Anheuser Busch Says Skoal, Salud, PrositRichard A. Melcher
It's unlikely the citizens of the small Czech town of Cesk Bude jovic have ever received such attention. Trees are being planted along main avenues. And a new cultural center recently opened. Who's footing the bill for these projects? The benefactor is none other than Anheuser-Busch Cos. It wants the support of the people of Cesk Bude jovic in its battle to buy a stake in the local brewery, which makes Budweiser Budvar--no relation to the St. Louis-based giant.
Why such passion for a national treasure that produces just 500,000 barrels a year--the equivalent of two days' output for the world's biggest brewer? There's a good chance the government-owned brewery will be partially privatized in October. Busch began using the Budweiser name in the 19th century to give its beer a European cachet. And if Busch ends up owning a third of the business, as it hopes, then it can finally settle the nasty trademark battle over the Czech Budweiser brand that has blocked the brewing behemoth from pushing its beer in many markets around the world.
The search for new markets has never been as important to Busch as it is now. Even though Busch controls almost 43% of the U.S. beer market, its domestic sales growth is slowing dramatically. Analyst Emanuel Goldman of PaineWebber Inc. estimates that Busch's profits will grow less than 1% this year, to $1 billion, as sales rise by a mere 2%, to $11.6 billion (chart).
PARCHED. That's forcing the brewer to tap into thirstier regions abroad. Thanks to a beefed-up marketing campaign and a flurry of new licensing agreements with foreign brewers, Busch is hoping to expand Budweiser sales from Russia to Japan. More significantly, Busch now recognizes that Yankee beers won't sell everywhere overseas. So it is taking equity stakes in foreign brewers to expand its international presence (table). The goal is to transform the international brewing operation into the company's second-biggest profit maker, ahead of its food business that includes Campbell Taggart baked goods and Eagle Snacks.
Going global isn't a new notion at Busch. But until recently, the company's foreign sales push had been largely dependent on exports and a handful of licensing agreements that allowed foreign companies to brew and market Budweiser. But marketing and distribution skills varied widely overseas. And Budweiser had mixed success. "The world was not waiting for an American beer," says John H. Purnell, who is chairman of Busch's international operations.
Nowadays, there's far more urgency to succeed abroad. Not only is its core U.S. beer market flat, but the company's diversification strategy is faltering. Operating profits at the food unit fell 21% last year, to $75 million. And while the entertainment division, which includes Sea World and Busch Gardens, saw its profits rise 22%, to $55 million, that's still below 1990's level.
SPORTING CHANCE. Busch now is leveling enormous firepower at foreign markets. This year alone, the company will spend $100 million--47% more than what it spent in 1992--on marketing Budweiser overseas. Busch is gambling that it will tap the growing popularity of American culture in many regions. "Anything American in Asia turns to gold," insists Keene Addison, manager of a Hong Kong-based chain of Chicago-style theme restaurants, Dan Ry- an's. To gain additional attention, Busch is considering sponsoring British soccer and Japanese baseball teams.
The centerpiece of Busch's international foray, however, is the partnerships it's forming with foreign breweries. Consider its close business ties with Japan's Kirin Brewery Co., the world's fourth-largest brewer. A year ago, Kirin Chairman Hideyo Motoyama and Busch Chairman August A. Busch III met in Hawaii to discuss their broad strategies. In the end, they agreed to form a joint venture to market Budweiser in Japan, which will likely be an uphill fight. Beginning this month, with Kirin's help, Busch plans to create its own sales force to learn the tricky distribution system in Japan. There's also speculation that Busch may buy a stake in Kirin, and Kirin and Busch may collaborate in markets elsewhere in Asia.
Busch's small stake in China's Tsingtao Brewery also may be a launching pad for bigger things. Beer consumption in China rose 14% last year, making it the fastest-growing beer market in the world. Down the road, Tsingtao will likely brew Budweiser locally to help its U.S. partner avoid steep duties on imported beers. In Mexico, Busch acquired a 17.7% stake in Grupo Modelo, which brews Corona, for $477 million. The company wants to expand its ownership to nearly 50%.
Of course, the company's latest foreign push won't be all beer and skittles. Some of Busch's new foreign partners could grow leery of the arrangement if Budweiser sales start taking off at the expense of their own brews. "Being the world's biggest brewer sometimes frightens people off," cautions Brian F. Baldock, deputy chairman of Guinness PLC, which brews Budweiser in Ireland. And then there's a more immediate threat: archrival Miller Brewing Co. Miller is going all out to establish its own international presence. Now headed by former Busch senior marketing executive John N. MacDonough, Miller has taken a 20% holding in Canada's largest brewer, Molson Breweries. And its parent, Philip Morris Cos., has bought a 7.9% stake in Mexico's No.2 brewery, FEMSA.
Profits from Busch's foreign beer operation are expected to climb 20% this year, to $30 million, a fraction of what the entire company is likely to make. But it's a start. And who knows? If the residents of Cesk Bude jovic warm to Busch, there's no telling how far that upstart Budweiser could go.