News AB InBev to spend $2 Bil in U.S. on flagship brands and support foray into hard tea & seltzer water

Discussion in 'Beer News & Releases' started by tolar111, May 16, 2017.

  1. tolar111

    tolar111 Disciple (357) Aug 17, 2008 New York

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  2. JackHorzempa

    JackHorzempa Poo-Bah (2,737) Dec 15, 2005 Pennsylvania

    “…Castro Neves calls the company’s three pillars: elevating its biggest beer brands, building its presence in craft brews and imports, and pushing beyond regular beer into low-alcohol beverages and other drinks.”

    It sounds like AB is utilizing a multi-pronged approach to better optimize their ability to make money.

    I suppose we should monitor this to see if this a financially successful strategy for them.

    Cheers!

    @Alexmc2
     
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  3. John_M

    John_M Moderator (5,479) Oct 25, 2003 Oregon
    Beer Trader

    "The brewer has acquired SpikedSeltzer, an alcoholic sparkling water"

    I think this is a smart move on the part of AB. Frankly, I've long considered them one of the leading authorities when it comes to making and selling alcoholic sparkling water.

    I predict they will do well with this latest venture.
     
  4. herrburgess

    herrburgess Meyvn (1,003) Nov 4, 2009 South Carolina
    Industry Beer Trader

    "Craft" brewers adding flavorings to all manner of beer kinda paved the way for customers to accept such things, too. It all comes full-circle eventually ;)
     
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  5. Alexmc2

    Alexmc2 Aspirant (269) Jul 29, 2006 Massachusetts

    Indeed, and I hope you noted they've invested in exactly the breweries I mentioned ;).

    They plan on leveraging the brand equity of the acquired brands and their own production efficiencies to bring them to market more profitably than their competition can. I've got no doubt they'll be successful in increasing profitability over the next few years with that strategy.

    Where I have my doubts about a company like AB, is their ability to adapt and change to market conditions. They have branded 'The High End' as their innovation lab, and a strong retail (brewpub) presence means they'll have immediate feedback about on-premise sales trends. However, I have my doubts about their management's ability can convert that data into meaningful actions to take advantage of their production capabilities.
     
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  6. Oktoberfiesta

    Oktoberfiesta Aspirant (269) Nov 16, 2013 New Mexico
    Beer Trader

    Yummy. Space Dust brewed from California.... And yet there are countless who make fun of many of us when the buyouts happen and we "freak out". Changes happen eventually. SD is priced at a near BP premium where I live. It sits and sits, and local products are thriving. I really believe we have to speak with our wallets.

    IMHO, at least where I live, these grocery stores and gas stations are not expanding their shelf space for craft beer. This is a scary thought that AB INBEV can come in and truly offer a ONE FOR ALL approach with teas, seltzer water, macro beer, and of course your craft options. Give it 4-5 months and these specialty NA products will be near the beer aisle taking up precious real estate.

    I will say though. Start with a quality product that is reasonably priced and FRESH, ala Lagunitas and people won't give a crap who owns it. I'll be honest. I would speak with my wallet and give them a shot. I'm really surprised they latched onto GI IPA as that signature IPA for their national distribution. But right now, a lot of their products like Space Dust are priced at a premium. They are doing the opposite of what Lagunitas is doing. And with that, It definitely starts at the top. This is a risky move imho.
    Bring a product that is better and not just shoved down my throat at every consumer point, and competition could work quite fairly. Is AB where talking about here. So proceed with caution
     
    #6 Oktoberfiesta, May 16, 2017
    Last edited: May 16, 2017
  7. Brolo75

    Brolo75 Meyvn (1,496) Aug 10, 2013 California
    Beer Trader

    I work for an AB distributor and this is our strength against our competition, they can't compete when it comes to price points at the point of sale, however, our price points do not always translate into sales.
    I completely agree with your second paragraph. We do fail at converting data into meaningful actions. Since InBev took over, we have significantly expanded our data collection, but, it takes a long time, I'm thinking in sales terms, to communicate that data to our corporate office, have them "interpret" that data, identify it's significance to our location, and relay a plan relevant to the data. Honestly, from a sales perspective, we are months behind, especially in on-premise sales, at our location.
     
