InBev's A-B Play

$52 billion deal is brew's biggest, but how will it affect c-stores?

LEUVEN, Belgium & ST. LOUIS-- The planned merger of InBev and Anheuser-Busch to create the world 's largest brewing company sent shockwaves in the convenience store arena where A-B dominates market share.For years, the relationship has been one of extraordinary reciprocation—for A-B, c-stores are its channel of choice. And for c-stores, there is no single beer more popular than Budweiser.The question that now surfaces is will this cozy relationship brim with great taste or will it dull through new controls on this Midwestern giant that symbolizes Americana.Bump Williams, executive [image-nocss] vice president and general manager of global consulting for Information Resources Inc. (IRI), Norwalk, Conn., told CSP Daily News that he "was shocked that an American icon like A-B would be purchased."

He estimated that A-B has a 60-62 share of the convenience beer market. (Six out of every 10 cases of beer sold in the c-store channel are A-B products.) Though Williams hasn't had a chance to talk to many retailers yet about the deal, he knows that there's some anxiety in the air and many questions.

"[A-B] prides itself on relationships with retailers, consumers and distributors," he said. "Face time, quality time. It has always been recognized for that. A-B is world-class with its category-management department, national retail sales people it puts against top accounts, brand marketing, new-product launches. What's going to happen? What type of impact or influence will this have on some of these trademarks that are world-class?"

That said, he added that InBev and its CEO Carlos Brito, know what 's at stake in the U.S. market. "Brito knows that he has to keep the people who made A-B what it is today; we have to keep that heritage here. Either that or they're wasting $50 billion."The Deal

While talks between these brewing behemoths has continued for sometime, that the two parties agreed—pending shareholder and regulatory approval—to a $52-billion deal poses a new retail and distribution landscape in the beer market.

As constructed, A-B will become a wholly owned subsidiary of InBev. The transaction is expected to be completed by the end of 2008. As reported in a CSP Daily News Flash yesterday, the company will make St. Louis the headquarters for the North American region and the global home of the flagship Budweiser brand. About 40% of the combined company's revenues will be generated in the United States. All of A-B's U.S. breweries will remain open.

Leuven, Belgium-based InBev manages a segmented portfolio of more than 200 brands, including flagships Stella Artois, Beck's and Bass, as well as multicountry brands such as Leffe and Hoegaarden and many "local champions" such as Skol, Quilmes, Sibirskaya Korona, Chernigivske, Sedrin, Cass and Jupiler.

InBev's Brito will be CEO of the combined company. The board of the combined company will be comprised of the existing directors of InBev, A-B president and CEO August Busch IV and one other current or former A-B director. Also, the combined company's management team will draw from key members of both companies' current leadership.

The expanded company will be geographically diversified, with leading positions in the world's top five markets—China, the United States, Russia, Brazil and Germany—and balanced exposure to developed and developing markets. The combination will result in significant growth opportunities from leveraging the companies' combined brand portfolio, including the global flagship Budweiser brand and international market leaders such as Stella Artois and Beck's. Budweiser and Bud Light are the largest selling beers in the world, and the combined company will have a broad portfolio of imports, local premiums and local core brands.

The two companies already have a successful U.S. distribution partnership for InBev's European premium import brands including Stella Artois, Beck's and Bass. A-B's sales and distribution system will continue to support the expansion of these brands in the U.S. market. There also are revenue opportunities through expansion of Budweiser on a global scale: InBev is the No. 1 brewer in 10 markets where Budweiser has a very limited presence, and it has a superior footprint in nine markets where Budweiser is already present.Merger 's Importance

Thought enormous in scale, the merger's affect on the street remains uncertain. "It's a huge deal in a way, but from a consumer's standpoint, when they walk into the store, they're not going to see that much has changed," John Rodwan, editorial director of N.Y.-based Beverage Marketing Corp., told CSP Daily News. He added that the two brewers have been merging their brand portfolios anyway. He said that it is too early to know whether service to c-stores will change.

"InBev has a huge portfolio of brands, some of which are quite small. And you're still going to see the same Bud Light and Bud and other A-B brands that get a lot of attention," said Rodwan. "There's not going to be a situation where all of a sudden a bunch of strange Belgian beers with wine corks in them start showing up on store shelves. Maybe you'll see some new brands in some other channels. But in c-stores, I don't think there will be too dramatic a difference."

Mike Zielinski, president and CEO of Lisle, Ill.-based Royal Buying Group, called the deal "very far reaching" and said, "Depending on what InBev does with the brand, this could really affect the entire U.S. economy."

He explained, "InBev, to pay off debt from the purchase, could decide to spend less in the advertising, entertainment and hospitality industries. Think of A-B's traditional presence in the Super Bowl. If market share then declines and prices rise as well, retailers and consumers could be the victims. Also, how will bottlers, stretched now with the number of brands they carry, handle more? How would that affect A-B's world-class logistics?"

Trade relations could change, he added, if the brewer chose to flex its muscle with retailers. "[A-B] would convince you to stock their product because of their market share, new product innovation and marketing strategies, but it also took the retailer's input when deciding promotional activities and merchandising."

Click herefor a presentation on the new company.