Anheuser-Buschs Expansion Strategies - Case Study Example

 Anheuser-Busch’s Expansion Strategies During the 160 years that Anheuser-Buschhas been in the beer trade, the corporation has grown to become one of the global giants in the business. Over the years, Anheuser-Busch has expanded its horizons beyond St. Louis where it first started, to become the top distributor in the United Statesand worldwide top supplier. The success of Anheuser-Busch has been fueled by extensive expansion strategies formulated by the company’s directors and board members since inception. Most importantly, the company has managed to diversify its products to cater for the interests of consumers across the globe, by tapping into the international market.This paper aims to look at those strategies that have enabled Anheuser-Busch to become one of the leading beer manufactures and suppliers worldwide. Eberhard Anheuser, an affluent soap maker purchased a deteriorating brewery in St. Louis in 1852.Together with his son-in-law, Adolphus Busch, an experienced brewer, Eberhard Anheuser transformed the world of beer brewing. Anheuser-Busch, the company, engaged in a series of aggressive business expansion strategies and revived a dying Brewery to become an icon in the beer industry. Anheuser-Busch started its expansion strategy byfirst concentrating on the domestic market before venturing into the international arena. One of the first strategies was to increase the number of barrels manufactured per year. According to Colicchio & Oliver by the end of 1901, Anheuser-Busch had reached a capacity of 1 million barrels manufactured per year. Secondly, Anheuser-Busch came up with a number of innovations to preserve the taste and freshness of beer.According to Oliver & Colicchiopasteurization of beer was introduced by Anheuser Busch and refrigerated cars were used to transport beer over long distances while still preserving the taste (52). The concept of bottling beer was also introduced by Anheuser-Busch to ease distribution. Such innovative strategies led to increased presence of Anheuser-Busch in the beer industry in the United States. Throughout the 19th and 20th centuries, the company expanded to cover other areas such as Texas, Louisiana, and Missouri. Having conquered the domestic market, Anheuser-Busch sought to venture into the international market and build a name for its products. The company engaged in a series of expansion strategies that saw Anheuser-Busch rank third among the best brewers in the word by 2008. The most fruitful strategies that have enabled Anheuser expand globally and have presence in over 80 countries include: diversification of beer brands, consideration for consumer needs, foreign sales and partnerships, and advertising. Diversification of beer brands Since Anheuser-Busch is involved in other areas of investment other than the beer industry, Anheuser-Busch, Inc. (ABI) is the main subsidiary that deals with the company’s beer operations, the core business of the company. Under ABI, the company was able to diversify its market by brewing different brands of beer. For example, by 1994, ABI was brewing a number of brands including; Budweiser, Michelob, Bud Light, Natural Light, Ice, among others. By the close of 1993, ABI had managed to sell approximately 87.3 million beer barrels, which according to Oliver & Colicchio was caused by the diversification of beer brands (56). While other brewers have a few beer brands, the diversification of ABIs products has ensured the expansion of its domestic and international market.By the close of 2008, Anheuser-Busch was brewing more than 60 brands of beer including lagers and ales. The different brands cater for the interests of individual consumers, thus enabling the company to tap a wider market. In the United States, Anheuser-Busch has a number of packaging facilities that ensure that the market demand for beer is adequately met. This is especially to cater for exports to countries where Anheuser-Busch does not have its own brewing facilities. Nonetheless, Anheuser-Busch distributes approximately 70 % of its products via wholesale. As a result, distributorshave less negotiating power and Anheuser-Busch’s products are distributed to many places, thus earning the company more international recognition. Evidence for the Anheuser-Busch’s international expansion, according to Oliver & Colicchio is in the fact that the company’s top beer, Budweiser, achieved an international average growth of 20% between 2003 and 2008 (52). Market research and consideration for consumer needs In line with the objective to introduce more beer varieties to fit current trends, Anheuser-Busch is very particular about consumer