06 anheuser busch

Anheuser-Busch – 2007

Forest David: Francis Marion UniversityAlan Badal: The Union Institute

A. Case Abstract

Anheuser-Busch (www.anheuser-busch.com) is a comprehensive business policy and strategic management case that includes the company’s fiscal year-end December 2006 financial statements, competitor information and more. The case time setting is the year 2007. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in Saint Louis, Missouri, Anheuser-Busch’s common stock is publicly-traded on the New York Stock Exchange under the ticker symbol BUD.

Anheuser-Busch operates in four segments: domestic beer, international beer, packaging, and entertainment. The domestic segment operates under the brand names Budweiser, Michelob, Busch, and Natural. The international segment has breweries in Great Britain and China. Anheuser-Busch’s packaging segment produces bottles, bottle caps, cans, boxes, and other packing goods necessary to product the product. BUD’s entertainment division has parks in Florida, Virginia, California, Texas and Pennsylvania. The company has over 30,000 employees and is led by CEO August Busch. The firm’s major competitor is Molson Coors.

B. Vision Statement (actual)

To become recognized as the premier beer company in every country in the world.

C. Mission Statement (actual)

Be the world’s beer company. Enrich and entertain a global audience. Deliver superior returns to our shareholders.

(proposed)

At Anheuser-Busch, we strive to meet the needs of our customers (1) by providing them with the highest quality beverages (2, 7) using only the best ingredients. Our focus is not only on the North American market but also worldwide (3, 5). We meet and often exceed the expectations of our consumers by using the latest technology to develop healthier, fresher, and tastier alcoholic and non-alcoholic beverages (4). At Anheuser-Busch we strive to be a good corporate citizen (6) through donations and alcohol awareness (8) and by hiring the best employees and allowing them opportunity for advancement (9).

Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall 71

1. Customer2. Products or services3. Markets4. Technology5. Concern for survival, profitability, growth6. Philosophy7. Self-concept8. Concern for public image9. Concern for employees

D. External Audit

Opportunities

1. The number of alcoholic beverage consumers of legal drinking age is strong, with a large population of 21 to 27 year olds.

2. Light beer consumption continues to dominate US beer market due to healthier living.3. China’s beer market is estimated to grow at least 5 percent annually for the next five

years.4. Russia has the fifth largest beer market in the world.5. India is expected to have an annual growth rate of 8 percent in the next five years.6. Of China’s top three brewers, only Beijing Yanjing Beer Group does not have a

foreign partner.7. Customers prefer sprits to beer.8. Weak dollar makes products cheaper in Europe.9. Drinking age in much of the world is 18.

Threats

1. Increase in wine sales by 5 percent shows new preference for wine.2. Shift toward sprit consumption.3. Shift towards healthier living among US citizens.4. Decline in beer consumption by 1 percent in 2006.5. Higher cost for commodities such as grains, packing material and energy used in the

brewing process and delivery.6. Alcoholic beverages are subject to high levels of taxation in the US.7. Imported beer into the US is significantly outpacing overall domestic market share

increased from 9 percent in 1999 to 12 percent in 2005.8. New innovations by competitors such as Coors with can liners and cooler box.9. Restrictions on beer advertisements have become increasing stricter.


CPM – Competitive Profile Matrix

Anheuser-Busch Molson Coors SAPMILLERCritical Success Factors

Weight Rating Weighted Score

Rating Weighted Score

Rating Weighted Score

Market SharePrice CompFinancial PositionProduct QualityProduct LinesCustomer LoyaltyEmployeesMarketingTotal

0.150.100.120.150.150.150.110.071.00

3 0.454 0.404 0.483 0.45 4 0.603 0.453 0.33 4 0.28 3.4

3 0.454 0.404 0.483 0.454 0.604 0.603 0.333 0.21 3.52

3 0.454 0.403 0.363 0.453 0.453 0.453 0.333 0.21 3.10

External Factor Evaluation (EFE) Matrix

Key External Factors Weight Rating Weighted ScoreOpportunities1. The number of alcoholic beverage consumers of

legal drinking age is strong, with a large population of 21 to 27 year olds.

