The King of Beers seeks overseas allies

ATLANTA -- Anheuser-Busch Cos. was dethroned as the King of Beers as US drinkers switched to imports. The brewer's best shot at regaining the crown rests on distributing those rivals' beers in its home market.

Anheuser-Busch, which was the world's biggest brewer for at least five decades, began selling beers such as Stella Artois and Beck's for InBev NV in February to lure consumers willing to pay more for European ales and lagers as sales of Budweiser stagnate.

"I chugged way too much Bud and Miller in college, and I like to think my taste is more sophisticated now," said Joe Manahan, a 26-year-old logistics planner for an import-export firm in Atlanta. "These beers like Heineken and Beck's, you want to sip them and really appreciate the flavor."

The alliance with InBev, now the world's largest brewer, puts Anheuser "in the position of becoming the import leader over time," said Bill Schultz, who manages about $800 million for McQueen Ball & Associates in Bethlehem, Pa. Miller Lite maker, SABMiller Plc, none of whose brands are in the top 10 US imports, pledged to expand distribution of its foreign beers in the United States.

The change in strategy already may be helping St. Louis- based Anheuser. The company said on Tuesday that 2007 profit will increase more than the 7 percent to 10 percent the company targets annually.

The brewer's shares may outperform rivals, rising by 3.2 percent in the next 12 months, according to analysts' estimates compiled by Bloomberg. Stock of SABMiller is forecast to rise by 2.1 percent, and InBev, based in Leuven, Belgium, may rise by 1.8 percent, according to analysts' estimates.

Distributing InBev's beers may add 3 cents a share to Anheuser's annual earnings starting in 2008, or about 1 percent, after initial start-up costs are paid, according to Christopher Growe, an analyst at A.G. Edwards & Sons Inc. in St. Louis. Anheuser's profit on the InBev brands may be about $3 per case, according to estimates by Mark Swartzberg, an analyst with Stifel Nicolaus & Co. in New York.

"These are really profitable brands for the distributors, and the incremental costs to carry them are small because they just add them on the beer truck," said Harry Schuhmacher, publisher of Beer Business Daily, an industry newsletter.

Anheuser controls 50.2 percent of the US market, giving InBev more distribution than any other brewer could in the United States. InBev's chief executive officer, Carlos Brito, called Anheuser a "great distribution machine" on May 10, when the company reported first-quarter results.

Anheuser had been the world's biggest brewer since 1957, when it surpassed the Joseph Schlitz Brewing Co., said Eric Shepard, executive editor of Beer Marketer's Insights, an industry publication based in New York. InBev surpassed Anheuser last year with revenue of $16.7 billion, compared with $15.7 billion for Anheuser.

InBev was created through the merger of Brazil's Cia. de Bebidas das Americas, or AmBev, with Belgium's Interbrew SA. InBev has acquired brewers and expanded brands in developing countries as markets in Western Europe and the United States stagnate. London-based SABMiller was formed in 2002 when South African Breweries bought Miller Brewing Co.

Anheuser's rivals also are introducing new products to the market. Amsterdam-based Heineken NV spent $55 million last year to market its Heineken Premium Light beer, which helped its US volume rise by 15 percent. Heineken is "optimistic " about competing with Anheuser, Andy Thomas, president of Heineken's US unit, said during a conference with analysts on May 16.

Anheuser's situation mirrors that of US automakers, which have also lost share to overseas competitors since the 1970s. General Motor Corp., Ford Motor Co., and Chrysler Corp.'s US brands made up 52.4 percent of the US market through April of this year, compared with 63 percent in 2000. Toyota Motor Corp. of Japan surpassed Chrysler for the number three slot in US market share last year.

About 60 percent of InBev's US volume has already been switched over to Anheuser distributors, Anheuser chief financial officer Randy Baker said on April 25. The InBev beers "are high-margin brands for our wholesalers and profitable for Anheuser-Busch as well," Dave Peacock, Anheuser's vice president for business operations, wrote in an e-mailed statement.

Anheuser also benefits from its 50 percent ownership of Grupo Modelo SA, the maker of top-selling import, Corona. Anheuser's income on equity stakes including Modelo jumped 18 percent last year to $589 million, representing almost one-third of profit. The brewer also has begun importing Royal Grolsch NV's Grolsch and Singapore's Tiger beer, and it's expanding in China to lift Budweiser's sales.

SABMiller is playing catch up. Its main focus in the United States has been trying to improve sales of its biggest brand, Miller Lite, using commercials focusing on its taste after advertisements ridiculing men who garnished their beers with fruit failed to win drinkers.

Miller's sales to retailers dropped 3 percent in the year ended March 31, excluding acquisitions, while total US import volumes rose 13 percent in that period. Neither Peroni Nastro Azzurro nor Pilsner Urquell is among the top 20 imported brands to the United States, according to Beer Marketer's Insights.

"We're going to aggressively promote our import brands," Miller spokesman Pete Marino said. "We're in an enviable position that we don't have to do deals with anybody." Still, Miller has a big gap in size "between Heineken and Corona and where our imports are," he said.

SABMiller is investing most in promoting Peroni and Pilsner Urquell, and is bringing its Aguila and Cristal brands from Colombia and Peru to US cities with sizable immigrant populations from those countries.

SABMiller's plan may not be a quick fix, according to investors.

"SABMiller's import brands will play a bigger role but it won't be in the next year or two," said Claude Van Cuyck, head of equities at Cape Town-based Sanlam Investment Management, which manages the equivalent of $52 billion, including SABMiller shares. "Your beers have to resonate with the market before they can have a big impact."