Inbev's new distro incentives

In my experience, anecdotal as it may be, a bar of all Bud craft is no longer only off putting to the most hardcore of geeks. I hear it from neighborhood friends, friend's wives..."Can we go somewhere else? Their beer is awful." Particularly when they conspicuously carry nothing local.

 

Well, having toured at least one large scale brewery set up to brew massive amounts of AAL and several breweries where they make the more flavorful beers that most BAs want, I'd guess it's because they can't afford to shut down all production, completely retool their equipment, retrain their personnel, and renegotiation their contracts for their ingredients.

 

"No longer buying" might be a bit of an exaggeration - they sold 53 million barrels of Budweiser and Bud Light alone last year- about 25% of all the beer sold in the US. Yeah, AB market share has been moving down for a few years (after peaking at 107 million barrels and a few tenths of percent off of 50% in '08) but their brands still make up 45% of the US market. Yeah, they're down - down to late-1990s levels.

 

The US population is up a bit since the late 1990's. Granted, their lost sales are to wine/spirits and to imports more than to craft.

 

Don't mis-understand me. I didn't mean to imply they should halt production of Bud, Bud Light, etc. I mean ADD ON to include decent brews. The die-hards can keep buying their piss beer and AB-InBev starts gaining ground on lost shares due to craft since they're in the craft mix.

 

Can't be too much of an exaggeration - market share is down, no? If it's down then that means less people are bying it. And based on the moves AB-InBev is making seems to lead one to believe they think (and probably correctly so) that the folks they've lost (hence market share) are now into craft and (read) no longer buying their piss beer. So yeah, did I once buy that piss? Yep, to be honest, am I buying it now? Nope, and never will again. Thus i'm one of the folks they're trying to squeeze back into their fold of goobers who don't know any better.

 

Thanks for posting, I saw this in the WSJ already and this has changed my opinion on AB Inbev buying craft breweries. My old response was, "more power to them, they are getting smarter". Now I condemn it because their whole strategy has been revealed which is, "Buy craft breweries and later announce this distributors incentive program to squeeze out all the other craft brewers we don't own". This way you can still get good beer, but only if AB Inbev owns them. In the future this could even drive other breweries to sell to them as their share of the market dwindles which will also mean AB Inbev can buy them for fire sale prices.

I apologize to you BA comrades you condemned it from the beginning you were right.

 

No Im not that smart. Stole it from 300

 

Well, yeah, if you'd written that "...lost market share due to some folks no longer buying..." AB products, but in that period (2008-2014) when AB's sales went down over 10m bbl., total beer sales went down 5 million - so some other folks didn't drink as much or any beer (as noted above, wine & liquor increased market share of total alcoholic beverage sales). And Crown (primarily Corona and other Grupo Modelo brands) sold 2.5m bbl. more in the US. And, of course, some folks left the beer market and new drinkers entered it. It's not so much that they are chasing their former customers by buying "craft" breweries, but, instead, they are going after companies, both craft and imports*, in the segments where market growth is occurring.

(* Since they also bought the other half of the Grupo Modelo they didn't own, not that that ultimately helps them in the US- just the opposite since they created the an independent 3rd largest beer marketer in the US.)

 

Craft beer has jumped from 10% to 20% of total sales in just a few years, so the macros are fighting back with the only strength they have, volume. They can't fight back with quality.

 

Not according to the Brewers Association:

...and a major part of the increase in "craft" last year which had the market share reach double digits for the first time was moving Yuengling's 3m bbl. from "non-craft" to "craft".

 

I said SALES, not BARRELS. That makes macros even madder, because it shows the craft industry enjoys better profit margins, all things being equal.

 

How could any store have 99% of ABI beverage? I mean, even MillerCoors would have more than 1% of a market share even in St Louis.

Good luck with this, ABI.

 

Market share is down, but, and this cannot be overstated, their profit is up...way up. I don't know how much AB cares about the US market anymore; it is still a major focus for them, but not the major focus. The major acquisitions have been made with the global market in mind. Look at the Crown purchase. They had to spin that off and now Constellation is a huge player in the US, as jess mentioned above. With the capital that group has at its disposal and some of the brands I am sure they are looking to acquire here in the next few years, not to mention the exploding Hispanic populations, they are positioning themselves as a major player a few years from now. Even the SABMiller acquisition is a global play; MolsonCoors will exercise their option to purchase the joint venture, will probably be a stronger competitor a la Constellation, and SABInBev will make huge inroads in Africa, India, and China (even after divesting Snow), making money hand over fist every step of the way, and only then think about their shrinking market share in the US, where they are significantly more worried about wine and spirits than they are craft.

So I guess, market share is down, but their profits are up, so they don't really mind, and all this commentary is just white noise to them.

 

Wholesalers, not stores.

 

AB's profit margin are preeeeeeetay, preeeeeetay, preeeeeeetay good.

 

"The line on what is ethically acceptable" is different for everyone. Therefore, for me, and it sounds like you, this practice doesn't blur the line, it crosses it..

 

It is required only to meet the incentive, it is not required to be a wholesaler. Very few distributors will actually change their business practices to meet this requirement. From a dollar and cents perspective it makes very little sense for many wholesalers to try to hit this incentive.

 

I wonder if it'll be honey before vinegar. First few years: You can get incentives if you hit these thresholds! Then it ramps up: You cannot get sought after rare products in our portfolio (BCBS, etc), or marketing dollars if you don't start hitting these baselines.

 

AB's beer is 100% commoditized and its profit margin derives from sheer volume and economies of scale. What makes them furiously jealous, however, is when DFH can brew a beer like 120 Minute that retails for up to $18 for a 12-oz. bottle. The macros don't have the "value-added" product that craft brewers have.