick between AB InBev beer and any competing brands or substitutes, or they can simply

decide that they don’t want alcohol at all and drink something else—something that is especially

true since alcohol is heavily discouraged or outright illegal in most daily activities, such as

classes, jobs, and many social gatherings.

INDIVIDUAL CASE 20

COMPETITIVE STRATEGIES:

SWOT MATRIX

STRENGTHS - S WEAKNESSES - W

1. Well defined self-concept 1. Falling Budweiser sales

and philosophy
2. Strong corporate culture
3. Economy of scale
4. Multiple successful brands
5. Worldwide reach
6. Eco-Friendly brewing
methods
7. Acquisition of main
competitor (SAB Miller)
OPPORTUNITIES - O SO Strategies
2. Loss of marketshare
3. Highly Leveraged
4. Legal Issues
5. Investment-tier Downgrade
6. Difficulties integrating with
SAB Miller
7. Decentralized structure
WO Strategies

1. Largest domestic market
share
2. Most popular brand in
America (Bud Light)
3. Global market opportunities
4. Established market for
sustainable products
5. Beer is popular with
multiple demographics
6. Distributor Relationships
7. Acquiring craft breweries
THREATS - T
1. Purchase the right to sell Corona 1. Purchase craft brands and
in the United States. S4, S7, O1 rebrand them as high end, eco-
2. Add higher end selections to friendly beers. W2, O7, O4
their roster to compete with 2. Pursue profitable joint ventures
craft breweries. O7, S1 to increase their margin and
3. Branch out into different market share without the fear of
alcoholic beverages. S5, O4, antitrust violations that comes
O6, S3 with acquisitions. W4, O3, O1
ST Strategies WT Strategies

1. Popularity of craft & 1. Launch eco-friendly advertising 1. Sell off less successful brands to
imported beers campaign to appeal to younger reduce unnecessary liabilities.
2. Competition from other audiences. S1, S6, T5, T7 W7, T3, T6, W3
large-scale breweries (i,e. 2. Purchase the rights to sell 2. Pool more resources into
Heineken, Coors, etc) popular imported brands in the successful brands to bolster
3. Poor market growth continental US. T5, S3, S5 sales. W1, W2, T4, T3
4. Antiquated brand image 3. Release a “craft-brewed” 3. Use social media to connect to
5. Disinterest from younger version of Budweiser. S4, S6, younger consumers and
consumers T4, T1 disparage competitors. T5, T7,
6. Antitrust & Competition T2, W2, W1
Laws
7. Poor publicity

INDIVIDUAL CASE 21

Competitive Strategy Analysis:

The SWOT Matrix allows managers to combine strengths, weaknesses, opportunities,

and threats in order to formulate strategies. Given the current state of the brewing industry, it

is more important than ever for AB InBev to cover their weaknesses and respond preemptively

to threats.

The first SO strategy I would recommend to AB InBev is to purchase the rights to sell

Corona brand beer in the United States. At current, AB InBev is the brand’s international

distributor, but the rights in the US are owned by Constellation Brands (Yahoo, 2019). For both

companies, Corona is very important and profitable brand, and for AB InBev, the US is the

most important sales region. When AB InBev purchased Grupo Modelo—the maker of Corona

—in 2013, they were forced to give up the rights to the Corona brand in America due to

antitrust legislation. AB InBev could seek to reverse that legislation however, possibly by

offering to downsize, which they could easily do by selling off some of their smaller, less

profitable brands in the interest of gaining a far more profitable alternative. With their main

competitor in the US, SAB Miller, already under their umbrella, taking such a significant brand

from Constellation would do a lot to cement their market dominance, even amongst falling

Budweiser and Bud Light sales. And it could give them an ever bigger competitive advantage

over Molson Coors.

AB InBev could also seek to add higher-end options to their product line. The company

could do so by acquiring craft brewers and putting them under their umbrella. AB InBev as a

company is very effective at building brand philosophies, and that could allow them to

effectively target their marketing campaigns to consumers who would normally view their

products as lowbrow.

Another strategy management could consider is branching out into the manufacturing

and/or sale of other alcoholic beverages. Wine has proven to be more consistently profitable

than beer, and the popularity of spirits is on the rise. AB InBev could invest in these beverages

to diversify their portfolio and assure that, even in bad years, they’re still receiving steady
INDIVIDUAL CASE 22

profits. They have the reach necessary to transition successfully, and since sustainable

products are popular all across the developed world, they have a built in market for whatever

brand of wine or spirit they choose to create or invest in, so long as it meets the company’s

sustainability standard. They also have the size necessary to manufacture or purchase these

products on an ergonomic scale, and their preexisting distributor relationships could be

valuable in helping their newly created or purchased brands reach the right consumers.

