Despite repeated promises and frequent advertising changes, Anheuser-Busch InBev just can't seem to figure out how to grow -- let alone stabilize -- Budweiser and Bud Light in the U.S. But the two domestic brands that were historically the brewer's backbone are becoming less important as the company proves it can meet Wall Street expectations through cost-cutting, global expansion and acquisitions of hot-selling craft brands in the states.
The diverging paths of AB InBev's two largest U.S. brands compared with the rest of its business is apparent in today's second-quarter earnings report. Bud and Bud Light sales fell by mid-single digit percentages in the U.S. as the brands kept losing market share. But globally the brewer's revenue surged 5% thanks to its philosophy of selling more higher-priced beer in more places. The strategy of expanding Budweiser, Stella Artois and Corona overseas and positioning them as premium brews is paying off. The three brands grew combined revenue by 8.9% in the quarter. In China, AB InBev's revenue jumped 7.2% as Budweiser continues to surge.
Wall Street was impressed, as AB InBev's stock price was up by more than 5% as of early afternoon. "We think managers' track record with Budweiser and Corona Extra outside the U.S. demonstrates strong and increasing competence building end-demand for premium brands," Stifel stated in a note to investors. "This is at odds with perceptions motivated by continued share loss by their largest brands, Bud Light and Budweiser, in their largest market and contributes to the opportunity in the shares, in our opinion."
'85% of ABI is fundamentally healthy'
And even though Bud and Bud Light struggled in the states, the brewer continues to make a lot of money in the U.S. thanks to what it referred to as "disciplined cost management." U.S. earnings grew 3.9% in the quarter not including certain items such as taxes, depreciation and amortization. Domestic brand bright spots included low-calorie Michelob Ultra, which grew volume by double-digit percentages, continuing a long hot streak backed by marketing that positions for drinking after athletic pursuits. Also, AB InBev -- which has scooped up multiple small brewers in recent years -- reported that its craft beer business continued to gain share.
Evercore ISI concluded in a note to investors that "85% of ABI is fundamentally healthy, with 10% of the weakness represented by Bud Light and Budweiser in the U.S."
That is a telling statement considering that not too long ago, Anheuser-Busch's fortunes largely rested on the U.S. performance of the two brews, which were often propelled by standout marketing. The game began changing with the 2008 acquisition of St. Louis-based Anheuser-Busch by Belgium-based InBev, whose managers have a reputation for financial prowess and a penchant for major deals. AB InBev bought Mexican brewer Grupo Modelo in 2013, giving it control of Corona outside the U.S. And late last year the brewer closed on its $103 billion acquisition of SABMiller, creating a megabrewer with a presence nearly everywhere.
'Superior global players'
The end result: Bud and Bud Light in the U.S. don't matter as much, at least when it comes to quarterly earnings. The brewer has "made the bet on the rest of the world and is using [its U.S. business] to generate cash flow, which it is still great at," said an ad agency executive who is familiar with the brewer.
"These guys are superior global players," said former Anheuser-Busch Chief Creative Officer Bob Lachky, who left the brewer in 2009. He predicted a "slow choking decline" on Bud and Bud Light in the U.S. "But it really doesn't matter in the grand scheme of things to be honest with you," he said.
Marcel Marcondes, who took over as AB InBev's U.S. marketing on Jan. 1, said in a statement to Ad Age that "Budweiser and Bud Light continue to be important priorities for the Anheuser-Busch portfolio. Bud Light is the number one selling beer in the U.S. by a wide margin, and Budweiser, one of the most iconic American brands in existence, continually performs in the top five and is seeing positive brand health growth. We have exciting plans and platforms for both brands and continue to invest behind them. Together, they are part of the foundation of beer culture across the country."
But while Bud and Bud Light are still huge brands, their negative sales trends -- if continued -- could radically reshape the domestic beer market. "The majority of their wholesaler network still is semi-loyal still to Bud and Bud Light," Lachky said. But "the distribution system really is in dire straits in many cases because of the rapidly declining volume and share for Bud and Bud Light on shelf space." But "Wall Street really doesn't care about that," he said.
As of the end of 2016, Bud Light had 16.2% share of the U.S. beer market, which was more than twice the share of second-place Coors Light, according to Beer Marketer's Insights. But Bud Light's share has fallen steadily since 2013 when it controlled 18% of the market. Budweiser ended 2016 with 6.6% share, down from 7.6% in 2013.
It's hard to blame the market share losses entirely on marketing considering that all big brands have had a rough go in the face of the craft beer revolution. One example of how the rise of small beer brands is changing merchandizing: PepsiCo's Ruffles potato chip brand today announced a new "Chips & Sips" pairing guide in which different flavors of Ruffles are promoted as going well with various beers. Bud Light made the cut, but so did six regional craft beers.
Frequent marketing changes
Bud Light's marketing has gone through a particularly tumultuous period as the brewer has made frequent ad agency and campaign switches in recent years. Wieden & Kennedy became the fifth lead creative shop on the brand since 2011 when it took over for BBDO in mid-2015.
The agency's politically themed "Bud Light Party" campaign starring Seth Rogen and Amy Schumer was dumped in late 2016 less than a year after it debuted and almost exactly a year after AB InBev CEO Carlos Brito hyped it on an earnings call as "revolutionary new creative." In January Bud Light and W&K debuted the "Famous Among Friends" campaign, which seeks to position the nation's largest beer as a brew for bonding time among good buddies. But sales trends keep going backward.
On today's earnings call, Brito acknowledged that "we are not pleased with our U.S. market share performance." But he also sought to put a positive spin on Bud and Bud Light. "These two brands are doing well on social media. They have campaigns that have mileage, especially, Bud Light," he said, teasing "new campaign executions here in the market pretty soon."
For Budweiser, he plugged a new packaging program that will highlight the names of the various states where it is brewed. Each state label carries a unique saying, such as "live free or die" for New Hampshire. Anomaly is Bud's global creative agency of record, although in the U.S. the brand has leaned more heavily on VaynerMedia in recent months. The new state packaging is "reinforcing Budweiser's status as an American icon," Brito said. But if sales trends continue, it might become a bigger icon in China.