AB InBev takes sip from SAB's cup
AB InBev, the world's biggest brewer, learnt something important from SABMiller, the erstwhile rival it swallowed three years ago.
"They showed us that low-alcohol beers could be sold at a premium," AB InBev CEO Carlos Brito said this week.
Wearing a blue shirt with the Budweiser logo embroidered on it, Brito told reporters in Johannesburg that he prefers the deal of more than $100bn (R.145-trillion) not be called a takeover - "it was a business combination".
Brito, a Brazilian, was involved in six massive mergers over the past two-and-a-half decades to create the AB InBev of today - a giant that brews more beer than any other.
He enjoys a Castle Lite when he is in SA, but prefers Budweiser.
His company has a multi-year strategy to capture a larger share of the world's premium beer market, because that is where the profits lie.
Budweiser is one of three global premium brands it wants to do most of the heavy lifting. The other two are Corona and Stella Artois.
But premiumisation is a theme throughout the business as AB InBev chases the rising disposable income of the world's growing middle class.
And low- and no-alcohol beers are part of that shift.
The brewer wants 20% of its portfolio to have an alcohol content of 3.5% and below by 2025. That would have been a tall order had it not been for the merger with SABMiller.
The company, which started brewing beer in Johannesburg when it was still a gold-rush town, had managed to grab more than 20% in six markets by the time AB InBev came knocking.
"We had some low-alcohol beers in some of our markets, small, but selling at the same price as a core brand," Brito said.
But SABMiller had studied the category thoroughly and realised that it works similarly to food consumption in the way consumers are willing to pay more for products that contain less of a certain substance.
"They will pay more because it's lifestyle-connected," said Brito. "And that is something that we have taken to our markets around the world."
But though SABMiller had the beginnings of a great idea, Brito believes the company was too decentralised to take full advantage of it. "One thing, for example, that they missed is global brands."
Sales of local products often took precedence, because the effect of further spending on marketing or promotions could be seen almost instantly.
"But premium brands take some years to build," said Brito.
Before the merger with SABMiller, AB InBev referred to three types of synergies - corporate speak for unlocking value when businesses combine functions.These were cost, revenue and working capital synergies.The idea is that the total costs for a combined business would be lower, the total revenue higher and the working capital used more efficiently.But when it took on the job of stitching SABMiller into AB InBev, it added a fourth type: intellectual synergies.And apart from learning how to sell low-alcohol drinks for more, the company also gained a planning approach developed by SABMiller called the "category expansion framework".SABMiller had been able to capture an idea that could be very complex and explain it in an easy way that had become company language, Brito said. "That's what SAB gave us. This common language of simplicity."SA is AB InBev's sixth-largest market, just behind Colombia.