Budweiser sees big sales drop

Anheuser-Busch isn't seeing hot sales of the iconic American beer. But more profitable brews are selling well.

By Kim Peterson Nov 1, 2012 3:50PM
Image: Men drinking beer - Radius Images, CorbisIs Anheuser-Busch Inbev (BUD) killing American beer? That's the theme of this very persuasive Businessweek article, and the company's latest results show that Americans continue to turn against Budweiser.

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.
Investors have applauded every step along the way, making Brito one of the most well-known CEOs in business. Shares of Anheuser-Busch have risen by 50% in the last year.

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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Tags: BUD
304Comments
Nov 1, 2012 5:02PM
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 o.k., everybody needs to start drinking more budwiser because they need to feed those big ole horese with the hairy feet. do it for the horses and the poor ole spotted dog. come to think of it, it's been quiet a while since i've seen those poor animals. maybe they got laid off long ago hopeing for change. maybe the horse got changed into glue and the dog is living in an animal shelter on obama "mutt" care!!
Nov 1, 2012 5:00PM
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Budweiser used to be a premium beer. Now it has no "bite" or personality. PBR tastes a lot like the old Bud and it's cheaper to boot.
Nov 1, 2012 4:58PM
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"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?

 

 

Nov 1, 2012 4:57PM
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Cracked Rice!!!!!!   This abomination before God cannot be allowed to stand!!!!!!!
Nov 1, 2012 4:47PM
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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.

Nov 1, 2012 4:40PM
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Well, they could start with making better beer.
Nov 1, 2012 4:30PM
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There still is time to turn the slide around.  You just need to change the thinking at the top. 

 

Nov 1, 2012 4:15PM
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I'm amazed they haven't started brewing in China.
Nov 1, 2012 4:11PM
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And this is what it is all about these days, the INVESTORS and the CEO. See where quality, employees, and customers rank, right?
Nov 1, 2012 4:07PM
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I havent bought Budweiser for the past 10 years.  I enjoy the micro brews and American made beers, Samuel Adams has some great beer, dont need the politics of Budweiser or their crappy product.
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