needs and preferences. In order to understand consume preferences, Anheuser-Busch undertakes intensive market research, through the use of BudNET to collect data. BudNET is an online application that allows for stakeholders at Anheuser-Busch, such as business partners, retailers and wholesalers to get information concerning consumers. Using BudNET, the shareholders get data n sales, competitors, customers, and the performance of Anheuser-Busch’s products in the global market. More specifically, BudNET has enabled Anheuser-Busch study consumer trends round the globe, thus ensuring that the company is ahead of its competitors. For example, in 2008, Anheuser-Busch conducted market research and established that beer consumers were more becoming more attracted to sweet beers, as opposed to the traditionally bitter beers. Oliver & Colicchio state that Anheuser-Busch introduced Bud Light Lime to tap into the new market, a move that saw the company generate approximately 250 million dollars by the close of 2010 through the sale of Bud Light Lime (64).In addition, Anheuser-Busch has been very consistent in the recipes used to brew their beer, thereby ensuring that consumers get to enjoy the same taste in their favorite beers. Through market research, Anheuser-Busch has managed to incorporate both renovation and innovation into their products, such that the latter suit consumer needs and preferences. Renovation means introducing mild changes to existing products or engaging in more aggressive campaigns for the said products. This way, the “old” products are strengthened and the customers are convinced about using them again. As far as innovation goes, Anheuser-Busch occasionally introduces completely new products into the market. For example, the introduction of lighter beers in the market was a complete shift from the traditional bitter beers. Foreign sales and partnerships In 1981, Anheuser-Busch formed a brewing subsidiary named Anheuser-Busch international Inc. (A-BII), which according to Oliver & Colicchio, was tasked with marketingthe company’sbeer in the international market and to oversee beer operations in the foreign market (56). A-BII was mandated to expand the international market by ensuring the licensing of export sales, marketing the company’s beer in foreign markets, and forging partnerships with foreign brewers.The company was able to tap into the foreign market through careful study that led to the realization that lighter and milder beers were more preferred by a majority of consumers. Accordingly, A-BII’s strategy has been to export more Budweiser and Bud Light.Colicchio &Oliver state that by 2008, Budweiser held the number one position for worldwide beer sales, while Bud Light was ranked fourth (61). A-BII has been able to achieve the international recognition through itsglobal distribution strategies.A-BII has been partnering with chief brewers and distributors in the local markets of various countries. A-BII has partnerships with brewers in countries such as Japan, Mexico, China, and Brazil. One of the strategies that have propelled Anheuser-Busch forward in international beer sales has been the acquisition of micro-breweries in foreign countries. Essentially, Anheuser-Busch has over the years acquired sever local breweries in Latin America, Mexico, Asia, and Europe. Anheuser-Busch has concentrated on the acquisition of micro-breweries as opposed to setting up new breweries. The rationale behind this strategy is that it saves the company a lot of start-up capital. Secondly, Anheuser-Busch’s products are easily absorbed in the particular countries because the consumers are more familiar with the local brands. Equity shares and partnerships with foreign brewies In Japan, A-BII formed a partnership withKirin Brewery Co. Ltd. the manufactures of Kirin Larger, one of the world’s best selling beer brands. By making Kirin Brewery Co. Ltd. a licensed brewer for A-BII, the latter has been able to penetrate the Japanese market and establish a strong grip in the local market, through the sales and distribution of its major brands. Similarly, A-BII acquired a 27 % stake in the Chinese brewer, Tsingtao Brewery, which commands a considerable 14 % influence on the Chinese beer industry. This gives A-BII a considerable advantage in as far as production, distribution and marketing of its products in China is concerned. According to Oliver & Colicchioalthough A-BII relinquished its shares at Tsingtao, the previous association gave A-BII the foundation for increased penetration of the Chinese (54).The increased presence in Asia is bound to give Anheuser-Busch more competitive advantage over its rivals. In Mexico, A-BII purchased equity