Anheuser-Busch InBev CEO Carlos Brito offered investors and analysts a peek at how the company is approaching future innovations during the company’s third quarter earnings call today.
New product innovation is a significant growth driver for A-B, contributing $5 billion to the company’s total net revenue last year. And it’s growing. New offerings contributed 9.6% of the company’s total revenue, compared to 7.9% in 2017.
Brito said A-B’s innovation strategy is based on four pillars:
- Superiority, in testing and learning which products will work in markets before scaling them;
- Sustainability, in building brands for the long-term that won’t fizzle out;
- Scalability, solving “pain points” for consumers and scaling those products that meets consumer demand globally;
- Incrementality, in meeting consumers on new occasions and segments.
Overall, Brito said the strategy is meant to be consumer centric, while building a portfolio of differentiated brands. A-B’s goal is to play in “unstoppable trends,” notably premiumization, health and wellness and purpose-driven brands.
Brito broke down those focus areas:
- Premium products are RTDs and double malt offerings that are either “everyday indulgences” or treat yourself occasions;
- Health and wellness brands, Michelob Ultra and hard seltzers, provide the “pleasure of drinking beer” without the sacrifice of active lifestyles. They’re also made for socializing — light, sweet and refreshing beverages;
- Purpose-driven brands, such as locally focused products, which align with consumers’ values.
Brito pointed to Bud Light Seltzer, which launched in the U.S, in January. The brand’s volume has been more than 75% incremental to A-B’s portfolio and more than 40% incremental to the beer category, he said. Other winning brands include Brahma Duplo in Brazil and Nuestra Siembra, which was developed with the government in Ecuador to support and develop local farms.
Brito called scalability “key” given the company’s global footprint. As such, the company’s priority is on those products that will sell in global markets for the long-term, not short term bets that last one season and disappear.
As such, the effort aims to eliminate uncertainty early on and kill off brands that don’t work. It’s a test-and-learn or “prove and move” approach in markets. A-B has also ramped up its agility on innovation, with a 100-day concept-to-product-to-launch timeline.
“Our innovation strategy is rooted in consumer centricity and agility positions as well to drive future growth,” he said. “It was one of the key drivers of our performance this quarter, and we will continue to leverage this capability to successfully navigate the volatile environment as consumers adapt to the new reality.”
Brito also ran through A-B’s Q3 and nine-month performance. He called A-B’s performance during the quarter the United States “strong,” achieving top and bottom line growth.
Q3 depletions (sales to retailers) increased 1.4%, outperforming its estimates for the overall industry (+0.8%). The company said those gains led to an increase in market share of 25 basis points (bps).
Shipments (sales to wholesalers) in the U.S. increased 1% during the quarter, while revenue increased 4.5%. Revenue per hectoliter increased 3.5%, which A-B credited to revenue management initiatives, favorable brand mix and strong performance of its hard seltzer brands during the summer selling period.
A-B credited its U.S. performance to the execution of a commercial strategy “centered on driving innovation and rebalancing our portfolio toward growing segments.”
Those growth brands included Bud Light Seltzer and Michelob Ultra, which increased A-B’s market share by 145 bps in Q3.
Michelob Ultra is now the second best selling beer brand in the U.S., trailing just Bud Light. Meanwhile, A-B said its portfolio of hard seltzers “grew at double the rate of the industry” during the third quarter.
Mainstream A-B brands remained challenged, losing 120 bps, which the company attributed to consumers trading up to premium brands.
Through the first nine months in the United States, A-B’s depletions are up 0.2%, which the company said slightly trailed estimates for the overall industry (+0.3%). Shipments through September are down 2.1%, while revenue per hectoliter is up 2.2%.
Globally, A-B reported improved revenue and volume trends for the third quarter, although its year-to-date trends are still in the red. In Q3, A-B reported a 4% increase in total revenue bolstered by a 2.3% increase in revenue per hectoliter, compared to a 6.8% decline in revenue through the first nine months of 2020.
A-B’s volume increased 1.9% during Q3, however its volume is down 8.2% through the first nine months of 2020.
Although A-B leaders said they expect the company to finish the year strong, that came with a caveat: “The environment remains volatile and uncertain, especially as some governments are renewing restrictions in several markets.”
“While our business is delivering improving results, we continue to face uncertainty and volatility arising from the COVID-19 pandemic,” the company said.
As such, A-B’s board determined that forgoing its interim 2020 dividend payment “would be prudent and in the best interest of the company.”
Asked for his view of how the on- and off-trade will perform in the future, Brito said it’s too early to say anything definitive due to some markets reopening and then imposing new restrictions. He said restrictions that were relaxed could come back at any time, as they have in Europe in an effort to stop surges in COVID-19 cases and prevent overwhelming the healthcare system.
Brito also addressed a question about his own future with the company. He called reports last that he may step down as CEO and the search for his replacement had begun “rumors.” He declined to comment further other than to say he’ll be hosting earnings calls “for many quarters to come.”
“So, not to worry,” he said.
In other A-B news:
A-B Increases Investment in Cartersville Brewery
A-B will nearly double its investment in the expansion of its Cartersville, Georgia-based production facility, the company announced this week. The company said it will up the investment from $85 million, which was first announced in January, to $150 million. The new investment will help support the facility’s brewing capabilities, including the addition of a new canning line and efforts that will help the brewery operate more efficiently.
More than 500 people work at the Cartersville brewery, which the company said contributes more than $400 million to Georgia’s economy. The plant, which is certified organic by the U.S. Department of Agriculture, opened in 1993.
A-B to Add ‘Ugly Sweater’ Bud Light Seltzer Variety Pack
Another Bud Light Seltzer variety 12-pack will hit shelves on November 2. The Bud Light Seltzer “Ugly Sweater” pack will feature three new flavors — Apple Crisp, Peppermint Pattie, and Gingersnap — in addition to the year-round Cranberry flavor.
Each 12 oz. can is 5% ABV, 100 calories, and contains fewer than 1 gram of sugar.