Purchasing craft breweries could help AB InBev maximize their strengths, but it could

also be a very effective strategy for covering their weaknesses. AB InBev has been losing

marketshare for years, and they could offset this loss by purchasing some of the smaller

companies that they’ve been losing it to. They even have the added bonus of being able to

brew more sustainably than most of their small-scale competitors since they have the

resources necessary to invest in sustainable brewing, and the power to enforce sustainability

policies on their suppliers. This is important because there is probably considerable overlap in

the market segments that prefer craft beers and those that prefer sustainable products.

Another WO strategy would be for AB InBev to seek joint ventures instead of

acquisitions in order to maximize marketshare and profits, and to offset poor product

performance, all while avoiding costly legal disputes over antitrust violations. This could be a

backup strategy for capitalizing on Corona in the United States if legislation didn’t allow AB

InBev to purchase the US rights. They could instead form a joint venture with Constellation

Brands, offering their resources and connections in exchange for the ability to claim an agreed-

upon amount of profits from the Corona brand.

The first ST strategy I would recommend for AB InBev is to launch a full-on marketing

campaign to advertise their eco-friendly stance. In a 1025 study that “polled 30,000

consumers in 60 countries around the world,” researchers found that 73% of millennials were

willing to pay more for sustainable products (Curtin, 2018). With AB InBev’s strong self-

concept and sustainable brewing process, they have everything they need to mount a powerful

campaign and position themselves as the sustainable brand for millennials. This could distract
INDIVIDUAL CASE 23

from some of the bad publicity they’ve gotten for behavior that many have deemed

monopolistic and anticompetitive, as well as help them connect with younger consumers.

They could also take advantage of their worldwide reach and wealth of resources to

purchase foreign importers, or at least purchase the right to sell their brands in the United

States. This would neutralize some of the threat posed by foreign importers, and, at the same

time, counteract the brewing industry’s poor market growth, at least in the US. They could also

use their already-popular Budweiser or Bud Light brand to compete with craft breweries and

imported beers. They could update the brand image by releasing a higher quality version of

the product. At current, AB InBev’s high-end beer is Michelob Ultra, though sales of that brand

are far lower than sales of Budweiser and Bud Light. AB InBev could focus instead on using

the Budweiser name to market a newly created high-end beer, or simply rename and rebrand

Michelob. This could help them regain some of the marketshare taken by smaller breweries

that offer higher quality products.

This goes into the first WT strategy, which is to sell off or repurpose less successful

brands in order to free up resources to focus on the big sellers. This could reduce their debt

load, as well as trim off some of the peripheries that contribute to the decentralization of the

company’s business structure. This could also help them maneuver more without worrying so

much about antitrust regulations and reduce their operating costs, something that could do

them a lot of good in an ailing market. They could pool whatever resources they freed up by

trimming the fat into the more successful brands, which could hopefully combat falling sales

and allow them to expand their marketshare. They could invest the resources in a rebranding

campaign since modern consumers are less responsive to their popular brands than

consumers were in the past.

Something else that’s become more common in the modern business sphere is the

extensive use of social media, not only to connect with consumers, but also to covertly

undermine competitors. Since social media is viewed as very personal, disparaging remarks

towards other businesses are often seen as jokes, akin to two friends taking jabs at each other.
INDIVIDUAL CASE 24

A well-groomed social media presence can generate a lot of buzz for businesses, especially

among younger consumers, and the associated costs are extremely low compared to

traditional advertising. It would also allow them to control their narrative more effectively, so

they could redirect attention away from more scandalous news about the company and

towards their lighthearted postings. If used effectively, social media marketing could boost

sales among key demographics and allow AB InBev’s brands to take back some of their lost

marketshare.

INDIVIDUAL CASE 25

AB INBEV NV (BUD) FINANCIAL RATIOS:

Ratio Industry Average AB InBev AB InBev

(Year ending Dec
31, 2017)

Profitability

Gross Profit Margin (TTM) 59.31% 62.73% 62.11%

Operating Profit Margin (TTM) 31.98% 30.84% 30.73%

Net Profit Margin (TTM) 20.99% 10.21% 14.17%

Management Effectiveness

Return on Assets (TTM) 13.53% 2.33% 3.72%

Return on Equity (TTM) 28.36% 6.2% 11.41%

Return on Investment (TTM) 17.88% 2.84% 4.84%

Liquidity

Current Ratio (MRQ) 1.52 0.53 0.66

Quick Ratio (MRQ) 1 0.41 0.41

Debt

Debt to Equity (MRQ) 66.54% 170.45% 145.22%

Times Interest Earned (TTM) 2.42 3.70 N/A

Asset Activity

Receivable Turnover (TTM) 7.32 8.44 7.55

Average Collection Period 49.86 43.24 48.34

(TTM)

Inventory Turnover (TTM) 3.51 4.87 5.19

Total Asset Turnover (TTM) 0.23 0.54 0.23

Market Value

P/E Ratio (TTM) 31.48 38.19 26.65

Price to Book (MRQ) 6.85 2.45 N/A

Dividend Yield 3.15% 4.09% 3.52%

Dividend Payout 83.89 126.51 N/A

- TTM = Trailing Twelve Months; MRQ = Most Recent Quarter

- Sources: (Investing.com, 2019), (Macrotrends, 2019)

INDIVIDUAL CASE 26

FINANCIAL ANALYSIS:

Overall, the firm is adequately profitable compared to industry standards and compared

to their past performance, so that could be considered a strength. Their use of assets and

equity leaves a lot to be desired though, seeing as their returns on assets, equity, and

investments are meager compared to industry standards. These returns all showed a

noticeable decline from the year ending on Dec 31, 2017 to the trailing twelve months. This

means that not only is AB InBev’s use of resources poor compared to competitors, but also

compared to their past performances, which gives even more reason for concern.

AB InBev’s turnover ratios are higher than the industry standard, though, which tells us

that the issues in their usage of assets is probably in their long-term assets, not short-term

assets, since they move their products more efficiently than competitors and net more sales

dollars per dollar invested in assets. This could indicate that their low returns are just based on

the sheer amount of long-term assets they own (i.e, plants, trucks, warehouses, offices, etc), a

side-effect of their massive size. If this is the case, AB InBev could consider downsizing their

business to improve efficiency. They could possibly do this by selling off some of their

peripheral brands and unloading some of their production or administrative properties.

AB InBev’s liquidity is even more alarming than their returns. Their current ratio is 0.53,

which means they only have 53 cents of current assets for every dollar of current liabilities. In

other words, the company has absolutely no working capital. So, not only is the firm poorly

utilizing its assets relative to industry standards, but they are also completely incapable of

paying off their short-term debt with their short-term assets. That isn’t a promising

combination since it renders raising short-term capital virtually impossible.

AB InBev’s quick ratio is even worse, though it’s at least remained consistent

throughout the duration of time analyzed above, whereas the current ratio has worsened

considerably. Their times interest earned ratio is a bit higher than the average for their industry,

though, which means that the firm is better able to cover its interest expenses with its

operating income than its competitors; a positive sign. That positivity must be taken with a
INDIVIDUAL CASE 27

grain of salt, though, considering how highly leveraged the firm is. A 170.45% debt to equity

ratio means that the company has $1.70 of debt for every $1 of equity, a measurement that is

far above the average in an industry that seems to rely more on equity than debt financing with

an average debt to equity ratio of 66.54%. The fact that this number has increased since 2017

is alarming; considering this, the poor current ratio is no surprise, and the times interest earned

ratio could take a serious hit in the near future as well if the company’s debt trend continues.

However, AB InBev’s P/E ratio has improved since 2017, and is commendably better

than the industry average at current. This shows that investors are still willing to pay more for

AB InBev’s stock than for its competitors, meaning that, despite some alarming financial

trends, AB InBev has managed to keep investors interested thus far. This is a good sign

considering that the company may need to up their equity in the future to offset their highly-

leveraged position.

Their price to book value, however, is lagging compared to the industry average, so the

market price of their stock isn’t as favorable in comparison with its book value when contrasted

with competitors. If the price to book ratio is high, “…analysts often conclude that the market

believes the company’s future earnings are worth more than the firm’s liquidation

value” (Gallagher, 2016). So, while the P/E ratio indicates that investors are willing to pay more

for AB InBev stock now, the price to book ratio indicates that they may not be confident in the

company’s future earnings, which could spell out trouble attracting investors down the line.

This is concerning because the firm’s highly-leveraged position may make raising capital

through debt an unattractive option in the future, so if investors are no longer willing to supply

capital, they could be faced with either taking on a bigger debt load than they can reasonably

afford or not having enough long-term capital. Both scenarios could lead to bankruptcy or

worse.

The dividend yield shows that AB InBev pays a higher percentage to investors than

competitors, which could factor into their higher P/E ratio. The dividend payout ratio, however,

could indicate trouble. The fact that AB InBev’s payout ratio is so much higher than the
INDIVIDUAL CASE 28

industry average could be more cause for concern than celebration since, “significantly high

ratios are unsustainable” (Ross, 2019). This could indicate that AB InBev is trying to distract

investors from troubling financials by paying more in dividends, a strategy that may reap short-

term rewards, but is not feasible in the long run. This could be a contributing factor to the

companies price to book ratio.

It also brings into question the decision-making of AB InBev’s management. It could be

management’s last ditch effort to make the company attractive to investors and to make up for

obvious failures elsewhere, considering AB InBev’s abysmal ratios in the management

effectiveness category. Since AB InBev’s numbers are low compared to both past

performances and industry standards, the poor current performance cannot be chalked entirely

—or even mostly—up to overall industry decline. AB InBev should either seek to reform

managerial processes, or, if the issues are pervasive enough, to audit and possibly terminate

some of their current management team and seek replacements.