interests in Grupo Modelo, Mexico’s largest brewer, thus giving A-BII a fair advantage in the Mexican beer industry. Grupo Modelo, according to Oliver & Colicchiois the manufacturer of the Corona brand that is exported to over 60 countries worldwide (58). Through this partnership, A-BII has been able to increase the sales of Budweiser, its main product in the Mexican market. With Mexico coming up as one of the top beer consumers in the world, the partnership between A-BII and Grupo Modelo is a smart strategy to ensure that A-BII gains maximum profit from the Mexican market. Antarctica, a Brazilian brewer is also partners with A-BII, leading to joint distribution activities between the two companies. Colicchio & Oliver state that with a 10% equity stake at Antarctica, A-BII has control over the licensed distribution and marketing of its products (59). With the lowering of import tariffs and the introduction of free market reforms in Brazil and deregulation of the beer industry in Mexico, A-BII has enjoyed more investment and significant returns in the Latin American market. Sprinkler expansion approach Apart from investing n equity share in foreign breweries, Anheuser-Busch also uses the sprinkler method to enter foreign markets. This approach involves entering new markets and using its monetary power to challenge the existing breweries. For example, in addition to Mexico, A-BII was able to venture into six other Latin American countries namely; El Salvador, Costa Rica, Nicaragua, Honduras, Guatemala, and Panama. A-BII was able to enter these countries through the purchase of 20% shares in Compania Cerveceria Unidas (CCU), Central America’s market leader in beer operations. This move was enough to scare off other brewers who ad interests in Central America, thus solidifying A-BII’s position as the largest brewer in that region. Basically, Anheuser-Busch’s global distribution strategies are influenced by the nature of civilizations in the particular countries that the company ventures into. For instance, Anheuser-Busch has major distribution activities in japan, Canada, Spain, and the United Kingdom where beer is considered an enjoyable product by a large part of the population. This means that such countries are major markets for Anheuser-Busch’s beer products. Advertising The Anheuser-Busch Company has been very strategic about the advertising of its products to ensure that it reach a greater global audience. The major form of advertising embraced by Anheuser-Busch is through sports events. The company targets sports events since they have a large global following, especially by people who are legally allowed to take alcoholic drinks. Anheuser-Busch uses such sports as the super bowl and football to advertise its beer products. For example, in 1993, Anheuser-Busch made an agreement with FIFA to be one of the 1994 World Cup sponsors.Colicchio & Oliver state that under his agreement, Anheuser-Busch earned the right to be the sole beer brand to use the World Cup logo (55). This earned Anheuser-Busch international recognition owing to the fact that the World Cup is watched by millions of populace around the world. Essentially, Anheuser-Buschownsan advertising agency “Carter Advertising” which caters for all advertisements and beer campaigns, especially in the United States and Latin America. Major television networks such as CNN and Telemundo have aired advertisements for Anheuser-Busch’s products. Oliver & Colicchioaddthat A-BII promotes its products by using an American theme, but also incorporating customized messages to fit the local audience in the different countries it sells to (67). Most of Anheuser-Busch’s TV commercials have been able to draw the attention of a wide global audience, thus ensuring that A-BII retains a competitive edge over its rivals in the international beer industry. Anheuser-Busch also became a sponsor of the English Premier League, thus marketing the company to a lot of soccer fans around Europe and the globe in general. Fundamentally, Anheuser-Busch markets its products by emphasizing on quality, social responsibility and values, and entertainment. For example, Anheuser-Busch achieved international recognition and increased foreign sales through the marketing of Budweiser using the slogan dubbed “Whassup?”