What ias ABinBEV?
It was created in 2008 when InBev, the Leuven (Belgium)-based owner of Beck’s and Stella Artois, swallowed Anheuser-Busch, the maker of Budweiser, in a $52 billion hostile takeover. Today, AB InBev is the dominant beer company in the U.S., with 48 percent of the market. It controls 69 percent in Brazil; it’s the second-largest brewer in Russia and the third-largest in China. The company owns more than 200 different beers around the world. It would like to buy more.
Why have they been considered bad for the Beer Industry as a whole?
Consider the experience of Becks Beer fan Brian Rinfret:
Brian Rinfret likes imported beer from Germany. He sometimes buys Spaten. He enjoys an occasional Bitburger. When he was 25 years old, he discovered Beck’s, a pilsner brewed in the city of Bremen in accordance with the Reinheitsgebot, the German Purity Law of 1516. It said so right on the label. After that, Rinfret was hooked.
One Friday night in January, Rinfret, who is now 52, stopped on the way home from work at his local liquor store in Monroe, N.J., and purchased a 12-pack of Beck’s. When he got home, he opened a bottle. “I was like, what the hell?” he recalls. “It tasted light. It tasted weak. Just, you know, night and day. Bubbly, real fizzy. To me, it wasn’t German beer. It tasted like a Budweiser with flavoring.”
He examined the label. It said the beer was no longer brewed in Bremen. He looked more closely at the fine print: “Product of the USA.” This was profoundly unsettling for a guy who had been a Beck’s drinker for more than half his life. He was also miffed to have paid the full import price for the 12-pack.
Rinfret left a telephone message with AB InBev (BUD), the owner of Beck’s and many other beers, including Budweiser. Nobody got back to him. He had better luck with e-mail. An AB InBev employee informed him that Beck’s was now being brewed in St. Louis along with Budweiser. But never fear, the rep told Rinfret: AB InBev was using the same recipe as always.
He wasn’t satisfied. In March, he posted a plea on Beck’s official Facebook (FB) page: “Beck’s made in the U.S. not worth drinking. Bring back German Beck’s. Please.” He had plenty of company. “This is a travesty,” a fellow disgruntled Beck’s drinker raged. “I’m pretty bummed,” wrote another. “I’ve been drinking this beer religiously for over 20 years.” Rinfret kept trashing Beck’s on Facebook. Until, he says, AB InBev unfriended him in May. “They banned me from their site. I can’t post anything on there any longer.”
Rinfret was only temporarily silenced. He now complains on a Facebook page called Import Beck’s from Germany. AB InBev may be paying a price for disappointing Beck’s loyalists like him. According to Bump Williams, a beer industry consultant in Stratford, Conn., sales of Beck’s at U.S. food stores were down 14 percent in the four weeks ending Sept. 9 compared with the same period last year. “They are getting their proverbial asses kicked,” Williams says. “Too many customers were turned off when the switch was made.” Sales of Budweiser in the U.S. have fallen recently, too. And yet AB InBev is extraordinarily profitable.
For Further Details please read the full article "The Plot to Destroy America's Beer" published by BusinessWeek.
Questions for Discussion:
ECON 2302
1. In what output market structure is ABinBEV producing in? Support this with evidence from teh article or other sources that you cite.
2. What technical elements from Microeconomics has ABinBEV's CEO Carlos Brito managed to do very well in working? What qualitative elements has Brito and ABinBEV handled poorly?
3. Who are the Competitors of ABinBEV? How can they benefit from possible mistakes that Brito is making in how they are brewing beer?
ECON 2301
1. What economic phenomenon has led to such a company as ABinBEV? Be specific and explain how it fits that definition.
2. What are the possible regulatory issues ABinBEV may run into for brewing Becks beer in St. Louis, MO rather than Bremen, Bavaria, Germany?
3. What other choices do consumers have and how can that influence ABinBEV to change its business practices?
As always I want to see well thought out comments posted, with your name, class, campus, days and times. You may earn 1 or 2 extra credit points applied to your Final Exam if the comments are top notch.
Success to you all!
Prof. Hank
1. In what output market structure is ABinBEV producing in? ABinBEV is operating in an Oligopolistic market. Support this with evidence from the article or other sources that you cite.
ReplyDeleteBenj Steinman, president of Beer Marketer’s Insights, says trade-off of higher profits for lower volume is an acceptable one for AB InBev; it was intentional. He also says that in 2011, 44 percent of Bud sales were sold outside of the U.S., compared with 28 percent just three years ago, and that the company is working hard to revive sales in the U.S.
So essentially it is all part of ABinBEV’s plan to neglect the quality of Bud in the U.S., increase the sales oversees and then try and revive dead sales back in the states again. All in the name of high profits that he’ll split with top execs at the end of the day. The bleeding will need to be cauterized at some point surely… Molson Brewery out of Canada (Coors), SAB Miller Brewery out of the UK (Miller High Life),and ANinBEV (Mfg of budweiser etc)are the top rated players in this Oligopoly market of domestic beer....I’ll never drink another Bud again, and I plan on telling 10 friends what I read here tonight.
2. What technical elements from Microeconomics has ABinBEV's CEO Carlos Brito managed to do very well in working? He produced so much cash flowed that by 2011 the company was able to pay down a significant portion of the $54 billion that it had borrowed to finance the Anheuser-Busch takeover earlier than expected. This triggered a $1.3 billion in stock-option bonuses for Brito and 39 of the other execs. What qualitative elements have Brito and ABinBEV handled poorly? He may have increased revenue and profit, but he has done so almost entirely by raising prices and cutting the cost of making the product; however, this has done wonders for AB InBev’s balance sheet.
Brito’s attempts to wring dollars from other strong brands, such as deciding to brew Beck’s and Bass in the U.S., have also met disapproval. Beck’s isn’t doing to well and sales continue to drop.
A former employee also claims the company is saving about $55 million a year substituting cheaper hops in Budweiser and other U.S. beers for more expensive ones like Hallertauer Mittelfrüh. It is hard to say whether the average Bud drinker has noticed. But then, the average Bud drinker is not drinking as much beer. Again, I am appalled that this is happening under our noses and no one is talking about it?
3. Who are the Competitors of ABinBEV? Anyone who is brewing a decent beer as far as I’m concerned: Coors Light, Miller Light, Amstel Light (my fav). How can they benefit from possible mistakes that Brito is making in how they are brewing beer? By getting the word out, advertise what’s happening, maybe rebrand the old Bud recipe and call it Budmeister? Rethink American loyalty and profit from ABinBEV’s obvious contempt.