All the King's Beer

A-B has changed its business model by tying up crafts and imports.

In 2005, Anheuser-Busch was struggling in face of a resurgent Miller Brewing Company as well as fast-growing craft and import brands.

In 2006, it fought back. It began churning out a steady stream of new products. It also inked licensing deals for high-margin craft and import brands -- including InBev's European brands -- to augment the portfolios of its restricted distributors.

Those moves demonstrated A-B's strength. But they also reflected how A-B felt it needed to take dramatic action to improve its fortunes.

The April issue of Brew Magazine explores A-B's actions, including its implications for distributors.

From the issue:

Indeed, the central irony of A-B’s aggressive moves is that the brewer is trying to extend its dominance over more brands even as its control over the U.S. beer industry is slipping.

Consider:

-- The biggest brewer’s market share has been declining for three years. According to filings with the Securities and Exchange Commission, A-B had a 48.4 percent market share in 2006 compared to nearly 50 percent in 2004.

-- Budweiser, A-B’s second-biggest brand and accounting for roughly a quarter of its volume, has been declining for nearly 20 years. It shipped 25.8 million barrels last year, a little more than half its peak of 50 million in 1988, according to figures from Beer Marketer’s Insights.

-- Budweiser Select, a brand that was launched in 2005 to take on the surging Miller Lite, has been declining despite receiving $170 million in advertising support, according to Advertising Age.

-- Once by far the biggest brewer on the planet, A-B has been the subject of reported takeover rumors in the past year. Indeed, CEO August Busch IV last month told distributors the brewer must grow more than 5 percent a year “so that the stock price moves north so that a corporate raider doesn’t attempt a hostile takeover,” Beer Business Daily reported, paraphrasing the Fourth.

Against this background, A-B – which in 1997 told Fortune magazine it wanted 60 percent market share by 2005– changed its business model. Seeing that it couldn’t dominate the industry with its own brands – or with its own creations, such as World Select – it picked up brands in the fast-growing import and craft categories.

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The key question for A-B is whether it can grow share and what kind of execution risks it faces. After all, A-B now markets roughly 80 brands, compared to 26 in 1997, a shift that Wired editor Chris Anderson noted on his blog, longtail.com.

Another challenge for A-B is ensuring that its distributors maintain focus on their brands – including declining ones such as Bud and Bud Select – once they pick up hot brands like Stella Artois.

A-B rode to prominence by commanding 100 percent share of mind of its distributors. But in this new era it’s depending, more than ever, on the cooperation of its distributors. That’s a significant shift.

The change was underscored by a request August Busch IV made at A-B’s wholesaler meeting.

“Let’s focus on the core,” the newly minted president and CEO of A-B said, according to Beer Marketer’s Insights. “If we get too far off the reservation, we could jeopardize the core.

To see a PDF of the April issue, click here.

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