. Responding to challenges Just like any other brewer, Anheuser-Busch has had to deal with the challenge of underage drinking. For example, in 2008, the company’s “Spykes” brand created a lot of controversy in the United States after several groups advocating for alcohol prevention took issue with the contents of the brand. These groups together with the attorney general argued that the energy drink “Spykes” was more attractive to the youth due to high levels of caffeine and the flavors used; mango, chocolate, lime, and melon. Anheuser-Busch was forced to withdraw “Spykes” from the market. Nonetheless, Anheuser-Busch collaborated with the federal government in 2008 to combat underage drinking. Through a campaign dubbed “We Don’t Serve Teens”, Anheuser-Busch rolled out numerous advertisements advising parents not to make alcohol accessible to teenagers. According to Oliver & Colicchio Anheuser-Busch’s dedication to increased alcohol awareness has cost the company approximately 675 million dollars since 1982 (50). This dedication has helped the company attain international recognition, thus allowing the company to expand worldwide. Anheuser-Busch has also had to deal with pollution issues. According to Oliver & Colicchio Anheuser-Busch was ranked 42nd in the top 100 companies most responsible for air pollution in the United States, in 2002 (31). The company was responsible for releasing carbon-dioxide into the air during the fermentation process, according to the research by the Political Economy Research Institute. Accordingly, the company started out on a program to reduce carbon-dioxide emissions. Anheuser-Busch has received numerous international awards for is efforts to ensure environmental sustainability over the years, thus earning the company more foreign exposure. Competition is also an important factor in as far as beer sales for Anheuser-Busch is concerned. The competition in this case comes from other forms of alcoholic drinks, particularly wines and spirits. Since the turn of the century, sales for wines and spirits have ben going up, while beer sales have been on a downward trend. Consequently, beer brewers have been left vulnerable to the changing trends among consumers. Fortunately, Anheuser-Busch has maintained its financial position wing to the fact that it has differentiated brands that cater for the preferences of consumers. In addition to consumers switching to wines and spirits, the same consumers usually fail to remain loyal to a particular brand, especially if the prices are high. To tackle this problem by offering a wide array of beers, under different prices. Accordingly, the customer gets the best taste for affordable prices. Nonetheless, even the affluent in society are catered for, through the use of premium beers. Additionally, Anheuser-Busch has faced challenges and competition from other brewers both domestically and internationally. Such companies as SABMiller and Heineken are major competitors, but Anheuser-Busch has been able to surpass the competition through productquality and differentiation, several packaging facilities, and competitive pricing. Anheuser-Busch also strives to ensure timely delivery of its products to consumers shortly after production. This timely delivery of fresh products leads to consumers being loyal to Anheuser-Busch’s products as opposed to those from other brewers who store their products for long before distributing them to the market. The most serious challenge to hit Anheuser-Busch was the competition waged by InBev, which overtook Anheuser-Busch as the number one brewer in the world. InBev had a strong hold of the European market, a sector that Anheuser-Busch had been unable to capitalize on, based on tough European export laws. Following the financial meltdown in the United States InBev launched a bid to buy Anheuser-Busch and save the latter from the severe effects of the meltdown. Initially, Anheuser-Busch resisted the offer but once shareholders started giving in, the former decided to accept the offer. Merger with InBev In 2008, InBev, a Belgium brewer acquired Anheuser-Busch, according to Colicchio & Oliver to create a company renamed Anheuser-Busch InBev (AB InBev) (157). At the time, InBev was the number one beer brewer in the world and also in Europe. With this merger, Anheuser-Busch became a wholly owned subsidiary of InBev and the former’s top brand, Budweiser, has been marketed worldwide to cover areas such as Europe, where it did not have much presence before.Oliver & Colicchiostate thatAB InBev is the leading brewer by international standards, havingoperational rights in 152 beer plants globally, especially located in North America, Latin America, Europe, and Asia (597). Fundamentally, the acquisition by InBev allowed Anheuser-Busch to diversify more into Europe and Canada, t complement the latte’s dominance in the United States. In a bid to further diversify the scope of AB InBev, the company entered into an agreement with Grupo Modelo in 2012, according to Cimilluca & Esterl for the latter to sell its remaining shares to the former (1). This merger