Monday, July 14, 2008

Bud Gets in Bed with InBev

$52 billion bottles of beer on the wall...

Anheuser-Busch, the American brewer of Budweiser ("the American lager") has agreed to be bought by Belgium-based brewer InBev for $52 billion, creating the largest beer company in the world. The deal has faced some backlash already in the United States. But I can think of a few bright spots:

One is that some argue that AB, as a family business, may be able to perform better as part of a larger corporation in today's globalized economy.

Second, InBev is famous for cost-cutting. One area that InBev may cut is AB's famous (infamous) marketing budget. AB has been a ruthless competitor in the domestic market and its marketing budget is just one illustration of that approach. Many microbreweries complain that they simply cannot compete with this marketing muscle. Might a cut marketing budget make it fairer for smaller start ups?

Third, a lot of the beer business is about distribution. Bud will benefit from InBev's distribution channels in Europe, Russia, China, and Brazil.

Fourth, isn't there some justice to this story... an American company takes a Czech name (Budweiser), and now it returns to Europe?

Fifth, unlike trade competition, foreign direct investment tends to be wholly beneficial for the recipient community. FDI usually means a potentially struggling company can benefit from capital and economies of scale--usually meaning more jobs for the domestic communities. In this case, the company's U.S. headquarters will stay in St. Louis. But the city may see some job losses from cost cutting programs:

"St. Louis will see some job losses," said Ilhan Geckil, senior economist in the Chicago office of Anderson Economic Group.

"Not brewing, blue-collar jobs. The taste of Budweiser is really important. No breweries will be closed."

Carlos Brito, CEO of InBev and now of Anheuser-Busch InBev, promised as much in a conference call with reporters Monday.

But he did say that A-B's cost-cutting plan, dubbed "Blue Ocean," which encourages early retirement among 13,000 employees among other efforts to reduce expenses, would still be executed.

Photo by Chris J.

No comments: