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Anheuser-Busch (US)

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Anheuser-Busch is best known as North America's King of Beers, as a result of its Budweiser and Michelob brands. But in a shock development in 2008, this American icon was acquired by Belgian-Brazilian rival InBev for a whopping $52bn. That deal created a mammoth new business, the world's largest brewer by a considerable margin. The combined company now operates under the name AB InBev, although its main US subsidiary is still known as Anheuser-Busch. It remains the clear leader in the US beer market, with around 45% market share. Anheuser-Busch is partnered in Canada by Labatt, also a division of AB InBev, and the local distributor of Budweiser and other US brands. Until the InBev takeover, Anheuser was also one of the largest theme park operators in the US (with Busch Gardens and Seaworld, among others), as well as a leading manufacturer of aluminium containers. The parks business was sold in 2009, and the group has gradually reduced its exposure to materials manufacturing and recycling.

Competitors

See Wine Beer & Spirits Sector index for other companies and brands.

See also:

Advertising

Who handles advertising? Click here for Agency Account Assignments for Anheuser from Adbrands. In the US, Kantar (in Advertising Age) reported measured expenditure of $718m for 2016, out of an estimated total of $1.93bn. Biggest spending brands were the Budweiser family (measured media spend of $414m), Michelob ($147m) and Stella Artois ($66m).

Brands & Activities

Anheuser-Busch is the undisputed King of Beer in North America, with a wide lead over its rivals. Yet recently that seemingly unassailable position began to look a lot more vulnerable. Consolidation within the global beer industry had created several other international brewing giants by the early 2000s, including Anheuser's two main domestic rivals, both keen to challenge for Budweiser's crown. As a result, Anheuser was forced to spend heavily on discounting to protect its market share, at the same time that the growing local popularity of wine and spirits was triggering a softening of the overall beer sector. Despite its strength at home, Anheuser's global profile also remained weak. Budweiser, its only international brand, was distributed in several important markets, but development had been hamstrung by the ongoing legal battles against Budvar for control of the "Budweiser" trademark.

In June 2008, however, these concerns were put to one side when fast-expanding foreign rival InBev offered to acquire Anheuser-Busch in a deal worth $46.3bn. After two weeks of consideration, that deal was declined by the Anheuser board for being too low. The offer had already been greeted with considerable hostility both within the American group and also among US consumers, who were rightly proud of the patriotic heritage of brands such as Budweiser. InBev responded by threatening a legal battle to remove Anheuser's board. That threat turned out to be a negotiating tactic, preceding an increased offer worth $52bn, which was accepted by the Anheuser-Busch board. The merger was completed in November 2008. Shortly afterwards, the majority of Anheuser-Busch's pre-merger management team departed the company.

Anheuser 's main business has always been beer. By the time InBev made its approach, A-B was already the world's largest brewer by both revenues and volumes, although the vast majority of both were derived from North America. The business comfortably dominates the domestic market, with 12 mainstream breweries across the country responsible for producing almost half of all beer consumed there. In recent years it has also accumulated a collection of nine additional craft breweries. However, the US has witnessed unprecedented levels of competition in recent years, not just between the brewers themselves, but from other alcoholic beverages, such as spirits and wine. In 2012, the combined group shipped 115.9m hl of beer in the US, up marginally on the year before, and representing the first y/y increase in US volumes since 2008. Since then, though, volumes have slipped back, falling to 108.5m hls in 2015.

Researcher Beer Insights estimated shipments of 92.6m barrels in 2016, equivalent to 42.7% local share. The only growth in the market is coming from Mexican beer specialist Constellation Brands and craft manufacturers.

Anheuser-Busch's lead brand is of course the Budweiser family, with a collection of products led by local top-seller Bud Light and Budweiser itself. The Bud Family alone accounts for more than a third of all beer sales in the US.

Supporting brands in North America include lower-priced Natural Light (actually the company's #3 seller by volumes after Budweiser and Bud Light, and partnered by Natural Ice), Busch and Busch Light, all of which also feature among the top ten by sales. At the higher end of the scale is Michelob, the leading super-premium beer in the US, also available in Light, Ultra and Golden Draft variants, as well as speciality beers Amber Bock and Honey Lager. The Michelob Ultra variant, launched in 2002, proved particularly successful in the US, with its low-carb profile benefiting greatly from the popularity of Atkins and other low-carb diets.

