Independent Beverage Group

For Anheuser-Busch, It's Showtime

Tom Van Riper
Quoted From: Forbes Magazine
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Anheuser-Busch has tried plenty to change with the times. When foreign beer got hip, they hooked up with Grolsch and Stella Artois to sell those brands. Regional fare? They scooped up Rolling Rock. Microbrews? Got 'em. Same for malt liquors and nonalcoholic drinks. But it hasn't been enough to ignite sales, something new Chief Executive August Busch IV has been working on.

Tuesday, the 42-year-old descendant of the company's founder had his first meeting with stock analysts since taking the top post in October 2006. The verdict: Attendees think he may have the right plan.

What's needed, they say, is a formula for kick-starting the firm's core brands like Budweiser, Bud Light and Michelob. A more diverse array of television, digital media and sponsorships is the key to spending smarter and bringing strong but fading brands to a younger set, analysts think.

Busch "has brought a heightened energy to the company," says Mark Swartzberg, who covers Anheuser-Busch (nyse: BUD - news - people ) for Stifel Nicolas. Forbes profiled Busch earlier this year (see "The Son Finally Rises.")

Revenue has indeed been sluggish the past couple of years, growing less than 1% in 2005 and 4.5% in 2006. Yet investors have bid up A-B stock 25% since early 2006, with the expectation that the company will learn to deal with changing consumer tastes. Progress, though, has been slow. Some experts seem to think that the fresh marketing approach that Busch IV wants to bring to the firm's traditional brands will do more to restore the company to glory than an increasingly bigger lineup.

"I think they can do both; if anyone can walk and chew gum at the same time, it's Anheuser-Busch," says Joseph Thompson of Independent Beverage Group, an industry consultant. "But if I had to choose, I'd straighten out my core brands."

He and other industry observers tout the added sense of urgency that Busch IV has brought since taking over, invigorating the company's marketing with more Internet advertising, including the launch of Bud.TV, along with more highbrow event sponsorships.

Most domestic beer brands have been struggling in recent years, with A-B and SABMiller (other-otc: SBMRY - news - people ) feeling most of the pinch. And as profitable as strategic acquisitions can potentially be, various industry studies have shown that about 90% of sales come from customers who have bought your product before. There's basically one word to describe the key to winning back customers who have left for trendier fare: marketing.

"It will be tough, but they can do it," says Thompson, who thinks Anheuser-Busch has the size and operational strength to both chase after more acquisitions and spend on rejuvenating Budweiser, Bud Light and its other traditional beers. While Swartzberg is encouraged by a projection that sales growth, which figures to get some boost from a gradual end to costly discount wars, may well exceed growth in marketing spending this year, Thompson thinks the long term is best served by spending what it takes to make Bud, Michelob and Busch cool again.

Not that there aren't exceptions. With some critics pointing to the company's heavy reliance on North America for sales, strategic acquisitions or partnerships make sense. Perhaps most important was the partnership Busch engineered with InBev, which put the popular Belgian brand Stella Artois into the company's portfolio.

While sales of A-B's core brands are down 1% year-to-date, they've edged up in May, just ahead of the important summer selling season. The question is whether the new CEO will be willing to spend heavily in the new marketing mix to rejuvenate those brands long term. Observers are hopeful.

"He's showing they plan on doing things a lot more proactively," says Thompson.