INDIVIDUAL CASE 29

AB INBEV QSPM ANALYSIS:

QSPM STRATEGIC ALTERNATIVES

Strategy 1: Strategy 2: Strategy 3:

Purchase the Purchase craft Sell off less
right to sell brands and successful
Corona in the rebrand them as brands to reduce
United States high end, eco- unnecessary
friendly beers liabilities

Opportunities Weight AS—————TS AS—————TS AS—————TS

Largest domestic market 0.10 4—————0.40 3—————0.30 —

share

Most popular brand in 0.10 — — 2—————0.20

America (Bud Light)
Global market opportunities 0.09 3—————0.27 4—————0.36 —

Established market for 0.07 2—————0.14 3—————0.21 —

sustainable products
Beer is popular with multiple 0.05 2—————0.10 2—————0.10 —
demographics

Distributor Relationships 0.04 4—————0.16 4—————0.16 —

Acquiring craft breweries 0.04 — 4—————0.16 3—————0.12

Threats

Popularity of craft & 0.10 — 4—————0.40 —

imported beers
Competition from other 0.09 3—————0.27 3—————0.27 —
large-scale breweries (i,e.
Heineken, Coors, etc)
Poor market growth 0.09 4—————0.36 3—————0.27 4—————0.18

Antiquated brand image 0.07 — 2—————0.14 2—————0.14

Disinterest from younger 0.06 — 4—————0.24 —

consumers
Antitrust & Competition 0.06 — — 4—————0.24
Laws

Poor publicity 0.04 1—————0.04 3—————0.12 4—————0.16

INDIVIDUAL CASE 30

Strategy 1: Strategy 2: Strategy 3:

Purchase the Purchase craft Sell off less
right to sell brands and successful
Corona in the rebrand them as brands to reduce
United States high end, eco- unnecessary
friendly beers liabilities

Strengths Weight AS—————TS AS—————TS AS—————TS

Well defined self-concept 0.10 4—————0.40 4—————0.40 3—————0.30

and philosophy
Strong corporate culture 0.09 4—————0.36 4—————0.36 4—————0.36

Economy of scale 0.09 4—————0.36 4—————0.36 2—————0.18

Multiple successful brands 0.08 4—————0.32 4—————0.32 4—————0.32

Worldwide reach 0.06 4—————0.24 4—————0.24 —

Eco-Friendly brewing 0.05 2—————0.10 3—————0.15 —

methods
Acquisition of main 0.03 — — 4—————0.12
competitor (SAB Miller)

Weaknesses

Falling Budweiser sales 0.10 3—————0.30 2—————0.20 —

Loss of marketshare 0.10 3—————0.30 2—————0.20 —

Highly Leveraged 0.08 — — 4—————0.32

Legal Issues 0.06 — — 4—————0.24

Investment-tier Downgrade 0.06 1—————0.06 1—————0.06 4—————0.24

Difficulties integrating with 0.05 — — 2—————0.10

SAB Miller

Decentralized structure 0.04 — — 4—————0.16

TOTAL 4.18 5.02 3.38

INDIVIDUAL CASE 31

STRATEGY SELECTION:

Opportunities:

The first strategic option analyzed for AB InBev is to purchase the rights to sell Corona

in the United States from Constellation Brands. This would help AB InBev increase their

domestic market share and strengthen their global presence since the US is the biggest sales

region for the European-based company. They could market is as a sustainable beer, which

may help drum up more interest for the brand from consumers who may otherwise choose a

different brand, allowing AB InBev to take advantage of the cross-demographical appeal of

beer. With the strength of the company’s preexisting distributor relationships, adding a new

product to their roster, especially one as successful as Corona, would be no trouble.

For the most part, the same could be said for the second strategy, acquiring and

rebranding craft brewers. The main differences are that the smaller craft breweries would not

increase AB InBev’s domestic marketshare quite as much or as quickly as Corona would, and

that their would probably be more overlap between market segments interested in sustainable

products and those interested in craft-brewed beer, so this strategy could better capitalize on

that opportunity. The third strategy, downsizing the company, wouldn’t do much to capitalize

on opportunities as it is a more conservative approach. It would, however, allow AB InBev to

focus more of their resources on their main brand, Bud Light, and to have more free capital that

could be put toward the acquisition and repurposing of craft breweries.

Threats:

Strategy One would help AB InBev compete against other major breweries, especially

since Constellation Brands is one of their biggest US competitors, though it would not do

much to alleviate the rising competitiveness of craft and foreign brewers. However, the added

revenue flow of the Corona brand could do a lot to offset downward sales trends caused by

poor market growth in the brewing industry. The news of the acquisition could also distract

from some of AB InBev’s poor publicity since it is a widely-liked brand, though it could also
INDIVIDUAL CASE 32

cause bad publicity if mismanaged, fueling the image of AB InBev as an anticompetitive

corporation.

