With declining sales in the U.S. and a global effort to shed some of its $100-billion debt, Anheuser-Busch InBev is turning to its "disruptive" investment arm, ZX Ventures, to create new opportunities in India.
The multinational company announced last week a plan to partner with The Indian Hotels Company Limited (IHCL)—the largest hospitality company in the country—to open 15 breweries inside IHCL hotels. The openings will take place through 2024 and will be led by ZX, which has shifted from its initial role of long-term investor/developer and now oversees more short-term gains for a company in need of money.
This summer, AB InBev failed in its attempt to set up a $9.8-billion initial public offering for its Budweiser Brewing Company APAC Ltd in Hong Kong, which would have gone on to be the world's biggest IPO of 2019. The IPO finally took place at the end of September to strong response, raising between $5-6 billion instead, and valuing the company at $45 billion—a big win for AB InBev if it tries to set itself up for similar future sales. After the failed IPO in July, AB InBev sold its Australian unit of Carlton & United Breweries to Japan's Asahi Group Holdings for $11.3 billion. The need for cash follows AB InBev’s $106-billion acquisition of SABMiller in 2016.
The new breweries made in partnership with IHCL won’t come close to creating the billions in sales that AB InBev would get from selling off pieces of its company, but they represent another key move in a region seen as necessary for growth. When discussing the successful IPO of his company in the Hong Kong market, Budweiser APAC CEO Jan Craps told CNBC that Asia is the largest beer market in the world, and that AB InBev wants to deepen ties in China, South Korea, India, and Vietnam.
AB InBev holds a 13.5% market share in Asia, second only to China Resources Beer, a company in which Heineken bought a 40% stake last year. Tsingtao Brewery is third in the country with an 11.5% share. International players like Stone, which has a location in Shanghai; Spanish companies Mahou San Miguel and Gruppo Damm; and more are also offering increased competition outside of local businesses.
For its part, AB InBev has pursued various entry points into the Chinese market. It runs a facility in Wuhan to brew its Goose Island brands, as well as those of its Chinese investments, Kaiba and Boxing Cat Brewery, made through its formerly independent investment arm, ZX Ventures.
According to coverage by CNBC, however, AB InBev’s move into India as part of a larger shift into Southeast Asia is important, as the company isn’t even among the top 10 beer producers within that region.
“Many leading beer players in Southeast Asia are local players with strong local knowledge and distribution networks, so acquisitions of local beer companies is possible if AB InBev wishes to increase its market share in the region and tap on the expertise from established local players,” Euromonitor analyst Jarred Neubronner told CNBC.
That local connection will be made possible by the new swath of IHCL breweries in major Indian cities like Bengaluru, Goa, Mumbai, and Hyderabad. Of note, AB InBev isn’t entering New Delhi, which has made allegations against AB InBev for tax evasion and antitrust actions, both of which the company has denied. Regardless, the city government banned the conglomerate this summer from selling its beer in New Delhi until 2022. It’s a continuation of troubles in India for the company, which has faced worker strikes in recent years.
All this comes during another down year for AB InBev's leading brands in the U.S., where volume sales are down 1.5% in the latest 52-week period tracked by IRI, a market research firm that compiles scan data from grocery, convenience, and other chain stores. Bud Light (-6.7%) and Budweiser (-6.2%) are down during the same timeframe, and have been losing share for years—part of the reason AB InBev sought to buy SABMiller and focus attention on Africa and Asia.
Now, the company’s interest in those markets is coming from a place of necessity rather than strength., The past few months have forced AB InBev to adjust to its new reality by finding new sales avenues and gaining back investor confidence as it works itself out from under a “mountain of debt.”
If there were one company equipped for such a position, it’s AB InBev, long known for its cost-cutting strategies and business maneuvers. The deal to open new breweries in India, one among its many other tactics, makes it clear the company plans to actively regain its foothold on an international scale.
Words by Bryan Roth