will see AB InBev solidify its foothold in Latin America and 180 other countries where Grupo Modelo sellsits products. Basically, AB InBev will be responsible for the sales of Budweiser from Anheuser-Busch, Stella Artois and Becks from InBev, and Corona from Grupo Modelo. It is worth mentioning that AB InBev has adopted a marketing strategy somewhat different from the one previously used by Anheuser-Busch. The new company is increasingly using digital media to advertise its products, for example by placing ads on Facebook, YouTube, and Twitter. Additionally, AB InBev has consolidated its global marketing approach under one centralized team.This marketing team comes up with themes, which are later tailored to fit individual markets. In summary, the directorate at Anheuser-Busch has employed plausible strategies that have helped the company scale the heights of worldwide beer industry.The attainment of this status has been fueled by aggressive expansion strategies to cover key areas in the United States and the world over. Anheuser-Busch has grown to distribute beer in over 150 countries worldwide, and partner with over 50 brewers in foreign countries. One of the company’s key strategies has been the ultimate diversification of beer brands. Unlike most other brewers, Anheuser-Busch has ensured that it provide the consumers with variety of its products thus minimizing the risk of monotony. These new varieties have often been introduced in response to changing market trends and consumer tastes. This innovation has been fuelled by up-to-date data collection and research methods that enable Anheuser-Busch, keep abreast with consumer preferences. More importantly, Anheuser-Busch has, through its A-BII subsidiary, expanded into the global market and instituted a foothold in Latin America, Asia, and following the merger with InBev, Europe and Canada. Through the acquisition of market shares in foreign brewers such as Grupo Modelo, Antarctica, Kirin Brewery, CCU, among others, A-BII has been able to expand in the foreign market. The rationale behind the acquisition of equity shares in foreign brewers is that A-BII gains distribution and marketing rights within the respective countries. The merger with InBev is definitely one of the boldest moves by Anheuser-Busch to ensure that it expands well beyond America and Asia, into Europe and the rest of the world. Advertising has also helped Anheuser-Busch acquire international recognition. The most effective being the 1994 World Cup, where Anheuser-Busch was able to reach millions of soccer fans worldwide, thus building its name. Anheuser-Busch has also utilized television networks in various countries such as Telemundo, CNN, among others to market its products. Carter agency has ensured that these advertisements fit the local audience, while still maintaining an American theme, making them more appealing. Advertising at AB InBev is set to go a notch higher with the consolidation of all marketing activities under ne collective team, to deal with global marketing strategies. In the end, Anheuser-Busch has managed fight off stiff competition from local and international brewers and stay at the helm of the beer industry. According Oliver & Colicchio toAnheuser-Busch has fended off competition from top brewers such as SABMiller and Heineken in the global market (428). In keeping true to its original taste while also diversifying its brands, Anheuser-Busch has created a rapport with the consumers of its products worldwide. The various equity shares and mergers have been the best decisions made by the company’s directors in as far as global expansion is concerned. It remains to be seen whether the merger with InBev and the anticipated purchase of Grupo Modelo will serve their purpose of further expanding and diversifying Anheuser-Busch to reach a greater global market. However, questions linger on the minds of most financial analysts whether the current decision by AB InBev to cut down expenses will prove deadly at the end. For example, the decision by AB InBev to withdraw its petition to be the official sponsoring beer for the 2012 Olympics might have cost the company considerable revenue and the chance toventure into other countries. Ultimately, Anheuser-Busch remains a legend in the worldwide beer industry and is expansion strategies have helped acquire that status. Works cited Cimilluca, Dana & Esterl, Mike. Stella, Bud-Meet Corona: AB InBev, Tapping Mexican Beer Market, Seals $ 20.1 Billion Deal For Modelo. 2012. Web. Accessed: September, 12, 2012. Retrieved from www.wsj.com. Oliver, Garrett & Colicchio, Tom. The Oxford Companion to Beer. Oxford: Oxford University Press. 2011. Print.   Read More