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Macro Strategy -- It's In The Numbers

A News Analysis

The first quarter results from the two largest brewers in the U.S. confirm the ongoing strategy for how the bigger brewers continue to respond to competition from the smaller, independent brewers in the craft segment.

Despite declining volume of overall beer sales in the U.S. market and craft brewers gaining a larger share, MillerCoors and Anheuser-Busch are posting revenue gains as a result of pricing, efficiency and putting more emphasis on the Above Premium category of beers, one where prices are higher relative to the traditional American premium lagers and a category that often corresponds to the craft beers from independent brewers.

The net income of MillerCoors grew 4.4 percent in a first quarter where overall tax-paid volume for beer was down 3.7 percent according to the Beer Institute.  The net income of $304.6 million resulted from higher net pricing, a positive sales mix and strong cost control, said the company’s statement.

 “We’ll continue to win in Above Premium by amplifying and expanding our higher-margin offerings like Redd’s, Blue Moon and Leinenkugel’s Shandy portfolio as we head into the summer selling season,” said Tom Long, who will step down from his CEO position in June.

Using different indices, AB InBev, owners of Anheuser-Busch, reported a slight increase of revenue of 1.3 percent per hectoliter (or five gallons less than a barrel) in the U.S. But earnings before interest, taxes, depreciation and amortization (EBITDA) declined by 6.5 percent.

Carlos Brito, CEO of AB InBev, cited the Above Premium category as the source of growth for the U.S. market, where he said the decline of Bud Light and Budweiser has stabilized. “We're very pleased with the momentum behind Ultra, and we'll continue to invest behind the brand's unique positioning in the market,” he said of the high-end light beer. “Stella Artois and Goose Island also delivered solid volume growth and share gains.”

Where MillerCoors seeks to grow its Above Premium portfolio with in-house brews such as Blue Moon, Leinenkugel’s and Redd’s, AB InBev has sought to buy independent brewers in regions around the U.S. with an eye on expanding retail sales of those brands with its new Craft unit.

Going forward, it remains to be seen how much of the revenue and profit growth of the two largest beer producers depends on advertising, another advantage the big brewers’ scale brings.  Brito cited the “Brewed the Hard Way” TV campaign for Budweiser as one of the factors in stemming the decline of sales volume for AB’s former market leader. The ad promoting its premium lager was aimed squarely at touting Budweiser versus the beers of independent, craft brewers. Market share for Budweiser dropped 0.20 points in the quarter.

“The underlying quality and heritage messages of this campaign are resonating well with the majority of our consumers, and we're seeing good improvement in our STR [sales to retailers] and share results,” said Brito. “The decline in Budweiser market share in the quarter was approximately 20 bps [basis points] based on our estimates, much improved compared to historical trends.”

For MillerCoors, TV advertising has been a constant behind the promotion of Blue Moon, Leinenkugel’s and Redd’s.

Interestingly, the Craft Brew Alliance, many of whose beers were behind the early growth of craft before equity was sold to Anheuser-Busch, reported a downturn in revenue of five percent in the first quarter. The CBA is considerably smaller than its macro counterpart and equity holder.

CBA will look in part to one of its most unique beers – the gluten-free Widmer Brothers Omission  – to try to turn around the decline, using a style of beer promoted by many competing independent breweries. CBA’s plan for better efficiencies includes better procurement savings through leveraging scale, plus better logistics and freight. 

Two of the CBA’s brands – Kona ($15 million) and Widmer Brothers ($10 million) – have recently announced multi-million dollars expansion plans.