Friday, September 22, 2023

AB InBev’s decline in the United States shows no signs of stopping

The global brewer and local market leader has seen its sales plummet for more than five months. At the moment, the brewer has not yet suffered a significant depreciation of its assets in the United States. However, we will have to be vigilant if the slowdown continues.

For 22 years, since 2001, Bud Light has been the best-selling beer in the United States. Launched in 1982, Bud Light was the local market leader, as was Jupiler in Belgium. Then April 1st arrived. That day, a video of a transgender influencer with almost 2 million followers was released on Instagram. Dylan Mulvaney was celebrating her first “birthday as a woman.” The video showed Bud Light cans with her image on them. The brand wanted to congratulate Dylan for reaching this “personal milestone.” The influencer also has 10.7 million followers on TikTok.

Since then, sales of Anheuser-Busch beer in the United States have been in free fall. Bud Light has lost its image as THE standard beer: Bud Light is no longer the brand of the middle class in America. The average consumer had difficulty understanding the video and conservatives called for a boycott. Bud Light was no longer seen as an authentic and trustworthy brand.

More than a tenth of Stella Artois less

The misfortunes of Anheuser-Busch, the American subsidiary of the Belgian-Brazilian brewer AB InBev, are irremediable. During the week of August 27 to September 2, the sales figure and volume decreased further by 27% and 31% respectively (compared to the same period last year). This is what the figures from Bump Williams Consulting reveal. The spirits specialist measures in-store sales every week based on data from Nielsen IQ. In-store sales account for four-fifths of beer consumption in the United States, with the remaining 20% ​​coming from the hospitality sector.

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The double-digit decline has continued for more than five months. And this despite the fact that in mid-June the brewery launched the most expensive advertising campaign in its history, to improve its damaged image. The desert crossing continues towards Anheuser-Busch. Belgian beer Stella Artois, positioned as an expensive, high-end beer in the United States, is also suffering the repercussions of the crisis. During the week of August 27 to September 2, volumes fell by more than a tenth and sales figures by 5%.

Mexican market leader

The big winners are the competitors. Modelo Especial, in particular, is seeing its growth accelerate. This Mexican brand is the new market leader in the United States and its leadership increases every week. In terms of sales, Modelo Especial had a 9.2% market share during the week of August 27 to September 2, compared to 7% for Bud Light.

What makes the matter even more painful is that Modelo Especial was until recently a brand of AB InBev. Mexican market leader Grupo Modelo was a subsidiary of AB InBev, but U.S. competition authorities forced AB InBev to sell its import operations in 2013 over fears the global brewer was becoming too dominant in the United States. The American brewer Constellation Brands, number three, has acquired the rights to import Grupo Modelo beers to the United States in perpetuity.

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AB InBev said in a comment that it cannot officially confirm the sales figures because they do not come from its own sources, but from Bump Williams Consulting. AB InBev could not comment on these sources.

No particular loss of value.

The United States contributed 30% of AB InBev’s operating profit until last year and remains the group’s main profit driver. This is also reflected in the structure of the balance sheet. Activities in the United States weigh a lot. The balance sheet total was $213 billion at the end of last year, while goodwill (or total asset value) in the United States was $34 billion. Added to this are the brands: 22 billion dollars for American brands. The net worth amounted to 84 billion euros at the end of last year.

However, a specialist in international accounting (IFRS) is not surprised that there have not yet been any strong write-downs in the US division of the global brewer. These impairments are determined in part by projections of future cash flows. They extend over several years and are not limited to the catastrophic year 2023. Sales could improve again in the following years.

It is important to note that these cash flows also take into account stress scenarios. These are determined in advance and must assume a “reasonably foreseeable” evolution. The issue that erupted around Bud Light was difficult to predict.

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In the fall, a company develops scenarios for the following year. Therefore, the IFRS accounting specialist emphasizes that it will be particularly important to be attentive to the information and outlook provided in the financial statements for fiscal year 2023. What assumptions will AB InBev use to determine the value of goodwill? What stress scenarios will be taken into account? Will low sales persist? Or is the brewer expecting a recovery in the near future?

A deep political division

A former AB InBev executive expects the Bud Light case to have a clear impact in fiscal 2023, and probably well beyond. Recovery will take time. However, value depreciation generally has nothing to do with “temporary” events. For this to happen, the problems must be structural. It’s too early to judge. The Bud Light affair primarily reflects the deep political divide in the United States. Brands are blatantly used for political purposes. Bud Light, which until recently was the average American’s favorite beer, is an easy target.

In its reaction, AB InBev referred to a recent positive analysis report from asset manager TD Cowen, according to which the storm around Bud Light would not intensify further and would calm down from next year. It is true that the brewer will continue to have less space for its brands on the shelves for some time. But starting next spring the sky should gradually clear up. TD Cowen has set a target price of €63 for AB InBev shares. Last Friday the price closed at 53.3 euros.

Times of National
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