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  8. lordofthemark

    lordofthemark Aspirant (276) Jan 28, 2015 Virginia

    Their long term decline in sales of Bud and Bud Lite,etc, leaves them with a lot of capacity in their breweries. That makes it very economical to produce new products there - whether scaled up flagships from captive craft breweries, FMBs, hard sodas, or even non alcoholic iced tea.
     
  9. bbtkd

    bbtkd Meyvn (1,021) Sep 20, 2015 South Dakota
    Subscriber

    I bet that investing in their 12 top breweries and distribution could more than pay for itself if they concentrate on efficiency and cost reduction.
     
  10. Alexmc2

    Alexmc2 Aspirant (269) Jul 29, 2006 Massachusetts

    Think about when they rolled GI IPA though, back then, it was the only craft brewery they owned. The distribution network was starved for something to compete on craft. You had a lot of AB exclusive houses back then (I know we're only talking about 6 years here). Since then, you've had an explosion in breweries and SKUs.

    In your market, what does Four Peaks distribution and pricing look like?
     
  11. JackHorzempa

    JackHorzempa Poo-Bah (2,737) Dec 15, 2005 Pennsylvania

    That presumes that they will have strong sales of their 'crafty' beers. I suspect that will indeed be the case despite the 'blow back' posts we have been reading on BA lately.

    Cheers!
     
  12. JackHorzempa

    JackHorzempa Poo-Bah (2,737) Dec 15, 2005 Pennsylvania

    I would be willing to bet that @JimBrody would state you are mistaken here?

    Cheers!
     
  13. Subcontrabass

    Subcontrabass Initiate (33) Jun 21, 2014 North Carolina

    Makes sense to me. AB has already been brewing alcoholic water for a long time.

    Jokes aside, I have seen an increase over the last year of hard seltzer water and the like at grocery stores. I haven't actually seen anyone buying it, but someone must be if it gets a spot on the shelf.
     
  14. Oktoberfiesta

    Oktoberfiesta Aspirant (269) Nov 16, 2013 New Mexico
    Beer Trader

    FP is sitting around $10/six pack, where Uinta, Deschutes, Stone, Lagunitas, 20 other regional prodcuts, and almost every local product is at minimum $7.50/six, and usually no higher than $10. So between FP and SD, they are at the upper levels nearing in on BP.

    To be completely fair, DFH just entered our state a couple months ago, and their 60 minute is sitting around $10-$11. The local products competing at $7-$10/sixer are absolutely thriving. So it's not just big bad AB INBEV not pricing their stuff right.

    And as it stands, GI is something like $9/sixer, up to $10. They just arent competing as hard as lagunitas is. Some 5 years later and it just hasnt gotten much better. Their 4pk of 16 oz cans are priced the same as a local product, Elevated IPA by La Cumbre. Vast difference in quality too imho. Yet here we stand where GI IPA is taking over quite a few taps all around my metro area. There is no reason for that one to be around when its not cheaper for the consumers (just cheaper for the bars to sell at a premium).

    @Brolo75
    Bars and such may be getting an absolute steal on buying kegs and cases of cans/bottles. But that rarely translates to a deal for us consumers. It's AB INBEVS Brand that is at stake, and they feel they can sell stuff at a premium, despite who owns them and the cost it is to make. They shouldn't be punished for making a solid product for a fraction of the cost as others. But IMHO, the model they are working with, they need to realize, maybe going down in price would help them out a bit more. If given a bar option of FOUR PEAKS IPA, SPACE DUST IPA, GI IPA, or some local option for all relatively the same price, its just too easy to go with the local option. Now if the bar lowered GI a touch, or their other IPAs, they may be fighting for my dollars a bit more.
     