For 2016, Beer Insights ranked Bud Light and Budweiser as the #1 and #3 brands in the US respectively. Natural Light was the #6 by volume at 6.6m barrels (3.0% market share). Busch Light was in 7th place at 6.45m barrels, followed by Michelob Ultra (#8 at 6.35m bbls) and Busch (#10 at 4.78m bbls). Natural Ice ranked #14 with 2.65m, and Stella Artois #17 at 2.43m bbls.

The group has also experimented with a series of more specialised brews. In 2002 the company began experimenting with a niche Irish stout under the name Bare Knuckle. This was eventually launched in limited quantities in 2005, to compete head-to-head with Diageo's Guinness. Anheuser World Select was launched in 2004 to compete with imported lagers such as Heineken.

The group's most productive diversification has been into craft beer, a segment that, along with Mexican imports, has steadily eaten into mainstream beer sales. It has for some years held minority stakes in two specialty microbrewers, Redhook (since 1996) and Widmer Brothers (1998), whose products it distributes nationally. Redhook's beers include Ziegen Bock and Pacific Ridge Pale Ale. Shock Top is another craft-style beer, originally marketed in Canada and now available in the US. These have been joined by a growing collection of acquired businesses and brands. In 2011 AB acquired Chicago craft brewer Goose Island, whose specialist brands include 312 Urban Wheat and Honkers Ale, and has steadily expanded its craft portfolio with a series of other acquisitions. These include Blue Point and 10 Barrel in 2014; Elysian Brewing Company, makers of Loser Pale Ale, and Golden Road Brewing in 2015. The company used the last days of 2015 to add three more brands to its collection: Breckenridge Brewery in Colorado, and Arizona's Four Peaks, as well as the Camden Town Brewery in London, England. Additions in 2016 included Karbach of Texas and Devils Backbone in Virginia. In 2017, Wicked Weed Brewing joined the group. No prices were disclosed for the acquisitions. These are now all grouped under a dedicated unit based in Chicago, known as The High End.

Anheuser-Busch also manages a small but significant portfolio of imported beers which it distributes under license through a separate unit, Import Brands Alliance. These already included several of InBev's international beers including Stella Artois, Beck's and Bass Ale, as well as Loewenbrau and Harbin. The group also distributes small quantities of imported brands such as Kirin and Kona from Hawaii. Despite the agreed purchase by AB InBev of Grupo Modelo of Mexico in 2012, Anheuser-Busch was obliged to divest US rights to the Mexican company's Corona Extra, which will continue in perpetuity to be distributed by Constellation's Crown Imports. Instead AB launched Mexican-style beer Montejo in 2016 as a local challenger to Corona Extra.

Anheuser-Busch is a major sponsor of sporting events in the US. It has been the exclusive alcohol sponsor for the country's flagship Super Bowl game since 1989. Bud Light is the official beer of the NFL as well as of 28 of the 32 NFL teams. However Budweiser ended its sponsorship of the US Olympic team in 2016 after more than 30 years.

Like most other brewers, Anheuser has also dabbled in the malt beverage single-serve sector. Its most successful line has been a tie-up with Bacardi, formed in 2001 to introduce Bacardi Silver, a single-serving bottled beer-alternative to compete with Smirnoff Ice. A series of further flavoured extensions followed, including orange-flavoured Bacardi Silver O3 and raspberry Bacardi Silver Raz (in 2003), Bacardi Silver Limon (2004), and Cherry, Wild Apple and Watermelon variants in 2005. Anheuser's other malt beverages include Tilt, launched in 2005, Hurricane and King Cobra. Another product, Doc Otis, was discontinued in 2004. O'Doul's is a range of no-alcohol beers, and the group has begun to diversify into more unusual drinks, launching successful tequila-beer blend Tequiza in 1999, and orange-flavoured energy drink 180 in 2001. In early 2007, Anheuser finalised a deal to distribute Margaritaville Tequila, the brand owned by singer Jimmy Buffett, in the test market of Massachusetts, and launched a Margaritaville alcoholic lemonade variant.

Another successful experiment, at least at first, was the introduction in 2012 of a line of fruit-flavoured malt beverages, originally as a spin-off from Bud Light. The first of these was Lime-A-Rita, followed a year later by Straw-Ber-Rita and others. They proved immensely popular for a while, though sales have been in steep decline since 2015. Best Damn Brewing Company is another hybrid beverage umbrella, a range of alcoholic root beer, cream sodas and iced teas launched in 2016.

