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It is the best of times for AB InBev’s global results as it is showing a turnaround year in 2014, but it is the worst of times in terms of its key market’s results, the US, as it reports declines in its key financial indicators. To address these declining results, the brewer expects to achieve a turnaround in US volume sales by applying two strategies – one of focusing on the premium category and the other of developing new platforms.
AB InBev’s US operation reported year-on-year declines of around 2% in volume sales and margins in its 9-month 2014 results, as well as a marginal fall in revenues. As a result, AB InBev bought into the craft beer category and is expanding its portfolio in flavoured beer. But the volume contributions of such platforms – at least in the short term – are inconsequential to the brewer’s total beer volume and value sales. So why bother?
In November 2014 AB InBev purchased 10 Barrel Brewing Co, a microbrewery with a production capacity of 4.6 million litres. This begs the question of why purchase such a minute brewery when compared to the US market’s 23,400 million litres of sales in 2013? Keep in mind – this is not a new venture for AB InBev following its early-2014 acquisition of the US East Coast Blue Point Brewing Company and Mid-West Goose Island Brewing in 2011.
This makes sense considering that in 2013 there was 17% growth in craft beer volume sales when compared to the 2% decline in the total beer market. Also, that the craft beer market makes up 8% of market volumes. But the global brewer has to deal with the fact that craft brewers thrive on local or regional origin, whereas it is always trying to widen its market presence – in one sense, one is the antithesis of the other.
Craft beer also faces dramatically different levels of penetration across the country, mostly underdeveloped in the Southern States when compared to the mature Pacific States. The opportunities lie in the potential growth from low bases in underdeveloped regional craft beer markets within the US. Purchasing craft beer brewers in different parts of the US will play on the localness of the brand and maintain its local customer base. Looking at the wider picture in craft beer this is in line with a long-term strategy of reimagining the US beer market as a localised product.
AB InBev’s other strategy in 2014 looks to expand into new product platforms; especially where its competitors are thriving. The 2015 launch of its “Day of the Dead”-themed tequila-flavoured Oculto lager shows the brewer’s intention to tackle competition from Heineken’s 2014-launched tequila-flavoured lager, Desperados.
Such a product development is not just a competitive reaction but it is developing a presence in a category that is growing on the back of an identifiably rising popularity of Latino cuisines and an expanding Latino population. Heineken NV has already shown the significance of this trend by launching its lager margarita, Dos-A-Rita, in the Southern US States.
AB InBev is working towards identifying home-grown tipples and trends, developing a brand or product around the trend, and launching it in a regional format. Coming from a low base, craft beers and flavoured or mixed lagers will be expected to counterbalance declines in beer value sales in the short term. However, it will take a long time for such categories to develop into a size significant enough to drive US beer sales back into the positive.
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