    #14 Oktoberfiesta, May 17, 2017
    Last edited: May 17, 2017
  15. JimBrody

    JimBrody Initiate (153) Apr 12, 2015 Maryland
    Beer Trader

    I would bet that Space Dust will be heading for a price drop once ABI has had time to establish expansions in production and marketing for Elysian, yes. ABI acquired Goose Island in 2011; they didn't acquire another craft brewery until 2014 (Elysian was 2015). It's not surprising to me then that we currently only see the ABI pricing effect in the Goose Island products.

    Perhaps those more familiar with the ins of the industry can comment here but I can't imagine ABI is going to slash prices before it becomes profitable to do so (i.e., distribution and marketing increases are in full effect).
     
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  16. Pantalones

    Pantalones Devotee (461) Nov 14, 2014 Virginia

    Am I the only one who misread the title as "AB-InBev to spend $2 bill" rather than reading it as short for billion?

    I guess that could be where all the two-dollar bills went, AB-InBev has a giant stash of them that they use to buy smaller breweries...
     
  17. drtth

    drtth Poo-Bah (2,909) Nov 25, 2007 Pennsylvania

    While my experience with big corporations is more limited than many on this site, I'd definitely agree that flexibility and adaptability are going to be either their weakness or their strength. Just as with an oil tanker that may require a full mile to come from full speed to a complete stop or to change course by 90 degrees, a lot of time and effort is required to shift course for a large corporation.

    Some years ago I used to get laughed at on here when I would point out that what the ABInBev purchase of GI represented was the awakening of a sleeping giant to that fact that tastes and market preferences of a few critical demographics were in fact changing on them (sometimes the "noise" in big data can hide for a while what's really going on) and that they needed to start playing "catch up" to return to flavorful beers if they were to continue being successful. Thus I would sometimes argue that we should view the purchase of GI not as the beginning of buying all the craft breweries.

    Rather I tended to see it as ABInBev doing a bit of large scale marketing research to see if they could they invest several million dollars into owning and further building up an already successful craft brewer (which I'd say is cheaper than doing all from the ground up). They could buy new equipment, remove some of the the obstacles faced by that brewery (e.g., by moving some of "bread and butter beers" to an under utilized facility) and then leave that smaller brewery free to expand their quality High-End products. Those products could then be marketed through ABInBev's much larger distribution footprint footprint. So I never saw the ABInBev goal as being to cheapen GI products while selling them for lots more profit. Rather they wanted put underutilized facilities back to use and make possible the savings and benefits of large scale production for the smaller breweries "bread and butter" beers.

    So currently I'd suggest that the flexibility and adaptability of High End is going to depend heavily on whether each brewey has in place a skilled, committed ABInBev person as part of the management structure. However, I don't think that person will be there to control the brewery. Rather I'd suggest that by leaving each ship relatively free to rise and float on its own but with improved management expertise they will gain/have the necessary flexibility and adaptability to deal with a fickle market.

    From what has become public since the GI purchase about their current management structure I'd suggest that the more senior ABInBev management realize and know how to benefit from having one or more wholly owned subsidiaries which they assist as needed but don't attempt to wholly control. (In other words I'd suggest that ABInBev realize that sometimes you want to create a division which has almost complete autonomy, has capable people and then turn them loose to do what they do best.) So my current thinking is that the ABInBev High End division will have the necessary flexibility and adaptability that you suggest are needed.
     
    #17 drtth, May 17, 2017
    Last edited: May 17, 2017
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  18. John_M

    John_M Moderator (5,479) Oct 25, 2003 Oregon
    Beer Trader

    I have a slightly different perspective regarding some of the points you make, but no real disagreement. However, I wanted to single out this portion of your post and comment on it. Again, I don't disagree with your take, but wanted to emphasize what I feel is a somewhat different viewpoint.