0.04 3 0.12

2. Light beer consumption continues to dominate US beer market due to healthier living.

0.10 4 0.40

3. China’s beer market is estimated to grow at least 5 percent annually for the next five years.

0.04 3 0.12

4. Russia has the fifth largest beer market in the world.

0.04 2 0.08

5. India is expected to have an annual growth rate of 8 percent in the next five years.

0.04 3 0.12

6. Of China’s top three brewers, only Beijing Yanjing Beer Group does not have a foreign partner.

0.02 1 0.02

7. Customers prefer sprits to beer. 0.10 1 0.108. Weak dollar makes products cheaper in Europe. 0.07 2 0.149. Drinking age in much of the world is 18. 0.04 3 0.12Threats1. Increase in wine sales by 5 percent shows new

preference for wine.0.07 1 0.07

2. Shift toward sprit consumption. 0.10 1 0.103. Shift towards healthier living among US

citizens.0.05 3 0.15

4. Decline in beer consumption by 1 percent in 2006.

0.02 2 0.4

5. Higher cost for commodities such as grains, packing material and energy used in the brewing process and delivery.

0.08 3 0.24

6. Alcoholic beverages are subject to high levels of taxation in the US.

0.06 2 0.12

7. Imported beer into the US is significantly outpacing overall domestic market share increased from 9 percent in 1999 to 12 percent in 2005.

0.08 2 0.16


8. New innovations by competitors such as Coors with can liners and cooler box.

0.02 3 0.06

9. Restrictions on beer advertisements have become increasing stricter.

0.03 3 0.09

Total 1.00 2.61

E. Internal Audit

Strengths

1. Dominate the market share with 48 percent share volume in the US.2. Bud Light is the leading brand in the world.3. One of the top five global brewers by holding 11 percent market share worldwide.4. Products sold around the world including, China, Japan, Brazil, India, Italy, France,

Spain, Great Britain and many more.5. Return on equity is 53 percent compared to 28 percent industry average.6. Exclusive sponsor of Super Bowl telecast through 2010.7. Exclusive beer sponsor of the 2006 World Cup in Germany.8. Inventory turnover is 16 compared to 9 for the industry.

Weaknesses

1. Decline in 2006 in Michelob Ultra sales of 17 percent and 23 percent in Michelob Light.

2. Limited exposure in Africa.3. Focused to heavily on beer with little diversification into wine and other sprits.4. Five year average sales 4 percent compared to industry average of 12 percent.5. Debt to equity in year-end 2006 of 2.36 compared to industry of 1.0.6. As of year-end December 2006, Anheuser-Busch reported goodwill in excess of $1

billion.

Financial Ratio Analysis (December 2006)

Growth Rates % Anheuser-Busch Industry SP-500Sales (Qtr vs year ago qtr) 7.90 9.90 11.40Net Income (YTD vs YTD) 7.10 11.70 17.30Net Income (Qtr vs year ago qtr) 10.90 17.50 9.60Sales (5-Year Annual Avg.) 4.01 12.50 13.06Net Income (5-Year Annual Avg.) 2.89 16.15 20.38Dividends (5-Year Annual Avg.) 10.37 13.16 9.91Price RatiosCurrent P/E Ratio 17.2 21.7 21.5P/E Ratio 5-Year High NA 24.4 27.1P/E Ratio 5-Year Low NA 9.1 6.9Price/Sales Ratio 2.11 6.87 2.46Price/Book Value 9.80 12.51 7.78Price/Cash Flow Ratio 14.40 30.30 11.70Profit Margins


Gross Margin 35.2 52.4 34.5Pre-Tax Margin 14.4 20.1 17.7Net Profit Margin 8.6 12.8 12.55Yr Gross Margin (5-Year Avg.) 38.2 50.2 34.35Yr PreTax Margin (5-Year Avg.) 17.2 16.0 16.35Yr Net Profit Margin (5-Year Avg.) 10.4 10.9 11.3Financial ConditionDebt/Equity Ratio 2.36 1.05 1.11Current Ratio 0.9 0.9 1.1Quick Ratio 0.6 0.7 0.9Interest Coverage 6.3 6.2 32.2Leverage Ratio 4.8 2.9 3.7Book Value/Share 4.82 11.11 17.87Investment Returns %Return On Equity 53.1 27.9 25.5Return On Assets 8.4 9.4 7.8Return On Capital 9.7 13.1 10.3Return On Equity (5-Year Avg.) 61.1 28.9 18.6Return On Assets (5-Year Avg.) 10.0 7.5 6.4Return On Capital (5-Year Avg.) 11.4 9.8 8.6Management EfficiencyIncome/Employee 46,818 24,549 92,684Revenue/Employee 543,892 244,680 811,196Receivable Turnover 16.8 21.7 14.5Inventory Turnover 16.1 8.9 8.6Asset Turnover 1.0 0.8 0.8Adapted from www.moneycentral.msn.com

Date Avg. P/E Price/Sales Price/Book Net Profit Margin (%)12/06 18.00 2.43 9.57 12.512/05 20.50 2.24 9.08 11.612/04 19.70 2.75 14.93 14.212/03 20.30 3.12 15.80 14.712/02 23.00 3.14 13.42 14.3

