By Nick Kostov
Bud Light's shrinking sales have prompted some of its
distributors to cut back on marketing the beer, threatening to
exacerbate troubles at the Anheuser-Busch InBev SA brand.
Distributors for years complained that the company wasn't taking
the right steps to stem declines at Bud Light. Though it continues
to be America's best-selling beer, Bud Light has been losing ground
to Mexican lagers, craft brews, wine and harder liquor. Now, with
margins shrinking, some are moving to protect profits.
"Wholesalers are wrestling with a decision right now," said
David Stokes, who owns Grey Eagle Distributors, and whose father
once served as chief executive of Anheuser-Busch. "Do you continue
to invest behind Bud Light and make a little bit less money right
now to build for the long term, or do you cut costs to try to
maintain the health of the bottom line?"
While sales of other "light lagers" like Molson Coors Brewing
Co.'s Coors Light and Miller Lite also declined, the fall at Bud
Light has been steepest. The brand suffered its biggest volume drop
ever last year--down an estimated two million barrels, or 5.7%. AB
InBev has invested heavily in small-brewery beers it brands as
craft, as well as foreign labels like Stella Artois and its
higher-end light lager Michelob Ultra. But for many of AB InBev's
600 or so distributors, Bud Light is still their top seller.
Distributors, or wholesalers, are the middlemen who sell beer to
retailers like grocery stores and restaurants. For a big brewer
like AB InBev, the relationship with these mostly independent
businesses is crucial--similar to an auto maker's reliance on its
network of car dealerships. AB InBev funds big-budget national
advertising campaigns, but it depends on its distributors to run
regional promotions and work closely with retailers to push more
beer.
Until now, these wholesalers have been able to trim operational
costs and increase prices to cushion the bottom line. But falling
sales of Bud Light are hurting their profits, leading some to cut
marketing budgets.
Falling Bud Light and Budweiser volumes sent pretax earnings per
case down 2% last year at the Florida operations of Gold Coast
Eagle Distributing, according to John Saputo, the distributor's
owner and president. He said earnings fell 5% per case at his Ohio
business. Both declines came despite rising sales of Michelob Ultra
and Stella Artois.
At Straub Distributing Co., based in Orange County, Calif.,
Chief Executive Mark Danner said case sales of Bud Light--which
account for about 45% of all case sales--were down by "high single
digits" last year. He cut back on Bud Light marketing at concerts
and on billboards.
A large distributor in the Midwest is cutting its regional
marketing spending on Bud Light, which accounts for a third of the
cases it sells, according to a person familiar with the matter.
That is after weathering five years of annual volume declines,
during which the distributor kept spending steady, the person
said.
AB InBev is taking steps to appease distributors. Last year, it
brought back a Bud Light veteran to lead the brand, emphasizing
outreach to distributors. The company is rolling out new
fruit-flavored versions brewed with lime and orange peels.
It also is boosting national advertising. AB InBev said it
increased its Bud Light media spend by 5% in the fourth
quarter.
At this weekend's Super Bowl, it plans to debut a new spot in
its latest campaign--about a medieval king with a penchant for Bud
Light and his made-up toast, "Dilly Dilly."
The phrase became a national meme after Pittsburgh Steelers
quarterback Ben Roethlisberger shouted it before a snap in
November. Dilly-Dillies now regularly flood Twitter after NFL
touchdowns.
Whether it can move more beer is an open question. After the TV
spots started running in August, monthly volume declines for Bud
Light slowed, but then sharpened again toward the end of the year,
according to Nielsen.
"We cannot forget Bud Light is the leading brand in the
industry," said Marcel Marcondes, AB InBev's U.S. marketing vice
president, in a recent interview. "It's not a detail, it's a top
priority." Last year, he was involved in tapping Andy Goeler, who
ran the brand in its heyday in the 1990s, to turn things around.
Mr. Goeler said his priority is keeping wholesalers behind Bud
Light.
"I want to get Bud Light stabilized so they can stay focused on
us and stay with us as partners," Mr. Goeler said. While the Dilly
Dilly ads haven't increased volumes, they have boosted sentiment
toward Bud Light on social media, he said. He expects that to
translate into higher sales during the warmer months. "The focal
point of what we're trying to do is to get Bud Light into the
conversation, make it culturally relevant," he said.
Some distributors said Mr. Goeler already has been more
effective connecting Bud Light's marketing campaigns on television
and social media to the regional billboards wholesalers put up and
the displays they place in grocery-store aisles. They also praised
another recent marketing campaign that touted the simplicity of Bud
Light while poking fun at more complex beers.
Mr. Goeler said the Dilly Dilly spots are helping "bring back
the fun" at Bud Light. In November, he paced around a Missouri
hotel conference room, performing the scripts of four new spots in
development for the campaign, according to attendees. A group of
wholesalers joined in when Mr. Goeler pumped his index finger in
the air for the campaign's signature line.
Wholesalers were initially skeptical of the Dilly Dilly ad that
was created as part of six rotating spots by Bud Light's ad agency
over the summer. "Childish and ridiculous," Devyn Dugger, president
of Ohio Eagle Distributing and a member of AB InBev's wholesale
advisory panel, remembers thinking when he saw them. But "look
where it's going," he said. "I've been fully converted."
Write to Nick Kostov at Nick.Kostov@wsj.com
(END) Dow Jones Newswires
February 02, 2018 05:44 ET (10:44 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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