Anheuser-Busch InBev is trying some new drinks. The usually frugal Budweiser brewer said on Oct. 30 that its operating costs are rising faster than it had previously bargained for. Happily, it also gave more encouraging guidance on revenue. This puts it on a solid footing ahead of its $105 billion agreed merger with rival SABMiller.
Across the group, AB InBev said overheads are likely to rise at “low to mid-single digit” percentage rates. Before, it budgeted for just “low” single-digit percentage increases. But AB InBev also reckons revenue will grow ahead of inflation rates prevailing in its various markets around the world. Its previous stance was to say it would grow in line with consumer prices.
The added pricing power comes about thanks to the increasing popularity of premium quality beers, including craft ales like AB InBev-owned Goose Island. While these cost more to make than basic suds, AB InBev is confident the net effect will be positive. It expects the cost increases to be “more than offset” by the revenue gains.
AB InBev’s headline numbers for the third quarter were soured by currency shifts, notably in the value of Brazilian real. Look past exchange rates and some smaller distortions caused by acquisitions and disposals, however, and it seems it will enter its SAB mega-deal in decent shape. Underlying revenue was up 7.9 percent and normalised EBITDA up 9.6 percent, year-on-year.
Brewers’ moves into new products, and new markets, will mean different things in the different parts of the world where the enlarged AB InBev will operate. A premium product for an American drinker could be a micro-brewed India Pale Ale. In Africa, a mass-produced ordinary lager – belittled in the posher bars of London and New York – could be vastly more attractive than local hooch.
AB InBev will have to make many judgment calls as it swallows SAB. Cost savings – which may be detailed on Nov. 4 – are unlikely to justify the $105 billion purchase price. Third-quarter revenue numbers, however, give a sneak peak at how the Bud brewer may craft value creation in future.