Budweiser Analysis

BUDWEISER ANALYSIS

Overview

Anheuser Busch has a long storied history in the tale of American breweries. Since the first one opened over 150 years ago in St Louis, AB has added eleven more nationally and fifteen internationally. From 2005-2006 AB increased its sales, gross profit, net income, stock price and dividends paid. And since 1999, its international net income has increased and average of 20% per year. International operations now account for 32% of AB's net income. They are also a leader and innovator in vertical integration, founding subsidiaries that produce everything from raw materials to packaging to entertainment.

Industry

The beer industry is a $91.6 billion market in the United States, it accounts for 52% of total alcohol beverage sales and 85% of the consumption. The industry has seen an extended period of relatively flat consumption, with the only steady growth occurring in the niche brands produced by microbreweries and imports. This flat consumption can be explained by a few factors, the industry itself has reached maturity due to the maturity of the products within it, and over 80% of the market is comprised of AB, SABMiller and Coors which have dominated the market for years. This highly developed consolidation is also the result of intense government regulations and a relatively high tax rate. Alcohol awareness campaigns and an aging population also play a role. However, there is some hope, in the last two years, total barrels sold has increased 2.1%, the biggest jump since 1990. Anheuser Busch enjoys a 48.4% market share; Miller has 29% and Coors 10%. SABMiller and MolsonCoors are currently attempting a joint venture that will combine the Miller and Coors operations. This merger will create a stronger competitor for AB as they improve efficiency, distribution and effectively "gang-up" on AB.

Customer

The information search in the beer industry is a short one once the need has been perceived because the beer industry enjoys a high degree of brand loyalty; many people will only drink their brand. They may even go so far as to outright refuse other brands and not drink them at all, under any circumstance. Granted, this is an extreme position, but people are pretty serious when it comes to their beer. Social factors contribute to more products sold: "Give me a round of Buds!" most people will take the Bud even if they prefer Coors, maybe they like it better. Ideally, the post-purchase behavior should be enjoyable...for some more than others, so you associate that good feeling with a particular brand. According the "Beer consumer demographic profile" (progressivegrocer.com), the average beer consumer is male, younger, moderately educated, blue collar, with a moderate income. The core consumers are 21-27 year old males. Bud Light has the added distinction of increasing market share with virtually all genders, ages and demographic groups.

Marketing Mix Strategy

Anheuser Busch is made up many different subsidiaries and the one that produces beer offers a variety of different families or lines. The focus of this analysis will be on the Budweiser family and geared specifically towards Budweiser (Bud) and Bud Light.

Product

"Budweiser was introduced in 1876 when company founder Adolphus Busch set out to create the United States' first truly national beer brand - brewed to be universally popular and transcend regional tastes" (Fact Sheet, www.anheuserbusch.com). That vision is still Bud's focus, "The Great American Lager" as it is referred to now, a true classic. It is a premium beer that uses only the highest quality ingredients and stresses freshness above all else. The commitment to freshness is so serious that AB implemented a new strategy called the "Born on Date" which stamps the date when the beer was made and urges drinking it within 110 days for maximum freshness. Though it is no different than an expiration date, the customer feels as though s/he is getting a superior product. Bud Light maintains the same quality but focuses on a more refreshing beer that still tastes good but won't fill you up. Both products attempt to portray themselves as something that is necessary to any social gathering, whether it is the bar, restaurant, party, football game or opera.

Pricing

The beer industry is competitive; therefore customers enjoy competitive pricing for the mainstream beers. As companies strive to be efficient, they lower inventory and costs which can be passed on to the consumer in the form of lower prices as the company tries to gain new customers and increase market share. Other companies want to hold on to their share or increase so they lower prices or keep them competitive at least. Contrary to this recent trend, AB announced in its letter to shareholders that it would be increasing the price in select markets and regions. They feel they can do this because of their strong brand loyalty and superior product.

Place

Bud and Bud Light are available to consumers nationwide wherever alcohol is served. One would be hard pressed to find a liquor store or bar that didn't stock either, a more likely scenario is that they have depleted their own inventory and are awaiting a new delivery. The beer industry uses a highly regulated three tier system that separates the producer, distributor and retailer. The manufacturer, first tier, may sell only to the second tier, authorized distributors, who sell only to licensed retailers and bars, etc., the third tier. The 21st Amendment implemented this system and granted the states their customarily broad powers in working out the details; hence, there are some major differences between each state. The system works well for states; the regulations make the significant tax revenue from alcohol easier to collect. It also simplifies the role of the authorities that monitor the legal sale of alcohol by putting that responsibility solely on the third tier. Recently there has been debate about removing the wholesaler from the equation, and sometimes even the third tier. These concerns are raised by small vineyards and microbreweries who may find it more efficient to ship direct; the internet has rapidly expanded this practice. Anheuser Busch has been able to profit from and reduce some of the costs associated with this middle man system by expanding its role. By functioning as an importer, it is able to make money selling to the second tier even though it isn't fulfilling its true role as a "manufacturer" of these beers. AB also owns St Louis Refrigerated Car Co and Manufacturers Railway