Other experiments have been even more unconventional. In 2005, the group began test-marketing a new spirit-based liqueur at the end of the year through subsidiary division Long Tail Libations. The drink, named Jekyll & Hyde was sold as two separate bottles. Jekyll was a sweet red spirit tasting of wild berries; Hyde a liquorice-flavoured black spirit designed to float on top when mixed with Jekyll. The two products were meant to be served together, although consumers could drink them separately. Sales, however, were minimal. Later in the year, the group launched its own organic super-premium vodka under the name Purus, initially in the US North-east. The spirits experiment was later discontinued.

The group's other key business in North America is Labatt, one of the two leading brewers in Canada, alongside Molson. Labatt has a growing edge over its rival, partly as a result of the acquisition of top-selling import Corona Extra, previously distributed under license by Molson. (Unlike Anheuser in the US, Labatt does have rights in Canada to Corona). Rival Molson has also been dented by the loss of Miller distribution in Canada. In 2014, Labatt's local market share rose to 43%, ahead of Molson's 37%. The company's main brands include the extensive Labatt family of more than 15 beers, led by Labatt Blue. Regional brands include Kokanee and Alexander Keith's. It acquired smaller Canadian rival Lakeport in 2006. In 2004, the company partnered with Absolut to produce Absolut Cut, the first ready-to-drink spin-off from the vodka giant.

Labatt had been on friendly terms with Anheuser-Busch for several years, even before the InBev takeover. It has long been the Canadian licensee for Anheuser-Busch's Budweiser, at one time Canada's top-selling beer, until overtaken in 2010 by Coors Light. In 2006, it sold its only remaining US-produced brand, Rolling Rock, to Anheuser-Busch, and later appointed the bigger group as the US distributor for imported InBev brands such as Stella Artois, Beck's and Bass Ale. That relationship got very much closer at the end of 2008 following completion of Anheuser's acquisition by InBev. One of the few conditions laid down by regulators for that merger was that InBev must sell the license to manufacture and market Labatt in the US to a third party. A deal was concluded in February 2009, whereby Labatt USA was sold to private equity fund KPS Capital Partners, which has an exclusive perpetual license to sell Labatt in the US.

In 2011, Labatt was enraged when rival Molson secured a seven-year deal to sponsor the National Hockey League in North America. Labatt and Anheuser-Busch InBev are longtime sponsors of both the NHL and more than 20 of its top teams. A legal tennis match then ensued. In June 2011, an appeal court restored the sponsorship to Labatt. Following a further appeal, that decision was itself overturned in October 2011, and Molson given the green light to proceed. Labatt Canada is legally still a subsidiary of Anheuser-Busch's Latin American division Ambev.

Until its acquisition by InBev, Anheuser-Busch operated directly in only three markets outside the US - primarily the UK and China, although it also had a small presence in India. All those operations were absorbed into the main AB InBev business. The sole UK brewery was closed following the takeover. Prior to InBev, Anheuser's main international focus was already on China, the world's biggest as well as its fastest-growing beer market. A brewery in Wuhan produced Budweiser, Bud Ice and low-alcohol Budweiser Ultra, and the group also controlled a leading local group which operated 13 breweries in the North East of China producing local brand Harbin. In addition, Anheuser had maintained a strategic alliance with the country's #1 brewer, Tsingtao, sealed with a 27% equity stake. Following the InBev deal, the enlarged group's interests in China were restructured. In January 2009, the group agreed to sell a 20% holding in Tsingtao to Asahi Breweries of Japan for $667m. It sold the remaining 7% investment stake later in the year to a private investor.

Pre-merger, Anheuser-Busch also had interests in entertainment and manufacturing. Busch Entertainment Corporation, owner of the SeaWorld, Busch Gardens and other theme parks, was sold in 2009 for $2.7bn to private equity fund Blackstone. It now trades as SeaWorld Parks & Entertainment. The group also controlled several packaging businesses. Several of these were sold, but Anheuser remains a major manufacturer and recycler of aluminium cans.

Financials

For 2007, its last full year as an independent company, Anheuser-Busch reported net sales up almost 6% to $16.7bn, with net income of $2.1bn. Those numbers included the contribution from international operations, manufacturing and theme parks.

