Anheuser-Busch Group Case Analysis (Group Project)

Anheuser-Busch Group Case Analysis

Evaluate Anheuser Busch- how are they doing right now

For over 100 years Anheuser-Busch has been a market leader amongst breweries. Since their beginnings in the late 1800 they have managed to make a quality product that has appealed to the local American market as well as internationally. The position they achieved has leveraged them to be know in many parts of the world as one of the biggest beer producers.

In The United States Anheuser-Busch has been the industry leader since 1957. Out of 10 beers sold in the US more than 4 are Anheuser-Busch products. Currently the company sells in more than 80 countries; in Latin America itself it is in more than 10 countries like Argentina, Belize, Brazil, Chile, Costa Rica, Guatemala, Ecuador, El Salvador, Honduras Mexico, Nicaragua, Panama, Paraguay, Uruguay and Venezuela.

Their vertical integration has helped them grow and succeeded. They have managed to produce an efficient process that has made them more competitive in the numerous markets they have decided to enter. The ways in which they have gone into the many markets has been different; they have part-ownership; joint ventures; contract-brewing; license-brewing; and exporting arrangements with foreign brewers. In 1998 they exported a record volume of more than 3.4 million barrels of beer. From 2002 to 2003 their volume sales increased by 5% to 8.4 million barrels and their net sales were up $14.9 billion in 2004.

To further position themselves in the Latin American markets, Anheuser-Busch has taken the event sponsorship strategy. In 1994 they took advantage of the FIFA World Cup to showcase their products to the Latin American’s; and after the birth of different TV channels focused on the Spanish speaking countries, they decided to take advantage of the American Pop-Culture acceptance delivering ads that promoted the American way of life. Also, the creation of NAFTA has given the company a competitive leverage among other beer producers by allowing them to sell their products to the free trade zone markets.

Having different ways of doing business in so many different places has also become a challenge to the company. While they have succeeded in some places; countries like Brazil and Mexico have been difficult due to cultural and political barriers. Anheuser-Busch was the world largest brewer and kept that title until 2004, when a merger between the Brazilian Ambev and the Belgian Interbrew took place. The premium price that they are bound to give their products due to import tariffs is also affecting the positioning of the brand, making it different in the local market from the international.

The company not only centralizes their business in beer, it also acquired the second-largest baking company, in 1975, and Sea World, among others; but as specified in their mission statement: “(…) beer is and always will be Anheuser-Busch’s core business”. As a brewing company their international growth has been 9% of the market share worldwide, showing that their place in the global market is solid and respected.

Competitive Strategies used by Anheuser-Busch (AB) and Anheuser-Busch Inc. (A-BI)

Vertical Integration

Anheuser-Busch Inc. International (A-BII) emphasizes part-ownership in foreign breweries through joint ventures, control-brewing agreements and equity investments. Currently (as of the case study) Anheuser-Busch operates two international breweries in the United Kingdom and China, with several partnerships in different countries including Argentina, Canada, Italy, Ireland, Spain, Japan and South Korea, where Budweiser beer is brewed. A-B also has invested in international brand and partnerships with prominent beer brewers around the world such as Modelo in Mexico, Antarctica in Brazil and Tsingtao Brewery in China. Anheuser-Busch products are currently sold in 11 Latin American countries through different distributors, but three countries have begun to show promise due to their beer consumptions patterns and are now key targets for A-BII. Within these three new key markets (Brazil, Colombia, Mexico) A-BII has acquired equity position in all of the major local breweries within the selected countries.

Cost efficiency /leadership

Due to A-BI’s ability to export to 60 countries and sell their beers in over 80, makes it very easy for A-B to set a competitive pricing strategy. Products are currently brewed under A-B supervision in 5 countries and within those countries and distribution points; A-B is able to set its own prices. Whereas the countries that A-B currently exports to, there are legal and political regulations and taxations which causes A-B products to be sold as in import product, consequently raising the price.

Product Differentiation

A-BI has successfully used the product differentiation to gain and maintain product market share. Through a range of beer products including Budweiser, Bud Light, Bud Dry Draft, Michelob, Michelob Gold, Michelob Light, Michelob Dry, Michelob Golden Draft, Bush Light, Draft Light, Natural Light, King Cobra and Ice Draft, A-BI was able to successfully make the company stand out among other beer companies in the U.S. and abroad. Anheuser-Bush’s ability to have such a diverse product line is also an immense competitive strategy. Due to the large number of products they have the capability of targeting numerous diverse consumers.