The second strategy would be far more effective for neutralizing threats. It would cash

in on the popularity of craft breweries and combat disinterest from younger consumers by

giving AB InBev new brands with fresher images, though it would not help with the AB InBev

brands that are already struggling. It would also help the company compete against other

large-scale competitors, albeit in a different way. Instead of buying large brands to compete

directly, Strategy Two involves buying several smaller brands that could compete in the

emerging craft beer market, which would simultaneously help the company combat the overall

poor growth of the brewing market. Smaller brands could also help diffuse the company’s

monopolistic image.

The third strategy would help AB InBev combat poor market growth by reducing their

liabilities so that the company could face the poor market conditions by running more

ergonomically. They could also improve their overall brand image by removing some of the

less popular brands from their line-up and only keeping the higher sellers. Finally, downsizing

the company would be the most direct way to address antitrust and pro-competition law

violations and the accompanying bad publicity, as well as decrease the likelihood that the firm

would run up against these barriers in future endeavors.

Strengths:

The acquisition of Corona could be especially profitable to AB InBev considering how

strong their philosophy and corporate culture are. Another large-scale brand could also make

the production cost per unit even lower by increasing their economy of scale, and, since AB

InBev has already successfully marketed Corona elsewhere, they have the knowledge and

resources necessary to add it to their list of successful US brands. It would solidify the

company as the worldwide supplier of Corona beer, and their eco-friendly brewing methods

could make the product even more desirable to some. Purchasing craft breweries would offer
INDIVIDUAL CASE 33

many of the same advantages in the strength category. AB InBev’s economy of scale would

allow them to produce craft beers for cheaper than many of their smaller craft brewing

competitors, and the companies strong branding could help the smaller craft brands become

prominent and recognizable. They could also market craft brands on an international scale far

more effectively than most other craft breweries as they have both the resources and

connections necessary to outmaneuver smaller competitors. Many craft breweries are also

eco-friendly as well, so it would save them the trouble of having to retool product facilities or

find new suppliers.

Downsizing the company wouldn’t do much for the self-concept and philosophy,

though it would at least make it a bit more focused by cutting off some of the unnecessary

extremities. Excessive size can dilute a message, making a philosophy less potent. The

erasure of these extremities would help the company’s corporate culture more significantly,

however. Decentralization can make it difficult to keep a corporate culture consistent, so

downsizing could strengthen the culture within the remaining company. It could also help them

pool their resources in their remaining brands and optimize their current economy of scale by

removing unnecessary operating expenses—expenses that drain the company without

producing enough income to justify their existence. One of the biggest issues with AB InBev’s

acquisition of SAB Miller was the increase in the companies liabilities. Selling off some of their

less profitable assets would also diminish the concurrent liabilities, improving the company’s

balance sheet in the wake of their last acquisition and putting them in a better position for

future strategy implementation.

Weaknesses:

The addition of Corona to AB InBev’s brand portfolio will help offset Budweiser and Bud

Light’s falling sales, and help offset AB InBev’s declining marketshare as well, but it will not

completely fix either of these issues. AB InBev still needs to invest in retooling the Budweiser

brand, and the purchase of a new brand will only forestall the effects of the declining beer
INDIVIDUAL CASE 34

market. It could also possibly help make the company more attractive to investors if the

acquisition is managed well, but that would only be the case if the liabilities associated with

purchasing the new brand were within a tractable range. Strategy Two would offer similar

advantages, but not quite as strongly as the first. The acquisition of smaller brands wouldn’t

do as much to offset the falling Budweiser sales or to regain the firm’s lost marketshare, at

least not in the short run. If current trends in the market pan out, however, it could be a more

attractive strategy in the long run, but Strategy Two was still rated as less attractive in those

categories because the market is impossible to predict so shorter term considerations are a

more useful tool for padding current weaknesses.

As the most conservative of the options, Strategy Three is most geared towards

resolving some of AB InBev’s weaknesses with as little risk as possible rather than actually

pushing the company forward. Downsizing would allow the firm to get rid of some fo its debt

loads and reduce the amount of long and short-term capital necessary for future operations.

This would improve their equity standing, and hopefully result in a better appraisal of their

investment-tier. It would also abate the legal issues caused by their size and allow them to

implement future strategies without wasting as much in legal fees trying to justify the legality of

their acquisitions or mergers. To some extent, downsizing would lessen the struggles of

integrating with SAB Miller because the more centralized structure could be more focused and

effective in dealing with internal issues, and the less-effective members of the firm’s upper

management could be either downgraded (sense less upper-management positions would be

necessary) or let go.