Date Book Value/ Share Debt/Equity ROE (%) ROA (%) Interest Coverage12/06 $5.14 1.94 49.9 12.0 6.312/05 $4.73 2.17 47.4 10.5 5.712/04 $3.40 3.10 79.4 13.1 7.812/03 $3.34 2.69 76.6 14.1 8.512/02 $3.61 2.16 63.4 13.7 8.5

Adapted from www.moneycentral.msn.com

Net Worth Analysis (December 2006 in millions)

1. Stockholders’ Equity + Goodwill = 3,938 + 1,137 $ 5,0752. Net income x 5 = $2,000 x 5= $ 10,0003. Share price = $47.00/EPS 2.73 =$17.22 x Net Income $2,000= $ 34,4324. Number of Shares Outstanding x Share Price = 733 x $47.00 = $ 34,451Method Average $20,989


Internal Factor Evaluation (IFE) Matrix

Key Internal Factors Weight Rating WeightedScore

Strengths1. Dominate the market share with 48 percent

share volume in the US.0.15 4 0.60

2. Bud Light is the leading brand in the world. 0.12 4 0.483. One of the top five global brewers by holding

11 percent market share worldwide.0.05 4 0.20

4. Products sold around the world including, China, Japan, Brazil, India, Italy, France, Spain, Great Britain and many more.

0.10 3 0.30

5. Return on equity is 53 percent compared to 28 percent industry average.

0.05 4 0.20

6. Exclusive sponsor of Super Bowl telecast through 2010.

0.02 4 0.08

7. Exclusive beer sponsor of the 2006 World Cup in Germany.

0.04 4 0.16

8. Inventory turnover is 16 compared to 9 for the industry.

0.08 4 0.32

Weaknesses1. Decline in 2006 in Michelob Ultra sales of 17 percent

and 23 percent in Michelob Light.0.10 1 0.10

2. Limited exposure in Africa. 0.03 1 0.033. Focused to heavily on beer with little diversification into

wine and other sprits.0.12 1 0.12

4. Five year average sales 4 percent compared to industry average of 12 percent.

0.05 1 0.05

5. Debt-to-equity in year-end 2006 of 2.36 compared to industry of 1.0.

0.07 1 0.07

6. As of year-end December 2006, Anheuser-Busch reported goodwill in excess of $1 billion.

0.02 1 0.02

TOTAL 1.00 2.73

F. SWOT Strategies

SO Strategies

1. Create a new low carbohydrate beer for the Budweiser family (S1, S2, S5, S8, O1, O2).

2. Joint venture into India (S1, S2, S4, S5, S8, O5).

WO Strategies

1. Develop a strong marketing strategy with increased advertising of the Michelob family aimed at younger drinkers (W1, O1, O9).

2. Decrease the price of the Michelob family (W1, O1, O9).


ST Strategies

1. Enter the wine/sprit market by acquiring a wine/spirit company (S1, S5, S8, T1, T2).

WT Strategies

1. Enter the wine/sprit market by acquiring a wine/spirit company (W3, T1, T2).

G. SPACE Matrix

6

5

4

3

2

1

-6 -5 -4 -3 -2 -1 1 2 3 4 5 6-1

-2

-3

-4

-5

-6Competitive

IS

ES

CA

FSConservative Aggressive

Defensive


Return on Assets (ROA) 3 Rate of Inflation -2Leverage 1 Technological Changes -2Net Income 6 Price Elasticity of Demand -2Income/Employee 5 Competitive Pressure -6Inventory Turnover 6 Barriers to Entry into Market -3

4.2 -3.0Environmental Stability (ES) Average Financial Strength (FS) Average

Environmental Stability (ES)Financial Strength (FS)

Market Share -1 Growth Potential 4Product Quality -2 Financial Stability 5Customer Loyalty -1 Ease of Entry into Market 2Technological know-how -2 Resource Utilization 4Control over Suppliers and Distributors -2 Profit Potential 4

-1.6 3.8Competitive Advantage (CA) Average Industry Strength (IS) Average

Competitive Advantage (CA) Industry Strength (IS)

x-axis: -1.6 + 3.8 = 2.6y-axis: 4.2 + -3.0 = 1.2Coordinate: (2.2, 1.2)