Promotions and Positioning

Event sponsorships have been very important for this company abroad. With the 1994 World Cup being held in the United States, A-BII found this to be a perfect opportunity to market Budweiser to Latin Americans. Other promotions have included a two-year contract with ESPN Latin America, television spots on CNN International, and taping into new and upcoming markets in Latin America such as Direct TV, Fox Latin America, MTV Latino, Cinemax Ole, and Telemundo to name a few. Many of these promotions are directed at a younger audience in Latin America. Due to the rising personal incomes and youthful population, A-BII is taking advantage of this younger market who are influenced by American Culture and make no apologies for using ethnocentric marketing approach to get their products out in these new areas of the world.

Top three challenges

Anheuser-Busch faces three top challenges in its marketing management: (1) how to maximize the current operation, (2) the management needs a “know how” to develop the business outside the US (3) to position the brand as a main player in the global market

Maximizing the current operation

Anheuser-Busch needs to take a closer look at revising its partnerships which they are currently invested in. Modelo and Antarctica are two companies that A-B is investing through, both brand and partnership development. By taking a closer look into these agreements, A-B will be able to target and solve some of their distribution problems. For example, Modelo is the primary distributor for A-B products in Mexico, but in America Modelo’s products are distributed by another company, even though A-B and Modelo share an equal 50% stake in each other’s company. Moreover, A-B has international breweries in China and the UK, but A-B products are not brewed in these two countries; but through partnerships with several different countries. Although there may be many different factors limiting A-B ability to invest directly or brew in a country, to make the business of brewing and distribution more successful, they should try to manage and operate all of their international businesses in the same or close to the same manner to assure synergy. A-B should also define a clear global strategy for moving into these new foreign markets with a very detail-oriented business plan.

The management needs a "know how" to develop the business outside the US

The management of Anheuser-Busch wants to create a global company but doesn't keep a coherent position throughout the different markets. The company has decided to expand their business internationally through different models depending on the market they were going to enter. They have part-ownerships, joint ventures, contract-brewing, and license-brewing, among others. Because they took on each contract within each market different, at the end some aspects of the business ended up overlapping.

The situation that happened in Mexico is a clear example of the need A-BII has of creating a unified manual that specifies the steps that should be taken when entering different markets. Even though the mode of entry can be dissimilar depending on the region; the mission of the company of becoming global has to be preserved.

To position the brand as a main player in the global market

The company needs to create a clear position of every product in the whole market where it has presence. This positioning cannot base on price, because the company has difference price in every market, so it has to emphasize on the brand attributes. The idea is to create a brand image for the products of the company throughout similar points of difference (PODs) in every market, in order to the company be perceive in the same way in a global perspective. These attributes can be base on its American precedence, its flavor, its relation with sports, and other ones that can apply in a global context. Then, as a part of the multi-domestic strategy of the company, these attributes can be customized for local audience, keeping a global coherence without losing its main sense. Its strategy can lead to strength of the position of A-BII in front of the competitors, and at the same time to create consistently global brand awareness. Also, that could be a step forward in the standardization of some process in the company, as advertising or promotion.

Why Anheuser-Bush is a “Global Marketer” Why/Not?

Analyzing the operation of the company in a superficial way, and as the information is presented in the case, we can say that the company is a global marketer. But if we get into details and understand how the beer market works, we could say that the company plays an international marketing role with multi-domestic marketing strategies.

A-BII’s international strategy has been focused on finding and developing opportunities in foreign market in order to build Budweiser into an international brand and create an international business network thought equity investment and different partnerships with other leading foreign brewers. Taking a look at its international business and focusing on the development in Latin America, it can be inferred that the company has a global presence but in a different way in every country. These differences are reflected, mainly, in how the company manages itself in the Latin American market. If we look closely to the numerous partnerships we discover that the company has a lot of agreements which involve different parts of the product operation under local market criteria. In general we can say that there are two types of agreement, one, that the company takes an equity and two, that Anheuser Busch is involved with exporting or licensing the brew.