    Someone posted an article in the NW forum (that naturally I can't find now), that if memory serves, consisted of a plan of action prospective from the new ABI CEO/Board of Directors (I want to say this was roughly a year or two ago, so this wasn't all that long ago). There were a number of observations and recommended courses of action, based on what was perceived as increasingly lagging sales for some of the core AB brands. The CEO acknowledged that the expectation was that domestic sales would continue to lag, but that there was increasing optimism for the South America and Asian markets. The statement also mentioned that ABI had been caught slightly off guard by the popularity and growth of energy drinks and other non-traditional beverages. As a result, there was a suggestion that ABI would probably look into this market area more closely, possibly devising some additional new products to compete in this lucrative market. My apologies if I've misquoted portions of the report... my memory is not what it once way, and the article was posted a while back.

    Anyway, what I found particularly fascinating, was a comment made by the CEO, deriding what he felt was an example of absurd behavior on the part of a German brewer. The CEO pointed out that the brewer was fixated almost entirely on the quality of the beer he was making, with minimal regard (if any) to the bottom line. The article made it very clear that this was not the way ABI expected to conduct business, and that the bottom line should always be the number one priority for any ABI manager or executive.

    Based on that article, it struck me that ABI really has very little regard for continuing to maintain the same high level of quality in any craft brand they obtain. My impression was that a close approximation of that old level of quality was perceived as quite good enough, and that the aim should always be on minimizing costs in any way possible, but in such a way as to continue to approximate the old level of quality (and thus improve the bottom line). I think your post provides a number of good examples of how ABI intended to accomplish that. Consistent with your post, I think it fairly clear that the last thing ABI wants is for current GI consumers to feel there has been a wholesale changeover in the quality of the beer produced under the GI label (I would point to the Mendocino brewing company's red tail ale as an example of what can happen when/if this occurs), and in fact it appears that ABI has expended considerable marketing and advertising resources to convince consumers this has not taken place.

    That being said, while I agree that ABI would have no reason to intentionally cheapen GI products, such disregard for maintaining an old level of quality amounts to the next closest thing (or so I would argue). IMHO, the end result is that again and again, there seems to be a gradual erosion in the quality of beer made by craft breweries operating under the ABI umbrella. That may not be entirely intentional, but the end result appears to be the same (regardless).
     
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  19. drtth

    drtth Poo-Bah (2,909) Nov 25, 2007 Pennsylvania

    Comments appreciated, thought provoking, and taken as intended. Reservations about memory understood and applauded since I have spent some professional time working with memory researchers who make no bones studying and pointing out the failures and flaws of memory as well as the strengths it offers us in many circumstances. (After all, who would each of us be if we had no memories. :()

    But here's a thought about the CEO anecdote you mentioned. When InBev took over AB, there were a number of economy measures that were implemented, e.g, if Carlos Brito flew commercial nobody less senior than he would allowed use private jets.

    One economy measure that was widely interpreted in the Craft Beer community as being the beginnings of cheapening quality of Bud was the abolution of the decades old requirement to use whole grain rice only and allowing at least some broken grains in the mix, so long as the rice was still up to the quality standards they had adhered to for decades. This puzzled me since by that time I had already consumed a few Craft beers that used Rice in the grain bill and were quite good (which according to some was impossible to do).

    So at that time I began quizzing home brewers, on here and other places. The concensus was that broken grains or not the the critical thing for the end product was the quality of the rice being used and that some broken grains would not make any quality difference in the end product. So what Brito abolished was actually an unneeded decades old PR move by the former AB ownership to be able to brag about the quality of their ingredients (IIRC this dates back to the early 20th century). (Which still turns out to of quite high and consistent regardless of what we personally think of the beer. ;) )

    So basically the CEO comment you refer to may not have been referring at all to the quality of the beer but rater to the Brewer's adherence to things that that German brewer thought were required to maintain quality, but that are in fact are based in long standing tradition that hasn't been re-examined for decades in light of advances in brewing technology. We simply don't have enough information to be sure of what was in the mind of that CEO.

