(St. Louis, MO) – A-B InBev reported its second quarter earnings on Monday. In the U.S., the focus brands in the Bud Light brand family and ‘high-end’ offerings like Stella Artois and Shock Top are performing well though growth has slowed a bit from the first quarter. Budweiser sales declines accelerated into the mid-single digits, offsetting some of the gains.
During the conference call, CEO, Carlos Brito, said that the company expects to raise prices across its brands again this fall due, in part, to rising ingredient costs but also as part of a market position strategy of elevating its brands.
Overall, volume in the U.S. beer industry is estimated to be up 0.4%, aided by record warm weather, and is the strongest start since 2008.
Management comments and additional details below.
Total revenue for the company grew by 4.7% in the quarter, driven by solid revenue per hectoliter growth of 6.4% on a constant geographic basis, supported by mix improvements and revenue management initiatives.
Volumes in the quarter were soft, primarily driven by the US as a result of the anticipated
adjustment to our shipping patterns in order to ensure a smoother and more cost efficient phasing of shipments to our wholesalers (STWs) leading to a 2.1% decline in 2Q12.
However, US sales-to retailers (STRs), which we believe is a much better indicator of the health of the business, continued to make good progress, closing the half year 0.2% ahead. On a full year basis, we expect STWs and STRs to be more closely aligned, as in previous years.
In the United States:
• Volumes: We are encouraged by current trends, with the first six months of the year seeing the best industry performance since 2008. This has been due to favorable weather and an improvement in the economy, especially in the first quarter, as well as industry innovations throughout HY12. We estimate that industry selling-day adjusted STRs grew by 0.4% in 2Q12 and by 0.8% in HY12. The favorable industry trend has continued in July based on sales to consumer data reported by IRI for the two weeks ending July 15th.
Our own selling-day adjusted STRs continued to make progress and were marginally down 0.2% in 2Q12 but ahead by 0.2% in HY12. This performance has been driven by strong execution and the rollout of our innovations, in particular Bud Light Platinum and Bud Light Lime Lime-A-Rita, both of which sell at a premium to Bud Light, as well as good results from Michelob Ultra and our high end brands.
Our market share trends continue to improve, with estimated share based on STRs down by approximately 30 bps in 2Q12 and 25 bps in HY12. Share gains in the quarter were led by Bud Light Platinum and Bud Light Lime Lime-A-Rita which resulted in the Bud Light family adding 60 bps of total market share to close at 21.1% for the quarter. Michelob Ultra and our high-end brands also grew share, with Stella Artois and Shock Top performing particularly well. This was offset by share losses in Budweiser, where we continue to focus on stabilizing the brand, and in our value brands, as a result of our strategy to close the price gap with our premium brands.
As noted previously, our STWs were down 2.1% in the quarter due to planned adjustments to our shipping patterns and down 0.7% in HY12
• Focus Brands: STRs for the Bud Light family grew by 3.5% in 2Q12 and by 3.9% in HY12, driven by Bud Light Platinum and Bud Light Lime Lime-A-Rita. Michelob Ultra and Stella Artois STRs grew by 7.3% (+13 BPS) and 17.6% (+9 BPS) respectively in 2Q12, and by 7.1% and 19.7% respectively in HY12. Budweiser STRs declined 6.5% in 2Q12 and 5.6% in HY12, having been partially impacted by the launch of Bud Light Platinum. The Shock Top brand family grew 70% during the quarter.
• Renovation and innovation pipeline: The pipeline remains healthy with 2Q12 benefiting from the rollout of a number of new products including Bud Light Lime Lime-a-Rita, Ultra 19th Hole, Ultra Light Cider, Shock Top Wheat IPA and Shock Top Lemon Shandy.
In addition, we continued the rollout of Bud Light Platinum following its first quarter launch.
The brand has achieved an estimated market share, based on STRs, of 1.1% since launch at the end of January, and reached the 1 million barrel milestone (over 1.1 million hls) in early July. Our research on cannibalization also shows positive results. The analysis indicates that less than 50% of Bud Light Platinum volume is being sourced from our own brands, with a significant proportion coming from hard liquor and other beverages.
In 3Q12 we plan to extend the brand’s packaging portfolio with the launch of a 22oz bottle and a 12oz bottle/18 pack.
We have also recently announced Budweiser Project 12. This initiative involves consumer
sampling of six Budweiser beers specially created by brew masters from our twelve US
breweries. We expect to select three of these “tribute to Budweiser” beers, based on
consumer feedback, for inclusion in a limited edition sampler pack which will be available for purchase in the fall.
• Revenue management: Revenue per hl remains strong, growing by 4.4% in 2Q12, driven by approximately 150 bps of brand mix contribution, principally due to the introduction of Bud Light Platinum and Bud Light Lime Lime-A-Rita, the growth of Shock Top and our other high end brands, and consumer trade-up from our value brands
Sales and Route to Market: We continue to work closely with our wholesalers to improve overall effectiveness in the field. The revamped Ambassadors of Excellence program has now been in place for about two years and sets the standards and best practices for the entire network. We believe the program is already driving continuous improvement in wholesaler performance.
Our balanced portfolio approach to shelf space allocation in the retail channel is also
delivering results. The objective is to help retailers understand the importance of focusing on the drivers of incremental sales and not just the variety of brands available in their stores.
Our analysis shows that 100% of retailers who have achieved a better balance between
premium and craft beer space allocation have experienced improved volume trends in both categories.
Bud Light Platinum:
1.1% share (based on A-B InBev STRs)
• More than 1 million barrels sold
• 2 new packs coming (22 oz. bottle and 18 pack of 12 oz. bottles)
• Less than 50% of volume sourcing from AB brands
- Significant proportion coming from hard liquor
- 5% coming from outside the alcohol category
Bud Light Lime-A-Rita
- #2 new beer brand behind Bud Light
- Platinum based on case & dollar sales (1)
- Over 2 million cases sold
- ~20% price premium (1)
- (1) IRI Syndicated data, FDMxC, Year to Date ended June 30, 2012