Ethical Considerations:

Ethically speaking, Strategy One could be problematic. When AB InBev acquired

Grupo Modelo—the Mexican brewery responsible for the Corona brand—in 2012, they were

forced to relinquish the rights to the brand in the United States in accordance with antitrust

legislation, which is why Constellation Brands owns the US rights to Corona (Flannery, 2012).
INDIVIDUAL CASE 35

Now, seven years later, AB InBev may be able to reverse that decision. The economic

authorities are growing ever-friendlier towards corporate consolidation, and AB InBev could

also possibly make the case that, because of their size, the market could be significantly

effected if they were to fail, giving credence to their decision to purchase back the rights to one

of their most successful brands. From a business perspective, it’s a smart move, but

aggressive expansion could be construed as ethically unsavory due to the company’s size; it

could be considered anticompetitive.

The ethical considerations when it comes to AB InBev purchasing smaller craft

breweries are similar. The brewing industry has more or less been an oligopoly for years, the

only change coming with the burgeoning popularity of craft and foreign breweries. These

breweries offer new competition in a stagnant industry, forcing larger companies to update

their products and listen closer to the desires of their consumers. If these small-scale brewers

are bought out by cooperations, it could undermine the competitiveness of the industry as a

whole, leaving only a few large-scale companies with any real market power. These are

considerations that AB InBev’s management must make before making any acquisitions, and

their legal team should work closely with lawmakers to assure there are no violations before

any action is undergone.

For the third strategy, there are no significant ethical complications. If anything, it would

actually be ethically favorable since it would allow for more competition in the market and

decrease AB InBev’s ubiquitous size, if only by a little.

Recommendations:

All things considered, Strategy Two is the most attractive option. It has a larger

potential positive impact on the firm than Strategy Three while not being as legally or ethically

problematic as Strategy One. It would allow the company to keep up with market trends and

invest in a product that has more potential for growth than those they currently offer. It would

involve cannibalizing their more mainstream products, to some extent, but since those
INDIVIDUAL CASE 36

products are losing marketshare anyway, it would be better if that lost marketshare went to

another AB InBev brand rather than a competing company. Purchasing craft breweries, then,

would most effectively counter both the declining sales and declining marketshare mentioned

in the case statement.

This strategy, however, does rely on the assumption that AB InBev has the funds

available for such acquisitions, and the assumption that their management could adequately

handle the new additions. Given the financial analysis of AB InBev, it is unclear whether AB

InBev is really in a position to make aggressive moves, especially since the company is still

suffering from the liabilities incurred by their last large-scale acquisition. It could also cause

even more disorganization in their chain of command, which could be problematic

management effectiveness has not been ideal in recent years.

So, if an aggressive approach is not possible due to the company’s internal and

financial factors (something I have know way of knowing with any certainty), then Strategy

Three would be preferable. It would not combat falling sales or lost marketshare, but it would

at least offset some of the damages. Strategy Three was the least attractive, but it also carried

the least risk. If the firm can handle the risk of implementing one of the first two strategies,

then Strategy Two would be ideal. If not, they should cut their losses and take the conservative

route with Strategy Three.

INDIVIDUAL CASE 37

IMPLEMENTATION PLAN:

I will continue under the assumption that AB InBev has the necessary resources to

implement Strategy Two and lay out the corresponding implementation plan, which will

consider the marketing, operational, and financial facets of purchasing and rebranding craft

breweries.

Marketing:

Marketing will be arguably the most important part of the strategy. Given that the

companies AB InBev plans to purchase are already fully operational and already have fully

developed financial systems in place, AB InBev will only have to worry about integration on

those fronts. When it comes to marketing, however, they are faced with a crucial decision.

They can either try to keep branding as is and just slap their logo in the background on the

product packaging somewhere, or they can rebrand them to suit their purposes. I would

recommend the latter option for a few different reasons, the first being that it’s effectively

impossible for AB InBev to own a “craft brewery” in the traditional sense of the title.

“…in 2017 the Brewers Association developed a seal that craft breweries could label

their product with, distinguishing them from big beer” (Stanz, 2018). This means that craft

brands can no longer even be considered “craft” anymore once they’re purchased by am

international brewery, so any craft brand purchased by AB InBev would have to be marketed as

something else. Regardless of seals, though, I would recommend that AB InBev shift the focus

of their marketing; it’s simply a good idea considering the scope of the transition from a craft

brand to a national or international brand.

The core appeal of craft breweries to consumers is that they are independent and

homegrown. A joint research effort by the Brewer’s Association and Nielsen Research found

that slightly over half of committed craft-beer-drinkers preferred craft brands over national

brands because of the fact that they are locally made (Bernot, 2015). Craft drinkers also rated

whether or not a beer is “independently brewed” as a deciding factor for them. The minute an
INDIVIDUAL CASE 38

international conglomerate like AB InBev purchases a craft brand, then, the very core of its

appeal is undermined. So, considering all of this, I would steer AB InBev away from the idea of

sticking with the brands’ preexisting marketing structures and catering to their preexisting

consumers. I’m not saying that they should completely alienate the brands’ consumer bases

or make absolutely no attempt to appeal to them, but realistically, a major change in ownership

like Strategy Two suggests will put off consumers, and AB InBev needs to plan their marketing

and branding efforts around that.