    On one final note, I personally remain unconvinced that there is any real decline in the quality of, say, GI beers in the absence of appropriate blind taste testing. Having spent professional time consulting with people who research various cognitive biases there turns out to be lots of compelling evidence that what someone believes about the source or producer of something like beer or wine can bias their judgements of quality. (Especially when they have to rely on their memories for what it was like once upon a time. ;)) This not to say their can not be quality declines, but rather to that judge that that has in fact happened basically requires some controlled evaluation other than just folks reporting they think something is worse than it used to be.

    I would point you to the Judgement of Paris if you've not read about it.

    https://en.wikipedia.org/wiki/Judgment_of_Paris_(wine)

    This results of this blind tasting by experienced experts was a contributing factor to wide spread recognition that vintners based in the US could make some world class wines.

    Final Edit: BTW if you remember where that report could be found I'd appreciate a pointer. Thanks.
     
    #19 drtth, May 17, 2017
    Last edited: May 17, 2017
  20. John_M

    John_M Moderator (5,479) Oct 25, 2003 Oregon
    Beer Trader

    Come on now @drrth. You have to know I'm familiar with Judgment at Paris (I even own the comedic version of the event - Bottle Shock). :)

    No, everything you say is quite right. My comments are based on anecdotal evidence, after hearing numerous comments about the decline of beers made by Elysian, GI, 10 Barrel, etc. It would be nice if it were possible to actually sample "pre ABI GI IPA" with "post ABI GI IPA" side by side, to see if there really is a detectable qualitative difference. Personally, outside of some of the BA products from GI, I think most of their portfolio is pretty lackluster these days, but I can't honestly say it's any worse now than it was before AB took over the reins (as before AB took over, GI stuff was pretty much unavailable in the parts of the country where I lived).

    As for the comment about the German brewer, all I can tell you is that it seemed pretty clear that the CEO was reminding the board that they were in the business of making money, not the best beer possible on the planet. Making beer is/was a means to an end, not the end itself. At least that was the clear impression I got from the article (I'm sure the CEO thinks Reinheitsgebot is equally absurd, but that didn't seem to be the point he was driving at).

    All that being said, let's just say based on the article I'm referencing, it would come as no surprise if there had been some sort of change or drop off in the quality of GI beer since ABI took over. Just my interpretation of the article, but I certainly got the impression that the CEO would not have been bothered by that, so long as the change in quality wasn't so dramatic that it would have been obvious to everyone who tasted it.

    Based on the article, the CEO came across as quite practical minded. If it were possible to make the exact same quality beer as before after making a number of cost saving changes to production, then I got the impression he would have been overjoyed with that result. If, on the other hand, the cost cutting changes resulted in some slight variance or quality drop off in the beer produced, but the drop off was so slight that it had little impact on sales, I got the impression he would have been OK with that as well (more than OK actually). Given a choice between making the same quality beer as before, but with similar costs and expenses, or making a slightly inferior beer, but with significant savings in costs and expenses, it seemed pretty clear (at least to me) what course he would take.

    The anecdotal evidence seems to suggest that scenario two is likely what's taken place. However, there's no way to prove anything. :)
     
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  21. drtth

    drtth Poo-Bah (2,909) Nov 25, 2007 Pennsylvania


    You did know??? ;) No surpise actually, but if by chance there were some innocent bystander who chose follow us in going "down the rabbit hole" we're exploring in this subthread into the chaos and confusion of this Wonderland....

    While it's true that profit at any cost might be what that a person who thinks of them self as "the CEO" wants, that doesn't mean what s/he wants is necessarily going to be become reality just because s/he wants it (as we have recently seen in other areas). Micromanagement in particular is not a particularly effective management style in very large organizations of 200,000 or so people.
     
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