Emerging Markets To Drive Growth For Anheuser-Busch

by Trefis Team
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BUD
Anheuser-Busch InBev
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Anheuser-Busch InBev (NYSE:BUD) is expected to report its first quarter results on May 9, wherein growth in both revenue and earnings is expected. This growth can be expected to be driven by its presence in emerging markets. In an interview with Food Dive, the Zone President of North America, Michel Doukeris, stated that the company is focusing on internal growth and garnering synergies from its merger with SABMiller, rather than looking for other acquisitions to drive growth. 2017 oversaw a successful integration of SABMiller, as well as strong performances across the globe. The company was also able to expand its margins, particularly in China. If we look at the past, the revenue per hectoliter growth posted by the company in the last five years, at 4.6%, has exceeded that of all its global FMCG (Fast Moving Consumer Goods) peers. Moreover, with the integration of SABMiller, the company has placed itself in a strong place to continue its growth momentum, by positioning it toward emerging markets that are poised for higher growth. These emerging markets now contribute to over 70% of the company’s total volumes, and roughly 60% of its revenues.

We have a $122 price estimate for Anheuser-Busch InBev, which is higher than the current market price. The charts have been made using our new, interactive model. You can click here for our interactive dashboard to modify our driver assumptions to see what impact this will have on the company’s revenues, earnings, and price estimate.

Factors That May Impact Performance

1. Potential of China: In its annual report, Anheuser Busch revealed that the company holds the number three position in total market share of beer by volume, and the number one position by volume in the fast-growing premium beer category in China, the world’s largest beer market by volume. Furthermore, in FY 2017, volumes in the country grew by low single digits, benefiting from consumer preference for premium brands, with its market share improving in an industry that actually declined marginally. Budweiser also grew nationally and established itself as the leading beer brand in e-commerce sales. BUD’s super premium portfolio, led by Corona, Hoegaarden, and Franziskaner, accelerated its growth throughout the year ended 31 December 2017, with volumes almost doubling compared to the year ended 31 December 2016. With consumer preferences shifting in the country, we expect strong growth for BUD’s products to continue in China.

2. Strong Growth Expected From Africa: Since in many emerging markets, there is a high level of consumption of illegal and illicit alcohol, due to a lack of affordable options, it represents a big opportunity for Anheuser-Busch to provide consumers with affordable, high quality, branded alternatives. BUD has been able to achieve this in Africa by using local crops to create beer brands at not just appealing price points, but also at healthy margins. Moreover, the long-term outlook for Africa is hugely attractive: markets with increasing gross domestic products, a growing middle class, and expanding economic opportunities. Africa had been a strong market for SABMiller before its amalgamation into AB InBev, and accounted for a considerable level of beer sales volumes. South Africa, a mature beer market, makes a big contribution to this.

3. Scope for Premiumization: BUD has a considerable opportunity to encourage consumers to trade-up to more high-end products, in both developed and in emerging markets. The company has various beer brands at different price points, which should stand it in good stead. BUD has also launched a high-end company, made up of its global specialty and craft brands. This is now established in 22 markets, accounting for roughly 70% of the high-end opportunity worldwide. BUD was able to deliver a growth of 26% in this segment in FY 2017, recording a revenue of $4.6 billion, and this is expected to continue in FY 2018 as well.

4. Diversifying Beer Portfolio: Flavored beer is another area that can provide growth for the company going forward. BUD has witnessed considerable success in this category in emerging and developed markets. For example, in South Africa, Flying Fish grew volumes by more than 60% in 2017 by recruiting females and younger LDA (legal drinking age) consumers into the beer category and grabbing share from cider. In Western Europe, Cubanisto, a rum flavored premium beer, grew its top-line by more than 40% in FY 2017 by successfully competing against spirits in the nightlife occasion category. The company is also trying to make in-roads in the craft beer industry, with partnerships with almost a dozen craft breweries. The company’s craft portfolio is growing ahead of the industry, driven by organic growth, as well as expanded distribution. Even in France, their Leffe brand has grown to become the number one beer brand by penetration.

5. Softness in the U.S. Market: BUD has been witnessing a soft market in the U.S., with industry volume declines exacerbated by market share declines. The company estimates that industry Sales-to-Retailers (STRs) in the United States declined by 1.3% in FY17, while BUD’s STRs were down 3.0% in the full year. What makes matters worse is that Molson Coors blamed “overall industry softness” in the U.S. beer industry for its sales decline in the first quarter, implying the weak trends have continued into FY 2018. On the other hand, the company’s Above Premium brand portfolio had a strong 2017, gaining 45 bps of market share last year and accelerating its share gains in the fourth quarter – up 60 bps. This growth was led by Michelob Ultra, which reported double-digit volume growth, continuing its run as the top share gainer in the U.S. for the eleventh consecutive quarter. While we expect the overall North American revenues to decline in 2017, its Above Premium segment should deliver strong growth.

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