Sometimes the agreements do not include the distribution or promotion, but just the licensing to manufacture the product for a given market. In other markets the company overlaps distribution, having two different distributors for the same market. Occasionally the company cannot control some kind of relevant aspect of the product as price and size. In fact, what is most relevant is the Modelo agreement, where the company has a 50% percent stake, but Modelo still has its own distributor in the U.S. market.

It’s presence in different markets does not follow a special or clear pattern, they just enter the market in ad-hoc way and managing its presence according to local partner perspective. This strategy tries to strength its position in this market adapting product and promotion to local taste facing local competitors All these factors allow us to think that the company does not take advantage of the possible synergies, having lack of coordination between markets and a minimum global integration between its different foreign operations thanks to the different ranges of control in operation outside the home country. This makes it difficult for the company to design and implement marketing strategies that could lead to play a global marketer role.

We also have to emphasize that the company business is conditioning by geographic and cultural issues, related to the special characteristic of the beer market. These characteristics could force the company to seal this kind of partnership in what A-BI have different range of control. Another relevant point is that the company plays an important role in the marketing and promotion of the product in all the markets where it has presence, adapting its market and promotion strategies to a local environment as a part of its multi-domestic marketing strategy.

YAMY Model

The YAMY framework is roughly based on two different variables, demographics and economics. These variables were chosen for this model because we believe they will make it possible to standardize the decision process and at the same time have the ability to take a snapshot of that country.

Demographics was chosen as one variable because we can use the breakdown of beer consumption and legal drinking age to see how attractive a country might be when Anheuser Busch is trying o implement a market development strategy. With regards to the economic standing of a country, we decided to use Moody’s Government Bond Fund Rating to measure the stability of the economy in any given prospective beer market.

*After these variables are charted, we then decide the best way to segment and enter the different markets.

1- Demographics

This variable is composed of the percentage of legal age drinkers (LAG) in a country, and the beer consumption per capita of one person in a year (BCPY). Both LAG and BCPY variables are given a value from 1 to 5; 1 being the least valuable and 5 being the most valuable.

1.1- Beer consumption per liters is divided as follows
• 0-20 lts. Per capita per year→1
• 21-40 lts. Per capita per year→2
• 41-60 lts. Per capita per year→3
• 61-80 lts. Per capita per year→4
• 81-100 lts. Per capita per year→5

1.2- Percentage of legal age drinkers is divided as follows
• 49%-54% →1
• 55%-59% →2
• 60%-64% →3
• 65%-69% →4
• 70%-74% →5

After the number is determined the BCPY will be weight by 60% of the total demographic index value; and the LAG will be weight by 40% of the same index. This is stated because from a market point of view is more important the quantity of liters drank that the amount of people allowed drinking. This means that if its determined that BCPY is 3 and LAG is 5 the total index value will be 3.8.

Once the numbers are determined and calculated with their respective percentage they will be put in a graph and compared to the second variable: economic.

2- Economic

The economic variables of this chart are based on Moody's Government Bond Fund Rating. This rating expresses opinions of the investment quality of shares in mutual funds and similar investment vehicles, which principally invest in short-term and long-term fixed income obligations.

In this case, we are going to look into long-term fixed obligation because the bonus guarantees that the country has a stable economy and will be able to face its financial obligations with the market paying its debts. This will be the cornerstone for our model because it allows us to measure the economic stability of a given country, which is an important factor in the deciding which mode of entry the company will use in this new market.

We chose Moody’s because is an external rating agency that does the evaluation of each country measuring economic and political factors previously established. This assures us a way to asses this economic variable with an impartial point of view. Moody’s also gives us the possibilities to standardize this variable for almost all countries in the world which makes our framework a market tool that can be applied for any given market.