Because of AB InBev’s sheer size, I don’t think it’s necessary for them to contract an

external marketing agency for their campaign. In 2018, the company altered their global chief

marketing officer (CMO) position and introduced a new CMO, Pedro Earp; these altercations

place Earp as chief officer of both marketing and ZX Ventures, AB InBev’s venture capital fund

(Vizard, 2018). The changes were made in the interest of being able to capitalize on new

market trends quicker, and Strategy Two provides a good opportunity to take advantage of

those changes. For global marketing, Earp could initiate and fund the necessary campaign,

while Miguel Patricio, the previous CMO and current global marketing project supervisor, could

direct the campaign. Since Patricio reports to chief executive officer (CEO) Carlos Brito not

Earp, this marketing strategy would require significant collaboration between the CEO and

CMO.

Within the US, the effort could be led by Craig Weiner, AB InBev’s senior director of

craft sales (Furnari, 2018). At present, AB InBev has a total of 12 craft brands in their craft

business unit (which was previously a part of their “The High End” craft and import division but

has recently been separated). Carolyn Zwiener, the company’s director of craft marketing,

oversees content creation and innovation for these brands, and she would retain that position

during the implementation of Strategy Two.

INDIVIDUAL CASE 39

Operations:

While Pedro Earp is now the chief officer of ZX Ventures, the venture fund is still

directed by Bernardo Novick, and it runs largely independently of the rest of AB InBev (Vizard,

2018). The fund is responsible for the acquisition and development of new products and

brands, with a special focus on craft brewed and home brewed additions. Novick, then, will

ostensibly function in a role similar to chief operating officer (COO) for the acquired brands. As

mentioned earlier, these brands will already have operational structures, and these structures

and the mangers that oversee them don’t need to be scrapped; each brand will still have their

individual COOs. Novick, however, will function as the general COO of the coordinated effort,

assuring that all of the moving pieces involved stay in balance with one another. He will be a

liaison of sorts between the operational structures of the incoming brands and the operational

structure of AB InBev as a whole.

The operation expenses for each acquired company should already be covered by the

company’s profits. Between the ZX Ventures fund and the craft business unit, operating

margins and other financial ratios of potential craft breweries would be screened; only then

could AB InBev’s management come to a decision about whether an acquisition would be

advantageous or not. If the potential brewery has poor ratios due to issues that could be easily

rectified with AB InBev’s resources—i.e, they have problems with the scale of their operations

or optimizing their supply chain—they may still be considered by management, as they may

represent an opportunity for AB InBev to cheaply acquire a company that could be very

profitable, given the necessary care.

Finance:

In reality, the acquisitions would most likely be financed through ZX Ventures, but

because the exact interplay between ZX and AB InBev is not public information, and ZX

Ventures is for all intents and purposes another independent company, we will assume that AB

InBev will finance the acquisitions itself, as illustrated by the EPS/EBIT analysis below.

INDIVIDUAL CASE 40

EPS/EBIT CHART:

Before launching into the EPS/EBIT charts, I will briefly discuss my methodology here.

The amount required is based on the assumption that AB InBev will acquire three craft

breweries in as many years. In 2011, AB InBev purchased their first craft brewery, Goose

Island, for $38.8 million (Flanigan, 2018). The marketshare and revenue of craft breweries has

steadily risen since, so we can assume that purchasing a successful craft brewery in 2019

would be several times more expensive than in 2011 (especially considering that in 2015,

Constellation Brands paid a whopping $1 billion for Ballast Point, a craft brewery from San

Diego) (Pierson, 2015). Ballast Point is most likely an outlier as far as price goes, so we’ll

continue under the assumption that AB InBev will have to pay roughly $100 million per craft

brewery, a little under three times what they payed 8 years ago.

The interest rate is arbitrary, but the tax rate is based off of AB InBev’s 2018 tax rate,

which was 33.3%. The stock price is a rounded number based off of AB InBev’s most recent

stock price ($83.97), and the shares outstanding are based off of information from AB InBev’s

2018 financial documents. Finally, the EBIT range is based off of the assumption that AB InBev

will make $15 billion on an average year, which is derived from the fact that their EBIT was

approximately $17 billion for the past two consecutive years, and approximately $13 billion for

the two consecutive years before that. $15 billion, then, is a realistic average that neither

overstates nor understates AB InBev’s abilities based on past performances.

