A-B Branches Out, but Wall Street's Still Not Satisfied

After Analysts Encouraged Brewer to Expand, Some Say It Has Too Many Brands

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CHICAGO (AdAge.com) -- Anheuser-Busch just can't win.

As consumers stampeded to imports, craft beers and spirits, the brewer was forced to diversify its portfolio. It has snapped up at least 16 import brands during the past two years, becoming the nation's third-largest beer importer and pleasing analysts who were worried it was too dependent on the Budweiser franchise. But now investors are criticizing A-B for having too many brands.
August Busch IV
August Busch IV

The Clydesdale company's brand stable now includes Rolling Rock; Stella Artois and Bass Ale (for which it owns the import rights); and dozens of small-distribution, local craft and seasonal brands. It's even dabbled in energy drinks and spirits.

Analysts should be applauding the move, right? But some of them aren't. "The concern is they're trying to do too much at the same time," said Citigroup analyst Bonnie Herzog, who has been encouraging investors to sell A-B's rising stock. "It's a lot of change in a little time for a very big company."

Juggling act
Analysts and A-B executives agree market trends necessitated that the brewer broaden its portfolio. But doubts persist over whether it can keep sluggish core brands such as Budweiser and Michelob -- which account for the bulk of its sales volume -- growing while also learning how to market smaller but more profitable import and craft brands, which tend to require more hand selling and less media spending.

A-B's bursting portfolio was a major topic at an investor meeting it hosted last week in St. Louis, where CEO August Busch IV said A-B was "90% focused on core-brand success and 10% focused on the new brand portfolio."

While it seems daunting for A-B to focus so much marketing firepower on Budweiser and Michelob while also building brands in segments where it is relatively inexperienced, Mr. Busch, other A-B executives and some analysts maintain that the brewer's control over its exclusive wholesaler system makes such a balancing act possible. (Smaller brewers share their wholesalers with other companies and, as a result, have less control over their priorities and incentives.)
A-B Purchases
Source: Ad Age

"Their distribution network gives them a good shot," said UBS analyst Kaumil Gajrawala, who rates A-B's stock a hold due to its recent run-up in price but likes the company's strategy. "The imports and craft are on the right side of the demand equation anyhow, so it's not like they can ignore it."

More feet on the ground
Mr. Busch acknowledged that A-B's new, upscale import and craft brands will require a different approach than the advertising bonanzas it uses to move Bud Light. He said the company has added more than 300 people to its street-sales team -- a 50% increase -- to assist with the hand-selling and on-premise marketing that spirits, import and craft brands have used so successfully to take drinkers away from big brewers over the past 10 years.

Many members of the new street-sales team previously worked at InBev, the world's largest brewer -- which recently signed a 20-year import agreement with A-B -- and Mr. Busch said it gives the company "a very diverse group of people with experience in the urban market," where the trading-up craze of recent years has hurt A-B. "Spirits have been marketed very effectively in that arena, and for many years we were ... selling mostly on mainstream media," he said, calling the beefed-up street team "a little bit of catch-up."

Of course, Mr. Busch said, there are no plans to take A-B's core brands out of major media, although he said he expected cable TV and digital endeavors to take up more of the brewer's budget going forward. The latter revelation, however, comes as A-B appears ready to give up on Bud.TV.

Tough sell
Stoking sales of core brands remains a daunting challenge that, in terms of the company's overall fortunes, dwarfs all other endeavors combined. The Budweiser family -- Budweiser, Bud Light and Budweiser Select -- accounts for 65% of the company's domestic-beer volume. Sales for the Bud family have slightly dropped so far this year because mid-single-digit increases by Bud Light haven't been enough to offset long-running, annual 5% declines by Budweiser and the continued spiral of Budweiser Select. Mr. Busch said new campaigns for Light and Select will focus on clarifying their positioning.

No. 1 brand Bud Light will retain its humor-based positioning, while Budweiser's latest appeal focuses on its taste and Bud Select's positioning is not light but rather "never filling."

"They're right to be thinking about crafts and imports in the longer-term," Ms. Herzog said. "But in the short term, those core brands are the bulk of their business, and they were down in the first quarter."
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