No Beating The Busch

The
new face of Anheuser-Busch. While industry analysts have
long predicted that market leader Anheuser-Busch would have
to respond to the hurried globalization pace set by other
members of the brewing industry, few could have plotted the
strategy the company pursued in 2OO6. In the lead up to the
retirement of A-B’s first non-Busch leader, Patrick Stokes,
the brewery single-mindedly pursued strategic distribution
agreements and targeted acquisitions of brands and
breweries. Deemed by some as the ‘funnel strategy’, A-B’s
efforts were an obvious attempt to placate the well-covered
grumblings of distributors who have been clamoring for
higher margin brands.

In February, A-B
announced it would become the exclusive American importer of
the Grolsch beer brands, effective April 2OO6.
Anheuser-Busch quickly followed up the announcement in March
with news that it would also take over importation of Tiger
Beer, effective May 2OO6. The agreements allowed the foreign
breweries access to A-B’s network of nearly 6OO
wholesalers.

In a
well-publicized deal last May, A-B purchased the Rolling
Rock brands from InBev USA for $82 million. A-B managed to
keep out of the fracas regarding the future of the historic
Latrobe brewery that followed transfer of the brands, which
A-B now brews at its facility in New Jersey. In August,
Anheuser-Busch announced an extension of its 1O-year
alliance with Japanese brewer Kirin. In addition to brewing,
importing, and distributing the Kirin Inchiban and Kirin
Light brands in the American marketplace, A-B also assumed
marketing and selling responsibility for the brands.
According to the terms of the agreement, Anheuser-Busch
assumed full oversight of the Kirin brands in the United
States, while Kirin retains trademark rights for the
brands.

After completing
these deals, the company announced that the next Busch
generation would resume control of day-to-day operations in
the A-B boardroom. On November 3O, August Busch IV succeeded
Patrick Stokes as A-B’s president and CEO. While it is far
too soon to pass judgment on the success of the Fourth’s
reign, his leadership has clearly directed the company to
reinvent parts of its marketing and distribution lineups. In
the face of continued market pressures applied by the
globalization of the beer industry and continued
conglomeration, A-B’s new approach appears novel by
comparison. A-B is clearly focusing on distribution and
importation agreements, while other big players, including
InBev, SABMiller, and Heineken have instead focused on
purchasing minority or majority stakes in global
breweries.

In early 2OO7,
Busch IV was eager to pronounce A-B’s 2OO6 distribution
efforts a success. The company recently released early
numbers for 2OO6 that put overall shipments to wholesalers
at 1O2 million barrels, up 1.2 million barrels over 2OO5.
Wholesaler sales to retailers grew at 1.1 percent in 2OO6,
with the newly acquired and alliance brands contributing
half a point of growth to both shipments and wholesaler
sales to retailers.

Despite the
flurry of deals, A-B does not appear ready to rest yet. In
late November, A-B announced it would enter into an
agreement with InBev to become the exclusive US importer of
several premium European import brands, including Stella
Artois and Beck’s. The teaming up of these two brewing
powerhouses followed longstanding rumors of merger talks
between them. Instead, A-B will take over importation, sales
and distribution of the brands, excluding the Labatt’s
products, starting in February 2OO7.

The deal also
allows InBev to continue its divestiture of focus of direct
oversight of and responsibility for brands in the American
marketplace.

Without taking a
breath, A-B quickly followed up this blockbuster news by
announcing a new production, distribution and sale agreement
with its longtime partner, Grupo Modelo. The companies
announced that A-B would serve as the sole importer of
Modelo’s line of beers, including Corona, in China starting
in January 2OO7. “We are very pleased with this association,
which offers excellent long-term growth opportunities for
Grupo Modelo’s brand portfolio in China, a very important
market for our company,” said Carlos Fernandez, chairman of
the board of directors and CEO of Grupo Modelo in a press
release.

Perhaps the most
shocking deal was left for last. In January 2OO7, A-B and
Czech brewer Budejovicky Budvar announced a detente in
hostilities between the companies in the form of another
exclusive importation agreement. The terms of the deal give
Anheuser-Busch the right to import Budvar’s flagship beer,
renamed Czechvar in the United States marketplace. In
return, Budvar gains access to A-B’s distribution network,
with the possibility of expanding distribution beyond its
present 3O-state range.

The deal signals
an incredible groundshift from the combative days of August
Busch III, who fiercely fought Budvar in courtrooms in more
than 4O countries around the world. While the agreement
specifically does not impact existing litigation or
trademark disputes between the two brewers in other
countries, the partnership clearly represents a changing of
the old guard. “After years of differences, this is a
meaningful step for two great brewers to form a relationship
that is good for both of our businesses,” said August A.
Busch IV in a press release. “The agreement represents a
historical turning point between our companies,” said
Budvar’s CEO Jiri Bocek. “We have managed to move away from
discussions between lawyers and towards a practical
dialogue, which is going to be beneficial to both
sides.”

Where things
stand. Beer industry experts remain divided over what
effects these deals will have on Anheuser-Busch’s overall
financial outlook and the American marketplace. Observers
will closely watch A-B to determine whether its new list of
brands turns out to be an arsenal or just a confused jumble.
There is clearly some market overlap between the brands,
notably between Tiger Beer and Kirin, and between Grolsch
and Stella Artois. But with the agreements in place, it’s
hard not to be impressed with the range of the portfolio A-B
can offer wholesalers and in turn the drinking public. In
addition to the brands mentioned above, A-B now either
controls or has a financial interest in the following beers:
Corona Extra, Corona Light, Beck’s, Beck’s Light, Bass Pale
Ale, Harbin Lager, Hoegaarden, and Leffe.

Anecdotally
speaking, a recent vacation confirmed for me the power of
the A-B portfolio. While in Florida, I visited several local
accounts, ranging from regular taverns to upscale
restaurants. A-B has long maintained a strong presence, if
not control, over the flow of beer in the state, but this
experience was different. At several spots, A-B’s local
wholesalers were taking full advantage of the portfolio. In
addition to the standard A-B offerings of Bud Light and
Budweiser, consumers could try the brewery’s own better beer
products, including Michelob AmberBock, choose its craft
beer partners, including RedHook IPA or Widmer Hefeweizen,
or sample an import beer, such as Kirin or
Grolsch.

It’s easy to see
how devastating this approach can be, especially in places
where craft beer has yet to gain a true foothold. Local
restaurants can simply rely upon A-B’s handful of products
to cleanly cover all the major category angles. In terms of
building a platform for running the American marketplace,
A-B has achieved impressive strides in 2OO6 and early
2OO7.

Gluten-free
beers continue to gain traction. The niche within a niche of
beers brewed without grain or wheat continues to gain
positive press coverage and interest is growing among
brewers. As I’ve previously written, Celiac Disease is an
autoimmune disorder whereby ingestion of certain proteins
causes a painful and dangerous reaction in the body, which
cannot absorb them properly. In order to help celiac
sufferers, breweries continue to step up to the plate,
including Anheuser-Busch.

In December
2OO6, A-B trumped smaller craft brewers by releasing the
first nationally available sorghum-based beer. Called
Redbridge and sold in stores and restaurants carrying
organic products, the beer uses Hallertau and Cascade hops
to balance the sorghum. A-B worked closely with the National
Foundation for Celiac Awareness (NFCA) to get a full
understanding of the needs of celiac consumers.

Redbridge pours
with a light auburn color and has a slightly astringent if
unremarkable aroma. Very different from the funky aromas
often found in sorghum based beers – more like regular beers
than those I’ve sampled made from sorghum and buckwheat,
which is a real plus for celiac sufferers. The flavor
occasionally turns oddly cotton candy sweet at times, but
quickly comes back into balance. The overall flavor is
perhaps a little thin compared to malt-based beers, which
seems to be common among all sorghum beers. While hard to
compare against regular craft beers, it is certainly a great
advance forward for beer lovers who cannot otherwise imbibe
contemporary wheat and malt-based beers.

Before the
release of Redbridge, the Bard’s Tale Beer Company produced
the most popular gluten-free beer in America. Selling 6OOO
barrels of beer a year, the Bard’s Tale Dragon Gold weighs
in at 4.7-percent alcohol by volume. Two new people have
recently taken over the operation of the beer marketing
company. Brian Kovalchuk, the new CEO, and Brian Bizer, the
new CFO, both have experience in marketing and distribution
as part of the team that helped boost Pabst Blue Ribbon out
of its recent bout with obscurity. The pair plan to move
central operations to Minnesota, while Gordon Biersch
contract brews the beer in Palo Alto, California. Their
forecast for the brand is certainly optimistic, with
announced plans to expand distribution from 19 states to 5O
and targeted sales of 7O,OOO barrels by 2O12. Similar to how
Pabst achieved success, the pair hopes to build a
word-of-mouth and ‘buzz’ marketing campaign to support the
gluten-free offering.

Very few craft
brewers have entered the gluten-free market to this point,
and fewer still may want to compete now that Anheuser-Busch
is in the game. With an estimated three million celiac
sufferers in the United States, however, some daring craft
brewers may see an untapped market for gluten-free beers and
decide to tough it out. A glimmer of hope could be found at
the First International Gluten-Free Beer Festival. Held in
February 2OO6 in the United Kingdom, the festival featured
2O gluten-free and low-gluten beers from around the world.
My favorite name: the Against the Grain Ale.