InBev faces trick of selling all-American Bud products

Thursday, July 17, 2008

ST. LOUIS — In paying $52 billion for Anheuser-Busch because of the strength of the Budweiser and Bud Light brands, InBev SA will also be inheriting the King of Beers' weaknesses — which might only worsen when ownership of the largest U.S. brewer shifts into foreign hands.

Anheuser-Busch Cos. Inc. has struggled for years to boost lagging Budweiser and Bud Light sales in the United States, where customers have grown more interested in craft beers, wine and cocktails. Tepid sales of Anheuser-Busch's "core brands" were a key reason the company's stock price has stagnated since 2003, giving InBev its opening to buy the brewer with an all-cash payout of $70 a share.

It's not clear what strategy InBev will employ to succeed in the U.S. where Anheuser-Busch has failed.

And the job might be tougher for the Belgian brewer. Anheuser-Busch built a loyal following behind the Budweiser brand with marketing campaigns that emphasize patriotism, tradition and the Busch family name. It remains unclear how consumers will feel about a European corporation owning what A-B calls "The Great American Lager."

"Beer drinkers, probably next to car drivers and soda drinkers, are probably the most brand loyal" consumers, said Stanley Baran, a communications professor at Bryant University in Rhode Island.

"The fact that Budweiser is an American beer is really important to beer drinkers, and I do think it will hurt Budweiser here that they're no longer an American company," he said.

While InBev doesn't want to lose Budweiser's U.S. market share, the company's key strategy is to boost Budweiser sales overseas, in markets where Anheuser-Busch is currently a niche player, said InBev spokeswoman Nina Devlin.

InBev chief executive Carlos Brito has said the real source of new profits will come from making Budweiser a globally known brand along the lines of Coca-Cola or Pepsi.

"Of course, we want to grow the company in the U.S., but one of the biggest opportunities we see is growing the business internationally," Devlin said. "There's a substantial opportunity to use the InBev footprint in markets outside the U.S. to help grow Budweiser outside the U.S."

Devlin said it's too early to comment on what kind of strategy InBev will use to keep or expand Budweiser's U.S. following.

Brand loyalty was still strong at the Southtown Pub in St. Louis, where patrons were lined up at the bar Wednesday morning with cold Budweisers and Bud Lights in hand. They didn't have much choice — the bar serves only Anheuser-Busch products. It was hard to lay eyes on any corner of the tavern not adorned with one Anheuser-Busch advertisement or another — even when checking the oversized clock behind the bar.

But even loyal Budweiser drinkers like Mike Kitchens are troubled by the InBev purchase. He said he's been drinking Anheuser-Busch products since he was 15 years old — the Missouri legal drinking age not withstanding — but he's not so sure about the future.

Kitchens, 48, said he isn't all that bothered by the European ownership: "I've been around the world three times in the military. I've drank Budweiser in Germany."

What troubles him is the prospect that InBev might slash its work force in St. Louis, where the brewery employs some 6,000 people.

"If they start cutting jobs where it's massive, then I would stop and switch brands," Kitchens said.

Many in St. Louis are taking a pragmatic approach during happy hour. Several people at local pubs dismissed the idea of boycotting Budweiser outright because it would only worsen the job prospects of those who work at the brewery here, which will become InBev's North American headquarters.

Even the co-founder of SaveAB.com — a Web site that claims to have collected 85,000 signatures opposing the InBev takeover — sent out a statement Wednesday asking supporters not to get behind a boycott.

"A boycott is a bit like cutting off one's nose to spite your face," said co-founder Ed Martin. He has helped organize rallies and the printing of T-shirts opposing the sale of Anheuser-Busch, but is now focused on persuading Brito to keep jobs in St. Louis.

"SaveAB.com was started basically on concerns we had first and foremost for American workers," Martin said.

Devlin, from InBev, suggested that consumers can expect to see Budweiser packaged and sold in much the same way it has been under Anheuser-Busch's current management.

"We'll continue to focus on this market, and help (Anheuser-Busch) do what they already do very well, and see how we can continue to build on that," she said.

While the deal has not yet been approved by shareholders, it seems likely to be completed. The companies both agreed to pay the other a $1.25 billion "break up" fee if either company backs out of the deal, according to a filing Anheuser-Busch filed with the U.S. Securities and Exchange Commission Wednesday.

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