These ratings incorporate Moody's assessment of a fund's published investment objectives and policies, the creditworthiness of the assets held by the fund, as well as the management characteristics of the fund. These rating are divided by different categories:

• Aaa: Government Bond Funds rated Aaa are judged to be of the best quality.
• Aa: Government Bond Funds rated Aa are judged to be of high quality by all standards.
• A: Government Bond Funds rated A are judged to possess many favorable investment attributes and are considered as upper-medium-grade investment vehicles.
• Baa: Government Bond Funds rated Baa are considered as medium-grade investment vehicles.
• Ba: Government Bond Funds rated Ba are judged to have speculative elements.
• B: Government Bond Funds rated B are judged to be of an investment that generally lack characteristics of a desirable investment.
• Caa: Government Bond Funds rated Caa are judged to be of an investment of poor standing.
• Ca: Government Bond Funds rated Ca are judged to be of an investment that represent obligations that are speculative in a high degree.
• C: Government Bond Funds rated C are judged to be the lowest-rated class of bonds.

Also numerical modifiers are included as a 1, 2 and 3, that may be appended to each rating classification from Aa to Caa. The modifier 1 indicates that the fund ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the fund ranks in the lower end of its letter rating category.

In order to code this information and translate it into our chart we are going to classify it, as we did with the previous variable, in five number categories; the number one it will be the less valuable and the number five the most valuable:

• Category 1: Including →C, Ca
• Category 2: Including →Caa, B
• Category 3: Including → Ba, Baa
• Category 4: Including →A, Aa
• Category 5: Including →Aaa

As an example, a country that it is rated as Ba is in the category number 3, or one that is rated as Aaa, is in the category number 5. The following chart shows the Moody’s rating of a group and country and its correspondence category:

*The Moody’s ratings are taking from the Sovereigns International Public Finance and Government related affairs report issued on October, 10 2008. Also taken into consideration are the ratings based on the long term local currency.

YAMY Chart

This chart shows the relationship between the variables and the entry mode of the country. The demographic variable is situated in the X axis, and the economic variable is in the Y axis. The scale is based on numbers between 1 and 5, 1 is the less attractive/unstable market and 5 is the more attractive/stable market. The less recommendable market is the country that falls into (1, 1), which means that there is not a potential market for our product, added to the unstable economic environment we would discourage our presence in that market. The bigger the X and Y coordinates are, the need to be vertical integrated increases.

As we said in the previous paragraph, the YAMY model tries to simplify the decision making process related to what entry strategy should be taken. This model is not a rigid model and others factor that can influence the final decision have to taken into consideration.

These factors include:

• Competitors: the number and strength of competitors could influence our decision. A market with a few competitors is more attractive than a crowded one. Also, the strength of the competitors will affect our mode of entry, since we can consider the possibilities of partnership with one of the competitors. We are not considering the product life cycle of beer, because it is not a new product and it is a mature market with a numerous competitors

• Geographic: The proximity of the target market could influence the decision or the mode of entry. A given country with a pair of coordinates (3, 1.7), when charted, the position recommends export; we could change our recommendation to licensing, if the country is not close to the home market or to a close manufacturer plan.

• Legal: The legal environment could also influence our decision process. In some countries, political issues can influence legal stability which can affect our operation. Especially in Latin America, where countries with legal stability are not so common. Also, we do not include this variable as a one of the chart, because the legal stability has strong links with the economic stability. In countries where the legal framework is not clear its economical environment is usually said to be unstable.

• Other: In this category, we should also look at possible partnership agreements that could include more than one country, government tax incentives, or any other factors that in the search of profitability justifies choosing one method of entry over other (recommended one).

Our Suggestions for Anheuser-Busch:

To avoid being acquired by Inbev in the future, Anheuser-Busch should have strengthen its position in the global market. In order to do this they had to focus on to two parts of their business, internal and external. Internally they should have coached the management creating a sense of global vision in order avoid seeing each market as individuals; to support this idea of global vision it’s necessary to create a global business strategy taking advantage of the presence of the company in more than 80 countries. Also, keeping a unified product/brand position should have been an important task of the management.

To avoid the unsolicited acquisition the company had to revise their policies of exchanging board members (Modelo and Antartica had 1 member in the A-B BoA), the Mexican and Brazilian companies were not wholly owned by A-B. Also, the BoA needed to create alliances with other stockholders in order to establish a majority share of owners that supports the current management of the company, to avoid the buy-out.

Externally they should have put more emphasis in taking majority stake of the business they were working with. The company could have started with minimal parts of the companies but buy their way up as they started to know the markets; this way they strengthen their position in the external market, increasing their size and making it more difficult be purchased.