Pubpaper 721 – AB InBev and cutting costs.

Posted: 7th August 2013 by santobugtio in Pub Paper, Writing

I have wrote about the monster brewery that is AB InBev on many occasions on this column, but not surprisingly for a company its size, there is a lot you don’t know about them until you really look.  This giant brewery was the result of a multitude of mergers and acquisitions and with that comes natural cost cutting from a business point of view.

However an article published in Business Week really shows how ruthless AB InBev can be when it comes to employees, suppliers and the heritage of their brands.   One of their biggest brands across the world is Becks, a beer which proudly bears the claim that it conforms with the “Reinheitsgebot German Purity Law of 1516” which decrees that beer can only contain hops, barley, yeast and water.    In the UK, both Becks and Becks Vier are imported from Germany, however in the US, they have now started to brew it in the same plant as the home favourite Budweiser.

The writer of the article, a life long drinker of Becks described the US made version of the beer as “a fizzy budweiser with added flavouring”.  Its seems to be stretching the claim to be obeying a 500 year old German beer law when it is brewed 4000 miles away, even if it does in spirit.  The global scale of this company makes this inevitable for some beers, but honestly is needed on the packaging if you are looking at beer heritage that Germany has.  US based Becks drinkers seem to value this and sales have reported to have dropped significantly for this american sourced brew when comparing the same period for last year.

The company dominates many markets, 52% of market share in the US, 69% in Brazil with it being second largest in Russia and third in China.  Producing this much beer demands scale of economy.   This does mean that brands may not keep their traditional home once they become a member of this global beer family.  The most high profile victim of this for UK observers was closure of the historic Boddingtons Strangeways Brewery, a landmark on the edge on the edge of Manchester city centre with its famous yellow letter branded chimney.

However no cow is sacred and AB InBev closed down the Hoegaarden brewery in the town of the same name in Belgium in 2005.   A massive campaign was launched by local people and beer fans in Belgium and after 2 years it was re-opened due to public pressure.  However again it has been noted that the beer has changed since it became part of the giant with mass production losing the individual notes which make up a beer when brewed on a more personal level.

Quality of ingredients and supplies which make a beer taste like it does also suffers as the profit margin becomes the primary concern.  Lesser quality packaging and lower quality controls on what goes into the beers saves money.  For example Anheuser-Busch used to insist on whole rice grains going into their beer, but under AB InBev they now accept broken rice grains.   Budweiser used to use high quality Hallertauer Mittelfrüh hops grew in the Hallertau region of Germany and the local farmers prided themselves on the quality.  After the merger the orders from the area were reduced and replaced the shortfall with cheaper lower quality hops, an insider quoting a saving of $55 million per year.

Even with rapidly expanding craft beer market they can’t but help mess with it.  The company purchased Goose Island in 2011, a small brewery based in Chicago.  Craft beer drinkers value heritage and knowing what in the beer and where it was made, but 3 months after they took over, they moved the production of a brew named after the local area over to New York, other Goose Island brews are now being made in the state of New Hampshire also.  Its own brewery in Chicago is being used to produce other brands compound the issue of a key player in the US craft brewery scene being treated like a mass produced brand, the antithesis of what the brand originally stood for.

And now they have taken over total control of Grupo Modelo, the biggest brewer in Mexico, they now have a new toy to mess with, and as with mass produced items it’ll break eventually at the hands of the owner.