War? What War?

Aggressive pricing meant to reduce price gap, A-B exec says

Published in CSP Daily News

ST. LOUIS -- While Anheuser-Busch Cos. is pricing its beer aggressively, it is not engaged in a price war with its rivals, Patrick Stokes, A-B's president and CEO, told analysts at an investment conference in St. Louis last week, according to a report by The Billings Gazette.

To regain sales momentum, Anheuser-Busch increased its promotional pricing activity in selected markets earlier this year, a move that analysts worry could presage a price war. That fear, however, is exaggerated, A-B executives said. The company's pricing action has focused on reducing [image-nocss] the existing price gap in selected markets rather than undercutting rivals' prices, Stokes said during a webcast of the event.

In first-quarter 2004, Bud Light sold on average nationwide at a price that was 45 cents a case higher than Miller Lite, said the report. That premium has narrowed to 15 cents a case due to the brewer's pricing actions, Stokes said.

Aggressive promotional pricing is only one part of A-B's strategy to jump-start its momentum, the report said.

As reported in CSP Daily News, last year, St. Louis-based A-B saw anemic sales-volume growth due to the rising popularity of distilled spirits and wine as well as reinvigorated competition from Miller Brewing Co., a unit of London-based SABMiller PLC.

In response, A-B swiftly rolled out new products and packaging, boosted advertising and dramatically increased marketing spending and staff at bars and other on-premise locations, where spirits are on the rise. Those efforts are hurting profit, and A-B expects second-quarter per-share earnings to decline compared to the year-ago quarter, the newspaper said.

But these measures will allow A-B to regain its sales and market-share momentum, Stokes said. When sales and market-share momentum [have] been restored, we expect to return to our long-term objective of double-digit earnings-per-share growth, he said.

Stokes reminded the audience that the brewer long had faced challenges on its road to dominance, such as the rapid growth of imports in the late 1990s and the rise of flavored malt beverages earlier this decade, the report said. Time after time, we have emerged more successful and more profitable, with a stronger foundation for future growth, he said.

So far this year, A-B appears to be rallying its sales volume in supermarkets, convenience stores and mass merchandisers, excluding Wal-Mart Stores Inc., which does not share this data.

Case sales of Bud Light for the year to date ended April 17 increased 2.5% from a year ago, compared to a growth rate of 2.1% in Miller Lite sales, according to The Gazette, citing Information Resources Inc. (IRI), Chicago.

A-B's size, advertising prowess, broad sports sponsorships and vast wholesaler network are some of the strengths that it can use to restore its growth, said August A. Busch IV, president of A-B's domestic brewing unit.

The brewer also aims to make its wholesalers more nimble and effective by reducing administrative demands so they can spend more time selling products, Busch IV said.

He said A-B can service customers' needs and increase their profitability better than its rivals, an advantage that wholesalers need to communicate. The more time we spend with customers, personally selling this advantage, the stronger we become, Busch IV said.

Stokes repeated that A-B is not interested in buying a spirits or wine company, according to the report, saying such an acquisition would be expensive and difficult to integrate into a wholesaler network geared toward beer. Instead, the brewer is exploring products that offer higher alcohol content. It is test-marketing Bistro 8, a malt beverage that has 7% alcohol by volume, compared with 5% alcohol in Budweiser.

Stokes did say, however, that the brewer would not limit its products by the source of alcohol, although he offered no specifics. This raises the possibility that A-B might consider using materials other than traditional brewing grains or using different methods to make alcoholic beverages, speculated The Gazette.