Anheuser-Busch InBev (AB InBev): The Winning Formula
EXECUTIVE SUMMARY
Anheuser-Busch InBev (AB InBev) has managed to differentiate itself from its competition by executing business and operating strategies that reinforce each other. AB InBev’s goal-focused and growth-oriented culture established AB InBev as the cost efficient player in the market with the strongest existing distribution network. AB InBev’s focus on cost reductions has allowed AB InBev to invest the most money into marketing to maintain a strong connection to its customers through increased brand awareness. AB InBev has taken a rapid path to global expansion, and the company’s “Dream, People, Culture” framework in conjunction with aggressive cost-cutting techniques has enabled the quick, successful integration of new acquisitions. AB InBev’s focus on continuous improvement has allowed the company leveraged its global size and scale to keep prices increasingly competitive in its local markets.
KEY CHARACTERISTICS OF AB INBEV’S BUSINESS MODEL
There are several key characteristics that describe AB InBev’s global strategy:
Growth – AB InBev’s rapid growth illustrates the firm’s strategy focus on growth through acquisition more so than growth organically. The firm has leveraged the synergies associated with mass production and brand diversification – this allows AB InBev command a large local and global market share.
Cost Reduction – When acquiring new companies, AB InBev has been able to use existing distribution channels in target markets, thereby minimizing infrastructure costs. To further reduce costs, the firm employs an aggressive budgeting strategy while also running very lean organizations. The firm has a global supply chain function, which manages the acquisition of every component of supply from a central system. Due to the firm’s size, it can establish long term contracts with suppliers at very low prices for all the business units around the world.
Capturing value – AB InBev’s presence in multiple foreign markets increases customer’s willingness-to-pay by leveraging the brand equity of various global brands to its advantage. An example is the sale of the Stella Artois beverage, a beer with European origins, in Brazil. Even though the beer is currently produced in Brazil, it sell for a premium price in the Brazilian market. AB InBev capitalizes on the Brazilians’ perception of Stella Artois as a premium product with European origins.
Improving Industry Attractiveness – AB InBev’s successful growth has made the industry relatively more attractive to outsiders by providing increased regional competition. This is illustrated by the recent rise in craft beer companies that started in the early 2000’s. New market entrants become potential growth targets for AB InBev in the future.
Product Diversification –AB InBev’s global expansion helps reduce its risk because the company has a set of diversified products. The multiple brands in AB InBev’s product portfolio helps the company optimally manage costs and maximize profit. As such, the negative impact of acquiring a company during times of low profitability in the beer market is immaterial.
KEY CHARACTERISTCS OF AB INBEV’S OPERATING MODEL
There are several key characteristics that describe AB InBev’s global strategy:
Human Capital Strategy (Dream-People-Culture) – At the engine of AB InBev’s management style is its renowned human capital practices. These practices are built upon the “Dream-People-Culture” platform. This platform recognizes People as the most important resource AB InBev has. As a result, AB InBev works hard to cultivate the best culture to attract, develop, and retain top talent. The company is able to continuously develop and promote employees because of its acquisition strategy – employees assume new leadership positions at the acquired companies.
Marketing Campaign – AB InBev utilizes aggressive marketing campaigns to enable it dictate prices in the market. The marketing campaigns help drive the sales volumes of AB InBev’s products – this leads to increased pressure on the margins of AB Inbev’s competitors. This pressure ultimately leads to the deterioration of AB InBev’s financial health, thus making them ripe for acquisition.
Knowledge Localization – Although AB InBev seeks to leverage the local talent when integrating acquisitions, however, this is not the primary focus of their strategy. Instead, AB InBev prefers to infuse its traditional ideologies into its target companies and only hires local individuals who share similar values. AB InBev’s acquisition strategy does not adapt to the target companies’ frameworks and management styles. Through reallocating resource and sourcing local talent, AB InBev Is able to ensure that its culture is properly instituted within a target company. The company strongly believes in its ability to find people who fit its culture in every country. The company business practices are adaptable, but the culture is ubiquitous.
AB InBev’s success can be attributed to three key components of its overall strategy:
- Low operating costs
- High investment in marketing & sales
- Leverage of synergies between all global units to optimizer costs and revenue
Together, these key components and AB InBev’s culture create a sustainable and profitable process.
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SOURCES
- Anheuser-Busch InBev. (n.d.). Retrieved December 7, 2015, from http://www.ab-inbev.com/
- Anheuser-Busch InBev. 2014 annual report of Anheuser-Busch InBev. Retrieved from http://www.ab-inbev.com/content/dam/universaltemplate/abinbev/pdf/investors/annual-and-hy-reports/2014/AB_InBev_AR14_EN_full.pdf.
- Brito, C, CEO of AB Inbev. (2014, November 17). “Dream, People, Culture”: Carlos Brito, CEO of Anheuser-Busch InBev. Lecture presented in University of Virginia Darden School of Business, Charlottesville.
- Correa, C. (2014). Dream Big: How the Brazilian Trio behind 3G Capital – Jorge Paulo Lemann, Marcel Telles and Beto Sicupira – acquired Anheuser-Busch, Burger King and Heinz. Primeira Pessoa.
- Heineken, 2014 annual report. Retrieved from https://secure.theheinekencompany.com/~/media/Websites/TheHEINEKENCompany/Downloads/PDF/Annual%20Report%202014/Heineken_AR14_Complete_Web_Download.ashx.
- The Beliefs that Built a Global Brewer. (2012, April 27). Retrieved December 7, 2015, from https://hbr.org/2012/04/the-beliefs-that-built-a-globa
Thanks for the post Charles. Was quite familiar with AB InBev’s acquisition strategy since they have taken hostile approaches to buying companies. My former colleague at Citi who just graduated from HBS is doing AB InBev’s corporate leadership program fall and she’s already heavily involved in on-campus recruiting (Human Capital Strategy at its best). She was at the HBS Halloween Party after having done a company presentation earlier in the day.