Belgium: AB InBev's cost-cutting had its days

AB InBev is going to change its strategy from being a cost oriented to a more value oriented company. , CEO of Carlos Britothe company, said in an interview on Thursday at the brewer’s headquarters in Leuven, Belgium, that the company remains committed to spending on innovation and marketing, including costly projects like sponsoring World Cup soccer.

This is a clear shift in focus which was many years centered on efficiency, cost-cutting and growth by acquisitions. After the purchase of SAB Miller in 2016 (, 28.9.2016) the growth strategy came to an end, mainly because there was not much left to buy for AB InBev in the beer market. And cost-cutting does not make a lot of sense when the existing companies are already streamlined and you cannot buy others where to apply this strategy. Or to put it in the words of Brito, “If you think about efficiency, the most efficient decision is to close down the company. Then costs go to zero. But that’s not really why we’re here.’’

In 2018 it became apparent that the strategy was not working any longer. The share price dropped by more than one third in one year and Brito and his CFO Felipe Dutra had to announce a dividend cut by half (, 25.10.2018).

The old cost-cutting mantra and zero-based budgeting championed by main shareholders Jorge Paulo Lemann, Carlos Alberto Sicupira and Marcel Herrmann Telles and their private equity firm 3G Capital, was again questioned last week when American food company The Kraft Heinz Company, another portfolio company of 3G Capital (, 12.11.2016), had to record a $15.4 billion writedown on its Kraft and Oscar Mayer brands and Canadian assets which prompted a 27.5 percent plunge on Kraft Heinz’s share price.

“I think we’re in a very different category,’’ said Brito when asked about a comparison of the two companies. He cited aspirational premium beer brands like Corona or Stella Artois -- a description that’s harder to apply to mainstream food labels like Kraft’s Velveeta. “It has its challenges, but compared to food and beverage, beer’s an amazing category.’’

In fact, the company is targeting new types of customers with products like low-calorie or non-alcoholic beers for the health-conscious clientele, cannabis-infused beverages in cooperation with Canadian pharmaceutical and cannabis company Tilray (, 21.12.2018), artisanal beers like Goose Island and about a dozen others bundled in its Craft Beer Division (, 16.8.2018), convenience products like its new beer and cocktail machine Drinkworks Home Bar, which was developed together with Keurig (, 15.11.2018) or other Beyond Beer products, like mixed drinks and canned cocktails from its newly acquired subsidiaries Cutwater Spirits (, 20.2.2019), or other innovative products like Spiked Seltzer (, 13.9.2016), HiBall (, 24.7.2017) and Babe Rose (, 13.3.2018).

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