Why The Bud Light Boycott Is Both Significant & Inconsequential At The Same Time
You may have missed it but Bud Light is no longer the top selling beer in America.
Losing the crown of America's favorite brew is bad enough but could be just the beginning of Anheuser Busch's problems. America's beer market is changing rapidly. So are American consumer preferences and, most importantly still, the politicization of many aspects of regular American life.
While all of this is true, it is also likely a nice buying opportunity for Bud Light's parent company's stock (it trades under an ADR, $BUD)
Let us discuss some broader themes to be aware of before we get to the specifics of the Bud Light case. There are a few developments.
The first trend is the somewhat surprising fact that beer and especially mass market beer, is struggling no matter the brand.
Obviously, Americans drink A LOT of beer but they also drink less and less and, as Budweiser itself admits, Bud Light has been a declining brand for over a decade.
Slowly but surely, American consumers have discovered that, actually, there are some better tasting alcoholic beverages out there on the market.
This is a challenge for all mass market beer brands and won't likely reverse any time soon. Malt beverages, canned tequila cocktails, artisanal IPAs, Rose wine, you name it, people are exploring and enjoying more beverages than ever.
Americans are also drinking less. This is especially the case for Generation Z. That might be great news overall but is bad news for brewers.
The second development is the continued politicization of every aspect of American life, including groceries, basic consumer items and beer.
Many large American companies are having great difficulty avoiding picking sides in the ever-more-vicious American culture war(s).
We might suggest they should avoid them all together but that hasn't been possible for Bud Light. A backlash by its core consumers has severely impacted Bud Light's American sales and severely negatively impacted the wider company's stock price.
That is both shocking and interesting.
You have probably heard at least something about the controversy. It all began when the team in charge of Bud Light marketing sent a personalized can of beer to an online personality and transgender influencer Dylan Mulvaney.
She did what influencers do and recorded a short video promoting the can, herself and the broader brand trying to make it relatable to a very different market from Bud Light's traditional demographics.
For whatever murky reason, out of all the similar such videos and cringe inducing campaigns, this particular clip went very viral, just not in the way that An InBev had hoped.
Rather than reach some people who wouldn't normally think of buying a case of Bud Light it was instead rebroadcast again and again to the beer's core market as a prime example of a major American company ignoring the values and outlook of its core customers. A large number of people took major offense in the latest brutal back and forth of America's culture wars.
An innocent though misguided effort to find some new customers instead stoked a serious backlash.
At the time of writing, this backlash is still ongoing. Bud Light sales are down around 20-30% depending on the week, since the controversy first took hold.
Not fun for AB Inbev and especially not pleasant for those marketing Bud Light.
Still, we find the outrage and over the top backlash about the whole thing pretty puzzling. I guess wildfires have to start somewhere but it is not as if Bud Light is alone in trying to play both sides of the culture wars and hoping no one notices.
And perhaps that is the third and most important possible trend to watch:
There is plenty of this empty corporate virtue signaling going around. If consumers have had enough that could be a big shift for today's marketing landscape.
Therefore, our only real argument with real conviction is:
The 21st century is a very interconnected and hyper politicized age. Both of these trends, especially in combination, mean that punishment for companies can be swift and very serious if they try and virtue signal to opposing sides of the political divide.
As a direct result, Bud Light (and also Target and others which is suffering a similar backlash over inappropriate clothing for children) will not be alone and we suspect that, unlike, in the past these companies will find it difficult to resurrect their brands, once tarnished on political grounds.
Put differently, we think a meaningful number of Americans have drank their last Bud Light and many more will avoid it going forward. Being associated with the other side of the culture wars may be enough to permanently damage a brand. Coors or Miller provide fine alternatives.
In the irony or ironies, the companies' virtue signaling may be paper thin but the consumers's disappointment may be far more serious.
That is a bad trade even for a large company with deep pockets. We wonder how many corporations, big and small, will be rethinking similar marketing efforts?
This passion for consumer boycotts isn't just a new development on the right either. Rather it is becoming a quintessentially American thing. We can remember similar disgust from the left over Home Depot's and Goya Foods’' founders endorsement of the former President Donald J. Trump.
There are plenty of other examples, of course. Furthermore, as every reader already knows, we don't just live in a hyper-partisan age we also live an age of ideological Puritanism where the quickest way to become really punished is to disappoint your own political side.
Now, while we feel very strongly that all of the above is true and important, we also think that it is worth keeping in mind that:
Anheuser-Busch Inbev SA, a simply ginormous multinational that is the result of endless mergers between mass market brewers around the globe, is going to be just fine.
The stock market (and broader industry) reaction is very over blown.
Historically, this is generally the way it goes with these controversies. There is an initial plunge and very quickly people sort of forget about it and demand for the product or service slowly returns. We wrote about this phenomenon in one our earliest editions when Cristiano Ronaldo public criticism of Coca Cola had a similarly outsized effect on that company's stock.
Here is Coca Cola today from the day of that controversy compared with its forever rival, Pepsi, for context:
Can you spot the "Ronaldo dip?"
We also did a deep dive on a similar boycott at Ben & Jerry's ice cream.
Who remembers that controversy? (hint: it was over operations in Israel)
When it comes to Bud Light it isn't clear that this will remain a problem. Here are some facts:
Bud Light is a big beer brand and very important for Anheuser-Busch. It is not ideal that its sales are down 20-30% over that time (~24% the most recent week).
However, it is an absolutely minuscule portion of their global sales (~1%). Budweiser may be an iconic American brand, as the saying goes but AB Inbev is a global brewing giant.
And while many American drinkers are likely switching to other brands like Coors and Miller they are also still buying AB Inbev products perhaps inadvertently.
For instance, Michelob Ultra, a brand quietly owned by the mega brewer, is also seeing rising sales.
Lastly, even if Bud Light permanently falls out of favor with mainstream, America, AB Inbev will simply redeploy brewing capacity to other brands, perhaps even from the same factories.
It is literally this scene from the Simpsons:
The AB Inbev stock was down 24% at one point. It is still down ~14%. That is an absolute ton when you consider that this is a company with a $100 billion market cap that has lost less than 1% of global sales.
In conclusion:
This has been a fiasco for Anheuser Busch and it will likely permanently change their business though they will adapt and be just fine.
There will be more such fiascos. Perhaps many more as companies struggle to avoid controversial (and empty) signaling in a politically divided and puritan age. Especially for large multinational firms, however, the long term consequences will likely be very minimal. As we say frequently, being big is better in the 21st century.
We spend a lot of time talking about economic and political decoupling between China and America. Well, this is similarly happening within our economy between the left and right. That is very bad and not just for company profits that rely on both sides of the ever more divided political aisle.
Practically speaking, as an investor, you can view these controversies and their financial consequences one of two ways: as tactical buying opportunities or simply a reason to stay away from these stocks.
If you really dislike Bud (or Target or whatever other brand has displeased you) we can help you easily excise it from your portfolio. We are building a theme to track these companies right here.
Similarly, if you would like to either buy outright or simply go over weight Anheuser stock in your portfolio, Pebble can also make that happen.
Or if you just find all of this tiresome and would rather avoid both the dip and the slow but steady return, we can also help you do that.
It is a wild world and only likely to get louder and more volatile, politically speaking. The good news - including for AB Inbev - is that at least economically things are trending in the right direction.
*******
Have questions? Care to find out more? Feel free to reach out at contact@pebble.finance or join our Slack community to meet more like-minded individuals and see what we are talking about today. All are welcome.
