|Source: Nielsen Media Research|
The 2005 merger that created InBev gave its Brazilian leadership its first real shot at a mature-market megabrand in Stella Artois.
The brand boasted a premium positioning, exemplified by its "Reassuringly Expensive" tagline developed during the 1980s by Lowe Worldwide, and bolstered in a stagnant marketplace by generous media and sponsorship spending by its Belgian parent, Interbrew.
The Brazilians who took the helm of InBev, however, promptly slashed media spending for Stella Artois in the U.K. by roughly half in 2006, according to Nielsen Media Research. An InBev spokeswoman said the cuts in media were made in order to bolster efforts on premises (spending on new glassware and tap handles) and to pump up retail displays.
'Not just butchers'
Regardless, sales suffered, and rivals such as Grolsch and Carlsberg gained ground, provoking InBev to take what, for it, was a novel step. It doubled ad spending in the market for Stella Artois in 2007, ahead of even 2005 levels, as the brewer made a large bet on digital ads and a revamped website. And, with sales remaining sluggish, InBev has vowed further increases in Stella's U.K. marketing for this year.
"It shows that these are smart guys, not just butchers," said one longtime A-B agency executive in the U.S., of the brewer's about-face on spending. "It's a relief, honestly."
That said, neither that agency executive nor anyone else familiar with InBev's past performance expects anything less than steep cuts in total marketing spending relative to A-B's relatively free-spending ways.
A-B, for example, often commissions the production of far more Super Bowl spots than it intends to use. That indulgence, which allows for an extensive, nationwide survey of focus groups to pick the ads most likely to score well in post-game ad surveys such as the USA Today Super Bowl Ad Meter, is not something InBev is likely to continue spending money on.
"The days of A-B just leaving all those dollars on the cutting room floor are probably over" once InBev takes charge, said Harry Schumacher, editor of Beer Business Daily.
Taking one for the team
Another area likely to see cuts, based on InBev's track record with Stella Artois in Britain, is A-B's massive sports-sponsorship budget. InBev this year pulled the plug on the brand's 30-year relationship with the Artois Championships, a major British tennis tournament that has been one of the brand's highest-profile sports sponsorships.
According to experts, because A-B itself recently moved cash away from official sponsorship deals with Nascar and the National Football League and has indicated it intends to continue to move money out of similar arrangements in other sports and onto digital-media properties, InBev would find much to cut there.
"Simply put, their MO is based on a metric where every cent has to be accounted for immediately, and most of marketing is about investing for a future payback," said Brian Sudano, a veteran beverage-marketing consultant who has worked with InBev in both the U.S. and U.K. "And that philosophy and everything in their history suggests you'll see a significant reduction in investment overall for the Budweiser franchise."
Nevertheless, InBev has proved skilled at rolling out the Stella brand in new markets. Fueled in part by much-lauded creative from Lowe, which establishes the brand's luxury credentials by evoking classic films, its 14th-century roots and expert hand-selling, the brand has grown at double-digit rates as a high-priced import in the U.S., Argentina, Russia, Ukraine, Canada and Brazil.
Whether InBev's cost-controlling strategy will wind up being applied to Budweiser rests with the A-B board, which at deadline was reportedly meeting to weigh InBev's offer.
The $65-a-share offer proposed by InBev -- worth more than $46 billion -- is about a 35% premium over where A-B's long-stagnant shares were trading in the month before news of the offer surfaced. And it's likely that, failing a deal with InBev, or in the event A-B made a defensive acquisition along the lines of its recent flirtation with Mexico's Grupo Modelo, its stock would fall sharply back to its earlier levels, possibly lower.
What's more, the Busch family no longer controls enough of the company's shares to thwart a deal. The 4% it holds (and not all family members agree on how to proceed) is less than the 5% owned by Warren Buffett's Berkshire Hathaway. Mr. Buffett, according to a report in a Belgian newspaper last week, is inclined to support InBev's bid.
Also unclear is what international options A-B would have if it passed on a combination with InBev. Should InBev, the No. 2 brewer by volume, instead decide to combine with the No. 1 global brewer, SABMiller, A-B could find itself with a significant scale disadvantage globally, despite its position as the top brewer in the U.S., the world's most profitable beer market.