Anheuser Busch Update: Bud Light Is In Trouble, What About The Overall Company
On Thursday of last week, the first bill for the Bud Light controversy came due.
The damage was very real. It was also very interesting.
The beer's parent company Anheuser-Busch InBev's second quarter earnings, revealed the financial harm of the consumer boycott in great detail:
The Belgium-based group said its US revenues had fallen by 10.5% in the second quarter.
The catalyst was pretty obvious: The brewer reported that the issue was "primarily due to the volume decline of Bud Light."
And make no mistake about it, this change is having severe consequences across the US. Retailer shelf space is being re-allocated, bar keg "taps" are being changed out, truck drivers are hauling different loads and, most seriously, Budweiser distributors are laying off employees.
AB Inbev also announced cuts at their US corporate offices. It is only around ~2% of the 18,000 strong workforce but for those people, this is obviously a very nasty consequence of a marketing plan gone awry.
It is also undeniable that this is very costly for the mega-brewer. They are having to compensate those employees as well as their distributors and they have just launched one of the largest marketing campaigns in the long and glorious history of beer advertising.
None of it may matter, Bud Light's brand may be permanently damaged among its core customer base for the foreseeable future. As we have argued before, this may lead to a permanent change at this end of the American beer market.
Let no one say that the modern culture wars are not consequential and have "real" impact. Decades from now, academics will still be using this episode in business schools to highlight the perils of poorly executing an edgy marketing strategy and attract new clientele.
They may have been unlucky but there was a way to do this successfully, AB Inbev chose very poorly and are now paying for their misstep in spades.
All of this is very unfortunate and also very dramatic with headlines, TV hit pieces and endless victory laps from those on the winning side.
HOWEVER, what gets a little less appreciated amid is that AB Inbev is doing just fine overall:
For one thing, overall revenues rose 7.2% in the quarter $15.1 billion. That was far ahead of the 4.1% predicted by analysts.
Earnings before taxes, interest, depreciation and amortization also increased 5% which far outstripped the 0.4% expected by the experts.
Even better, AB Inbev managed to pass on price increases to their customers.
All of this is likely why the stock rose 1% after their earnings came out. It was bad but not as bad as people had expected and furthermore underlined a point we made last month:
So, while it is true that AB Inbev's North American sales by volume dropped 14.1% but global volumes fell only 1.4% which underlines a point we have also argued previously:
AB Inbev is a global company.
The US is an important market for sure but only one of many. Further, many of the other markets are younger, faster growing and drink more beer.
Most significantly, the mega brewer told investors that they still expect growth in earnings to be around 4-8% this year. That is the exact same range that they released in May and demonstrates that when you are diversified global alcoholic beverage conglomerate, the total implosion of a single brand doesn't have to impact much for the bottom line.
Perhaps that is the real lesson they should teach in business schools?
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