Photographer: Paulo Fridman/Bloomberg

As Brazil Hits Bottom of Beer Barrel, Ambev Aims to Lighten Mood

  • Skol touted at Olympics; Brahma, Antarctica to sponsor events
  • Sales in South American nation seen flat compared with 2015

What should have been a festive year for Ambev SA is turning out pretty glum. Brazilians guzzled less Skol, Brahma and Antarctica last quarter than they have in seven years, and the brewer’s share of the beer market in its home country has dropped, with cheaper rivals gaining ground.

Instead of being in party mode, Brazil remains mired in deep recession with the Olympic Games just starting up. Those aren’t great conditions for a beer company to improve its fortunes, and Ambev’s shares are down 4.6 percent over the past 12 months, compared with the benchmark Ibovespa index’s 14 percent gain. So Ambev, controlled by global beer giant Anheuser-Busch InBev NV, has struck on a solution: make the party happen itself.

The company stepped up promotions across the country at St. John’s Festivals, which mark the beginning of Brazil’s winter, and emblazoned its Skol brand on the LGBT Pride Parade this year in Sao Paulo, an event that draws more than 2 million people. The company is looking for other sports and music events to sponsor, as Antarctica is doing with street Carnival in the city of Rio de Janeiro and Brahma is with the Villa Mix music festivals in several cities.

Skol is getting its big push at the Olympics. On a plaza by Rio’s Museum of Tomorrow, refrigerated carts were being readied with enormous stacks of Skol cans Friday ahead of the opening ceremony. A balloon emblazoned with the Skol logo was offering visitors a lift to get a panoramic view of Guanabara Bay. Even still, it was hard for the brand to stand out in a city saturated with the logos of Olympics sponsors such as Coca-Cola, Nissan and the bank Bradesco.

“The big goal for the brands is to be there with our consumers in those moments when you create an emotional connection with the consumer,” Ambev Chief Financial Officer Ricardo Rittes told reporters last week on a conference call. For the Olympics, Brazilians will be hanging out with friends, family and an “ice-cold Skolzinha” by their side, he said, calling the beer by its pet name.

The strategy worked for Budweiser, which Ambev sells as a premium brand in Brazil and promoted heavily at the World Cup in 2014, holding pregame and postgame events. But it’s expensive. Selling, general and administrative expenses rose 12 percent last quarter to 3.49 billion reais ($1.09 billion) in part because of costs related to the Olympics. Ambev will be able to shift costs around and handle other parts of its operations more efficiently to make up for more spending on events, Chief Executive Officer Bernardo Pinto Paiva said on the conference call.

“Since the company’s efforts aiming to reduce expenses have been assertive, but not enough to offset the drop in volumes and the increase in costs, we remain conservative on Ambev’s growth expectations in the short term,” Luciana Carvalho, an analyst at BB Investimentos, said in a research note this week. She is one of nine analysts who advise holding the Brazil-listed shares, with only one recommending a buy, according to data compiled by Bloomberg.

Click here for a QuickTake on Brazil’s long road to recovery.

Ambev lowered its forecast for Brazilian sales, which also include soft drinks and juices, to be little changed from 2015’s 26.3 billion reais. That compared with an earlier outlook for a growth rate in the mid- to high single digits. Brazil represents about 60 percent of the company, which also operates in Canada, Argentina and other parts of Latin America. Latin America, in turn, represents about one-quarter of AB InBev’s sales, and Ambev’s troubles there have dragged down the parent company’s results.

The plan is to invest heavily in marketing to gain momentum toward the end of the year, aiming to be in a better competitive position in an improving market.

“2017 could be better,” Paiva said last week. “Inflation is going down, consumer confidence improving. But at the end of the day, the rising unemployment in the short term is putting pressure in the industry.”

Before it's here, it's on the Bloomberg Terminal.