AB InBev: Getting High on Growth
The world’s largest brewer has been able to drive sustainable growth throughout its merger-filled history. What’s the secret brew behind all this success?
Consumer goods is a very tough business. I have battle scars from spending 5 years in the industry. Are we putting the consumer first? How do we drive growth and profitability simultaneously? Can we leverage scale to think global and act local? These are some key questions all companies in this industry continuously grapple with. One company that’s consistently found answers to these questions is Anheuser-Busch InBev SA/NV (AB InBev for short). A look at the stock price (NYSE: BUD) shows how consistently and rapidly AB InBev has been able to increase shareholder value. [1]
So how has this Belgium-based brewer taken over the world of beer? The answer lies in the strong link between the business model and the operating model, which enables repeatability. Let’s look at some some key elements that shed light on how this linkage works, and gives AB InBev a sustainable, competitive advantage.
Go big, or go home: The AB InBev business model is geared towards driving big global brands with long-term growth potential. What this translates to is channeling capital, labor and production capability to brands like Corona and Budweiser, which are sold in multiple countries, and enable economies of scale. The big decisions on these brands are made at a global, centralized level, and permeate the entire company. While there is localization as needed, the clear company priority is on centrally managing these big brands, and designing an operating model that executes on global business strategies. Business history is full of examples that show how hard it can be to pull off a global strategy across markets. But when it’s carefully planned and measured as in the case of AB InBev, it can lead to unparalleled scale and growth. [2]
A winning culture: AB InBev has successfully driven the message of one global company built on collaboration and leading from the frontlines. Energizing employees behind the ‘dream’ of being the “Best Beer Company Bringing People Together for a Better World”, the operating model allows for quick decision making, flattened hierarchy, a feedback loop, and focus on winning in the marketplace. The 10 non-negotiable principles that make up the company’s “Dream-People-Culture” platform are not just words on a paper, but a true guide for employees from the C-suite, down to each engineer at the plants [3]. This is critical for a giant like AB InBev with operations around the world. Unless everyone is part of the same team, has a ‘desire to dream’, and acts as the business owner, no global strategy can be executed successfully. And as former P&G CEO A.G. Lafley says, execution is the only strategy that consumers see [4]
Focus on the bottomline: The AB InBev business model of growing via M&A deals works well, because with each merger, there’s been relentless focus on optimizing the operating model to increase margins. This focus on deliberate cost management is enabled via unique operating interventions like WCCP (world-class customer processes), ZBB (zero-based budget process) and VPO (Voyager Plant Optimization). In a nutshell, these interventions focus the entire supply chain on key metrics to achieve ruthless efficiency and maximum output [5] [6]
Putting it all together: Repeatability
The key features mentioned above converge to allow for a key source of competitive advantage for AB InBev – Repeatability. By creating an architecture within which the business model and operating model are in sync with each other, AB InBev is able to apply this architecture to new markets, contexts, and mergers with continued success. This has enabled sustainable value creation and earnings growth, rooted in solid business fundamentals. [6] [7]
Looking Ahead: Brew. Drink. Merge. Repeat?
The froth is yet to settle on the recent $100 Billion merger with SAB Miller, which has shaken up the beer industry. With this new entity responsible for brewing almost a third of the world’s beer, it’ll be interesting to see how synergistic this marriage is, as AB InBev is likely to reapply its business model to the SAB Miller brands. As outlined earlier, the biggest driver of AB InBev’s business success has been the repeatability of its centralized operating model that focuses on big global brands. This is fundamentally at odds with SAB Miller’s preference for a decentralized focus on managing local brands. The proven benefits of AB InBev’s business and operating model are apparent, with its profit margins at 39.4% in 2014, compared to SAB Miller at 29.5%. [2]. It would take a brave soul to bet against AB InBev repeating this success yet again. Cheers to that!
Sources:
[1] https://www.google.com/finance?q=NYSE:BUD
[2] http://uk.reuters.com/article/2015/10/06/us-sabmiller-abinbev-culture-idUKKCN0RZ1UL20151006
[3] http://www.ab-inbev.com/about/dream-people-culture.html
[4] http://www.forbes.com/sites/danschawbel/2013/02/05/a-g-lafley-develop-a-strategy-to-win-at-business/
[5] http://www.bain.com/publications/articles/the-strategic-principles-of-repeatability.aspx
[6] http://www.bain.com/Images/BAIN_BRIEF_Winning_operating_models.pdf
Ban – you raise interesting points about the importance of centralized decision making in managing the ABInBev brands. Although I understand that beer is a product that seems to have no borders, I wonder if scale will become an increasingly difficult issue to manage. Consumers seem to be preferring craft beers and a variety of options which is broadening the ABInBev portfolio in terms of types, sizes, and brands of beer. Do you think it is possible for them to continue their centralized decision making throughout this evolution or do you think this organization will be able to start leaving decisions in the hands of local or regional business leaders?
Thanks for the comment Reid. Agree with you on the challenges that a burgeoning portfolio and craft beer are posing. My personal take is that they should continue focusing the majority of their budgets and centralized operating procedures on the biggest brands. Craft beer and other varieties add a much-needed breadth to the portfolio, however, they are still a small piece of the pie (especially in the context of AB InBev expanding aggressively in China, the world’s biggest beer market).
So I think spreading management attention and company budget too thin by having local decisions on the smaller brands may not be the best way to go. If these smaller brands and alternate options start organically growing at a rapid pace, then it may warrant a re-think on the mechanics of their current operating model.
Great post Ban – It seems like the playbook is for management to apply their awesome operational capability to acquired brands and squeeze out value above the price they pay. I’m in agreement that they can probably pull this off with SAB Miller, but from there I wonder what’s next? They will have 20%+ of the global beer industry and some critics are already complaining about the near monopoly this latest acquisition will create in some markets. It will be interesting to see if there is further consolidation within the beer market or if ABInbev focuses on organic growth in the future.
Very interesting question Andy. Like you pointed out, this merger is already bordering on monopoly, so further consolidation may raise big issues in terms of Anti-trust etc. I’d think that in the immediate future, post the value creation they can squeeze out to SAB Miller, they could consider additional revenue streams generated from what Reid mentions above – craft beers, different sizes etc. Again, my take is they need to proceed with caution on this, and allow these alternate revenue streams to grow organically vs. channeling too much operating model focus on them.
Anirban – great post! Thanks for pulling this information together!
My question is along the lines of Reid’s but from a different angle. At what point does the scale become an issue at engaging and inspiring the whole company? I understand the push for a unified global company, but at what point does that unification hinder the ability for the plant engineer, as you referred, to make a decision on his/her own responsibilities? In watching Carlos Brito’s speech at MIT I recognize the value in hard working people recruiting other hard working people, but I don’t know if I fully understand AB inBev’s ability to ensure each of those hard working individuals is empowered to make and drive decisions at the local level when the company pushes for a global strategy. Thoughts?
Agree with with you on the challenges Megan. We’ve seen this challenge of control vs. flexibility come up many times in global organizations. AB InBev tries to circumvent this by empowering the local managers to make decisions on the executional details, as long as the strategy is aligned to the global strategy. For example, they aim to keep the brand character of Stella Artois the same across the world, but could pursue different go-to-market executions to bring that brand character to life (live events vs. TV branded entertainment vs. Digital-led efforts vs. In-store promotions etc.)
It’s a lot easier said than done, but given their success, it seems they’ve been able to pull it off so far. We’ll have to wait and see whether they can do this across all the new brands they now have in their stable after the SAB Miller merger!