H. Grand Strategy Matrix


Rapid Market Growth

Quadrant II Quadrant I

Strong Competitive

Position

Slow Market Growth

Weak Competitive

Position

Quadrant III Quadrant IV

I. The Internal-External (IE) Matrix

The IFE Total Weighted Score

Strong Average Weak3.0 to 4.0 2.0 to 2.99 1.0 to 1.99

High I II III

3.0 to 3.99

Medium IV V VI


The EFE Total Weighted Score

2.0 to 2.99

Anheuser Bush

Low VII VIII IX

1.0 to 1.99

Hold and Maintain

Geographic Region Percent RevenueUnited States 92International 8

J. QSPM

Strategic Alternatives

Key Internal Factors WeightFurther expand into Europe

Diversify into wine/spirits

Strengths AS TAS AS TAS1. Dominate the market share with 48 percent share

volume in the US.0.15 --- --- --- ---

2. Bud Light is the leading brand in the world. 0.12 3 0.36 1 0.123. One of the top five global brewers by holding 11

percent market share worldwide.0.05 4 0.20 2 0.10

4. Products sold around the world including, China, Japan, Brazil, India, Italy, France, Spain, Great Britain and many more.

0.10 4 0.40 2 0.20

5. Return-on-equity is 53 percent compared to 28 percent industry average.

0.05 3 0.15 4 0.20

6. Exclusive sponsor of Super Bowl telecast through 2010.

0.02 --- --- --- ---

7. Exclusive beer sponsor of the 2006 World Cup in Germany.

0.04 3 0.12 1 0.04

8. Inventory turnover is 16 compared to 9 for the industry.

0.08 3 0.24 4 0.32

Weaknesses1. Decline in 2006 in Michelob Ultra sales of 17

percent and 23 percent in Michelob Light.0.10 1 0.10 3 0.30

2. Limited exposure in Africa. 0.03 --- --- --- ---


3. Focused to heavily on beer with little diversification into wine and other sprits.

0.12 1 0.12 4 0.48

4. Five year average sales 4 percent compared to industry average of 12 percent.

0.05 --- --- --- ---

5. Debt-to-equity in year end 2006 of 2.36 compared to industry of 1.0.

0.07 --- --- --- ---

6. As of year end December 2006, Anheuser-Busch reported goodwill in excess of $1 billion.

0.02 --- --- --- ---

SUBTOTAL 1.00 1.69 1.76

Key External Factors Weight Further expand into Europe

Diversify into wine/spirits

Opportunities AS TAS AS TAS1. The number of alcoholic beverage consumers of

legal drinking age is strong, with a large population of 21 to 27 year olds.

0.04 2 0.08 3 0.12

2. Light beer consumption continues to dominate US beer market due to healthier living.

0.10 --- --- --- ---

3. China’s beer market is estimated to grow at least 5 percent annually for the next five years.

0.04 --- --- --- ---

4. Russia has the fifth largest beer market in the world. 0.04 4 0.16 1 0.045. India is expected to have an annual growth rate of 8

percent in the next five years.0.04 --- --- --- ---

6. Of China’s top three brewers, only Beijing Yanjing Beer Group does not have a foreign partner.

0.02 --- --- --- ---

7. Customers prefer sprits to beer. 0.10 1 0.10 4 0.408. Weak dollar makes products cheaper in Europe. 0.07 4 0.28 1 0.079. Drinking age in much of the world is 18. 0.04 3 0.12 2 0.08Threats1. Increase in wine sales by 5 percent shows new

preference for wine.0.07 1 0.07 4 0.28

2. Shift toward sprit consumption. 0.10 1 0.10 4 0.403. Shift towards healthier living among US citizens. 0.05 --- --- --- ---4. Decline in beer consumption by 1 percent in 2006. 0.02 1 0.02 4 0.085. Higher cost for commodities such as grains, packing

material and energy used in the brewing process and delivery.

0.08 --- --- --- ---

6. Alcoholic beverages are subject to high levels of taxation in the US.

0.06 --- --- --- ---

7. Imported beer into the US is significantly outpacing overall domestic market share increased from 9 percent in 1999 to 12 percent in 2005.

0.08 --- --- --- ---

8. New innovations by competitors such as Coors with can liners and cooler box.

0.02 --- --- --- ---

9. Restrictions on beer advertisements have become increasing stricter.

0.03 --- --- --- ---

SUBTOTAL 0.93 1.47SUM TOTAL ATTRACTIVENESS SCORE 2.62 3.23

K. Recommendations


The QSPM strategies assessed whether expanding the brand name and image more in Europe would be more effective than acquiring or starting a new wine/spirit company to counter the drawdown in the beer industry. The QSPM reveals diversifying into sprits would be the more advantageous approach at this time. Constellation Brands is a publicly-traded company that produces, wine, sprits, and has bottling rights for other beer producers. BUD should acquire STZ.