• Amount Required - $300,000,000

• Tax Rate – 33.3%

• Interest Rate – 8%

• Stock Price - $84

• Common Stock Shares Outstanding - 1,975,000,000

• EBIT Range - $10B - $20B

INDIVIDUAL CASE 41

Common Stock Financing Debt Financing

Recession Normal Boom Recession Normal Boom
EBIT $10B $15B $20B $10B $15B $20B
Int — — — 0.08 0.08 0.08
EBT $10B $15B $20B $9.2B $13.8B $18.4B
Taxes $3.33B $4.995B $6.66B $3.0636B $4.5954B $6.1272B
EAT $6.67B $10.005B $13.34B $6.1364B $9.2046B $12.2728B
Shrs 1,978,571,429 1,978,571,429 1,978,571,429 1.975B 1.975B 1.975B
EPS $3.37 $5.06 $6.74 $3.11 $4.66 $6.21

70% Stock - 30% Debt 70% Debt - 30% Stock

Recession Normal Boom Recession Normal Boom
EBIT $10B $15B $20B $10B $15B $20B
Int 0.024 0.024 0.024 0.048 0.048 0.048
EBT $9.76B $14.64B $19.52B $9.52B $14.28B $19.04B
Taxes 3,250,080,000 4,875,120,000 6,500,160,000 3,170,160,000 4,755,240,000 6,340,320,000
EAT 6,509,920,000 9,764,880,000 13,019,840,000 6,349,840,000 9,524,760,000 12,699,680,000
Shrs 1,977,500,000 1,977,500,000 1,977,500,000 1,976,071,429 1,976,071,429 1,976,071,429
EPS $3.29 $4.94 $6.58 $3.21 $4.82 $6.43

The chart shows that, while all the EPS results are comparable, common stock

financing is the best option, followed by 70% stock and 30% debt (if the company isn’t able to

raise quite $300,000,000 worth of stock). The EPS/EBIT charts exemplify what I mentioned

earlier, which is that equity is the best financing option for AB InBev at current. Their debt load

is heavy enough as is, they should avoid adding any more debt to their balance sheet as much

as possible.

PRO FORMA INCOME STATEMENT:

For the pro forma income statement, we will assume that AB InBev’s sales will increase

by 10% over a three year period. Their sales increased by roughly 20% from 2011 to 2014
INDIVIDUAL CASE 42

after they began their first craft brewery acquisition campaign, so we will continue under the

assumption that half of that growth was from those acquisitions. We cannot assume that the

external circumstances will be the same again, so this projected financial statement will only

take into consideration the 10% growth expected from Strategy Two over a 3 year period. In

this period, AB InBev needs to raise $300 million in capital through equity, an increase that will

be split between the three years.

Note: the information provided from 2018 is directly from AB InBev’s financial statements; the

projected years use percentage of sales based on 2018’s sales numbers.

PROJECTED FINANCIAL STATEMENT

2018 2019 2020 2021

Revenue $54,619 $55,975 $57,780 $59,585

Cost of Goods $20,359 $20,711 $21,379 $22,046

Sold

Gross Profit $34,260 $35,264 $36,401 $37,539

Operating $37,412 $38,063 $39,290 $40,518

Expenses
Operating $17,207 $17,912 $18,490 $19,067
Income

Total Non- -$8,675 -$8,956 -$9,245 -$9,534

Operating Income/
Expense

Pre-Tax Income $8,530 $8,956 $9,245 $9,533

Income Taxes $2,839 $2,955 $3,051 $3,146

Income After $5,691 $6,001 $6,194 $6,387

Taxes

Net Income $4,368 $4,478 $4,622 $4,767

EBIT $17,207 $17,912 $18,490 $19,067

Basic Shares 1,975 1,976 1,978 1,979

Outstanding

Basic EPS $2.21 $2.27 $2.34 $2.41

INDIVIDUAL CASE 43

CONCLUSION:

AB InBev is in a unique position to capitalize on the sale of craft beer because of the

fact that the sales channels that craft breweries have been yet to crack in any significant way

are convenience and drug stores. In these channels, craft beers only make up 4.6% and 8.7%

of sales, respectively, compared to the 20.1% of sales that they make up in grocery stores

(CPG, FMCG, & RETAIL, 2015). AB InBev has far better connections than your average craft

brewery, so they could focus on those untapped distribution channels and possibly expand the

popularity of their craft beers in a way that other breweries would have difficulty replicating.

This may involve cannibalizing some of their own sales of certain brands, to some extent, but it

would expand their portfolio and hopefully allow them to raise their sales overall by diverting

consumers to a different AB InBev brands instead of allowing them to purchase from different

companies. By utilizing their dedicated sales, marketing, and executive teams, AB InBev could

implement Strategy Two—the purchase of craft breweries (and the reappropriation of craft

breweries, in some cases)—to great effect, thereby offsetting difficult downwards sales trends

and unideal market conditions.

INDIVIDUAL CASE 44

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INDIVIDUAL CASE 47

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