Budweiser sees big sales drop
Anheuser-Busch isn't seeing hot sales of the iconic American beer. But more profitable brews are selling well.
The brewer's flagship beer saw a 7% decline in U.S. sales in the third quarter. That's a pretty dramatic fall, continuing a trend we've seen for years. Coors Light booted Budweiser from the No. 2 spot in America last year, though Bud Light still has the top spot. The company also makes Stella Artois and Beck's, and said overall U.S. beer sales fell 0.9%.
But Anheuser-Busch is still making plenty of profit. Its North American profit was $1.82 billion in the quarter, Reuters reports. That disappointed analysts who expected to see $1.92 billion. But overall profit rose 15% from a year earlier to $2.34 billion.
The company is trying to reverse its downward spiral by introducing new products, and it seems that drinkers have responded to Bud Light Lime-A-Rita and the more potent Bud Light Platinum. But getting consumers to buy those new drinks came at a cost: Selling and marketing expenses rose 12.8% in North America in the quarter.
Try as it might, Anheuser-Busch cannot sell more beer. Organic volume -- which removes the impact of acquisitions and disposals -- fell by 0.3%. Analysts expected a 2% increase, Bloomberg reported. Much of that volume slowdown was due to Brazil, one of the company's largest markets. Europe and Russia also saw lower quantities of beer sold.
We're now on two straight quarters of volume declines; Anheuser-Busch saw volume fall 0.1% in the second quarter. But overall organic sales rose 9.1% in the third quarter, beating the 7.5% Analysts expected.
So how can sales be rising on falling volume? Higher prices. Beer drinkers are moving away from Budweiser, but they are embracing the more expensive Bud Light Platinum and Lime-A-Rita. That's bringing revenue up.
Although it may not look good, these numbers are pretty much where Anheuser-Busch wants to go. People aren't drinking lower-margin Budweiser but they're trying the more profitable Bud Light Platinum and Lime-A-Rita. Anheuser-Busch is paying for that attention, hoping that eventually it can bring down those marketing costs once consumers are sold. Overall gross margin rose to 58.4% in the quarter from 57% a year earlier.
It all jibes with Anheuser-Busch's intense and aggressive focus on profit at all costs. Here are some of the moves made by CEO Carlos Brito to shore up profits, according to Bloomberg Businesweek:
- Shifted the brewing of Beck's from Germany to St. Louis, alienating fans who said the taste was weakened.
- Laid off 1,400 people, or 6% of its American workers.
- Sold the SeaWorld and Busch Gardens theme parks.
- Made its labels smaller, the glass in its bottles thinner and cardboard packaging weaker.
- Used broken rice instead of whole grains in its beer, something previous management would not do.
- Cut the number of employee BlackBerry phones and told execs to start flying commercial.
- Cut purchases of high-quality hops, like those from Germany's Hallertau region, in favor of cheaper hops.
And where does that leave Budweiser, once an American icon? Anheuser-Busch has tried several times to revive Budweiser, without success. For now, it seems happy to place Budweiser on the back burner while it brews up more profitable beverages.
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Bud used to be an American made and OWNED company that cared about quality and their employees. "Broken rice instead of grains?" They deserve to lose.
"The company is trying to reverse its downward spiral by introducing new products, and it seems that drinkers have responded to Bud Light Lime-A-Rita and the more potent Bud Light Platinum."
Why don't they just try brewing real beer instead of waterd-down and/or flavored beer-like products?
There still is time to turn the slide around. You just need to change the thinking at the top.
When you cut jobs for profit, this is what happens in the end. You should have treated all those loyal employees with respect and dignity.
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The offering could become the second-biggest this year if underwriters exercise an option to buy more shares.
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