Constellation Brands (STZ) Net Worth January 2008

1. Stockholders’ Equity + Goodwill = 3,400 + 3,000 $ 7,4002. Net income x 5 = $327 x 5= $ 1,6353. Share price = $20.00/EPS 1.29 =$15.50 x Net Income $327= $ 5,0694. Number of Shares Outstanding x Share Price = 215 x $20.00 = $ 4,300Method Average $4,610

L. EPS/EBIT Analysis

$ Amount Needed: 4,000MStock Price: $47Tax Rate: 35%Interest Rate: 7%# Shares Outstanding: 733M

Recession Normal Boom Recession Normal Boom

EBIT 1,000,000,000 2,500,000,000 5,000,000,000 1,000,000,000 2,500,000,000 5,000,000,000Interest 0 0 0 280,000,000 280,000,000 280,000,000EBT 1,000,000,000 2,500,000,000 5,000,000,000 720,000,000 2,220,000,000 4,720,000,000Taxes 350,000,000 875,000,000 1,750,000,000 252,000,000 777,000,000 1,652,000,000EAT 650,000,000 1,625,000,000 3,250,000,000 468,000,000 1,443,000,000 3,068,000,000# Shares 818,106,383 818,106,383 818,106,383 733,000,000 733,000,000 733,000,000EPS 0.79 1.99 3.97 0.64 1.97 4.19

Common Stock Financing Debt Financing

70 Percent Stock - 30 Percent Debt 70 Percent Debt - 30 Percent StockRecession Normal Boom Recession Normal Boom

EBIT 1,000,000,000 2,500,000,000 5,000,000,000 1,000,000,000 2,500,000,000 5,000,000,000Interest 84,000,000 84,000,000 84,000,000 196,000,000 196,000,000 196,000,000EBT 916,000,000 2,416,000,000 4,916,000,000 804,000,000 2,304,000,000 4,804,000,000Taxes 320,600,000 845,600,000 1,720,600,000 281,400,000 806,400,000 1,681,400,000EAT 595,400,000 1,570,400,000 3,195,400,000 522,600,000 1,497,600,000 3,122,600,000# Shares 792,574,468 792,574,468 792,574,468 758,531,915 758,531,915 758,531,915EPS 0.75 1.98 4.03 0.69 1.97 4.12

M. Epilogue

The second largest U.S. beer producer, SABMiller, is expected to win federal


government approval to combine with the third largest U.S. beer producer, Molson Coors. Under the Bush presidency, it has been much easier for large competing firms companies to merge. "I would frankly expect that they will (get approval), in part because it's the Department of Justice," said Ben Sharp of Perkins Coie LLP, reflecting a view among some experts that the department challenges few mergers. "I doubt very much that it would have got approval under the Clinton administration," Sharp said. Michael Keeley of Axinn, Veltrop & Harkrider, LLP agreed: "I'd be stunned if they did anything to stop this deal."

The Anheuser-Busch company, which produces Budweiser, Busch and Michelob, is the longtime U.S. market leader with just under half of all U.S. beer sales. However, Miller holds 18.7 percent of the market and Coors 11 percent, according to Michael Scherer, who teaches management at Harvard's Kennedy School of Government. The rest of the market is shared by imports and microbrewed beers. The proposed merger would give Anheuser-Busch and the new MillerCoors joint venture control over nearly 80 percent of the U.S. beer market.

According to the Herfindahl-Hirschman Index used by antitrust experts to assess illegality, the U.S. beer market is already concentrated and the joint venture would push the index up by more than 300 points. Deals that raise the index by more than 100 points in concentrated markets "presumptively raise antitrust concerns," according to the Justice Department's merger guidelines. "This is one that clearly violates the anti-merger guidelines," said Scherer, who follows the beer industry. "So it seems to me that the government should take a hard look at it."

If the Miller/Coors joint venture is approved, that firm would have annual sales of $6.6 billion. Ownership would be split with each company holding a 50 percent voting interest, but the larger SABMiller would take a 58 percent economic interest compared to Molson Coors' 42 percent. The deal could hurt Pabst Brewing Co, which has 3.38 percent of the U.S. beer market, since Miller brews most of Pabst's beer and could opt to shut down that plant, said Scherer. "This could put them in a very squeezed position," he said. Despite a second request for information from the U.S. Justice Department, both companies say they expect to win approval and close the deal by mid-2008.

Miller and Coors have argued that the deal will be good for the average American beer drinker but this is debatable. Miller and Coors may use their combined clout with wholesalers to squeeze competitors, meaning that some smaller brewers could lose their distributors.


06 anheuser busch

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