For 2016, Anheuser-Busch InBev North America reported revenues of $15.70bn, more or less flat year-on-year on a comparable basis. It contributed normalised EBITDA of $6.25bn before restructuring, impairment and finance costs.

Background

Budweiser was the United States' first "national" beer, when it was launched in 1876. Founder Adolphus Busch was the son-in-law of successful St Louis businessman Eberhard Anheuser who had bankrolled a small local brewery in 1860. Adolphus joined the company as a salesman and proceeded to completely change the direction of the business. Budweiser was first launched in 1876, formulated to appeal to all tastes. In 1879, the brewery's name was changed from the Bavarian Brewery to the Anheuser-Busch Brewing Association, and Adolphus Busch became president the following year.

The biggest problem facing all brewers was how to distribute their freshly brewed product nationally before it spoiled. Busch created a network of railway icehouses to store beer en route, and designed the first fleet of refrigerated freight cars in the 1880s. To build on the success of Budweiser, the company launched Michelob in 1896, a darker beer, more European in taste. With a keen eye on marketing Busch began distributing high quality penknives to wholesalers, each carrying his portrait within a small peephole. In 1890 he came up with an even more successful giveaway, giving bar owners a free lithograph of the painting ''Custer's Last Fight'' as a point-of-sale item. It became one of the most successful promotions in US marketing history, with 18m distributed.

Prohibition almost destroyed the company in the 1920s, but Adolphus's son August Busch Sr quickly diversified into the production of baker’s yeast, ice cream, the soft drink Bevo and commercial refrigeration. In 1933, Prohibition ended and the company returned to beer, introducing canned Budweiser three years later. In 1955, the company introduced a third brand, low priced Busch. Also during that decade the company took two new turns, opening a fairground in Tampa Bay, Florida under the name Busch Gardens, and acquiring the St Louis Cardinals baseball team.

Despite diversification, beer remained the core of the business. By the early 1960s, Anheuser-Busch was producing more than 10m barrels of beer a year, and had overtaken Schlitz to become America's #1. The group finally began to move beyond North America in the 1980s, launching Budweiser in the UK, initially under license to Scottish & Newcastle, and in Japan in 1984. It was also time for further diversification. The company had added a second Busch Gardens in Williamsburg in 1975, but this remained a minuscule part of the business. In 1989 the group made a concerted move into entertainment with the purchase of the four Seaworld parks, making it one of the country's biggest theme park operators. (One of the parks, in Cleveland, was subsequently sold).

The group also flirted with foods, acquiring Campbell Taggart baked foods in 1982, and launching a range of snackfoods under the company's Eagle logo. These businesses were spun off or sold in 1995, as was the baseball team. In 1993, the group took a strategic stake in Mexico's Grupo Modelo, assisting indirectly as that company's Corona beer overtook Heineken to become the leading imported brew in the US. In 1995, Anheuser took back control of Budweiser in the UK, buying its London brewery from Scottish & Newcastle. It also took its first steps into China with the formation of what was initially a joint venture brewery in Wuhan. It gradually increased its shareholding to 97% by 2005. In 2002, a strategic alliance was formed with Tsingtao, and in 2004 the group launched a battle for control of the country's 4th largest brewer, Harbin, when it acquired a 29% stake in the business for around $138m. This put it into competition with rival SABMiller, which already owned a 30% holding in the business. Miller launched a bid for the remaining shares in Harbin later that year, but management gave its support instead to Anheuser, which acquired all the outstanding shares, including those of SABMiller for around $715m.

August Busch IV was appointed as group CEO in 2006, having previously served as president of Anheuser-Busch USA. At the same time, his father August Busch III retired as chairman, and was replaced by Patrick Stokes, the former group CEO. Following completion of the takeover by InBev, Busch IV remained a director of the enlarged company until 2011, one of two from the former Anheuser-Busch. Two of the group's longest-serving and most influential marketing executives also left the group following the takeover. Tony Ponturo had been VP, global media & sports marketing, responsible for building Budweiser's close relationship with various US sports, but especially football. He left at the end of 2008, and was followed in early 2009 by Bob Lachky, EVP, global industry development and chief creative officer. It was Lachky who oversaw the creation of such memorable campaigns as Wassup, the Budweiser frogs and Real Men of Genius.

Last full revision 22nd March 2017

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