Anheuser-Busch – an American icon for sale?

It has been widely publicized already that the world’s largest brewer – InBev is planning to take over the world’s third largest – Anheuser-Busch. What seems to be causing all the commotion in the US media regarding this potential multi-billion dollar deal, is the fact that foreigners are going to buy out one of the emblems of American business. It is often said that Anheuser – Busch is as American as apple pie and Baseball. It seems, it will be so for not that much longer.
Here is a little background on both companies:

Anheuser-Busch actually traces its origins back to a Bavarian brewery, which was established in 1852. Today, based in St. Louis, Anheuser-Busch is the leading American brewer, holding a 48.5 percent share of U.S. beer sales. The company brews the world’s largest-selling beers, Budweiser and Bud Light. Anheuser-Busch also owns a 50 percent direct and indirect interest in Modelo, Mexico’s leading brewer, and a 27 percent share in China brewer Tsingtao, whose namesake beer brand is the country’s best-selling premium beer. Anheuser-Busch ranked No. 1 among beverage companies in FORTUNE Magazine’s Most Admired U.S. and Global Companies lists in 2008. Additionally, Anheuser-Busch is also one of the largest theme park operators in the United States, is a major manufacturer of aluminum cans, and one of the world’s largest recyclers of aluminum cans.
On the other hand, InBev is the world’s leading brewer, realizing 14.4 billion euro in 2007. The company has a strong, balanced portfolio, holding the number one or number two position in over 20 key markets – more than any other brewer. It has a key presence in both developed and developing markets.
Headquartered in Leuven, Belgium, InBev employs almost 89 000 people worldwide, and it realizes sales in over 130 countries. Their most renowned brands Stella Artois and Beck’s connect with consumers across the Globe; InBev also has a premium brand portfolio across continents through multi-country brands such as Leffe, Brahma, Staropramen and Hoegaarden.
A portfolio of around 200 local brands forms the bedrock of their business including in Latin America: Skol, the leading beer brand in the Brazilian market. In Western Europe: Jupiler, the number 1 selling beer in Belgium. In Central and Eastern Europe: Siberian Crown, a leading premium brand sold throughout Russia. In North America: Labatt Blue, the number one Canadian brand in the world; and in Asia Pacific: Cass from South Korea, and Sedrin in China.
As of Jun 25, InBev has offered A-B’s board of directors an unsolicited bid of $46.3 billion, with no specific timeline attached to it. However, many experts are expecting the Belgian-Brazilian giant to take its offer directly to the shareholders if the board does not respond in a timely manner. Apparently InBev is quite confident that it has the resources to move on with such a deal. It has already spent $50 million in commitment fees to a 10-bank lending group made up of Banco Santander, Bank of Tokyo-Mitsubishi, Barclays Capital, BNP Paribas, Deutsche Bank, Fortis, ING Bank, JP Morgan, Mizuho Corporate Bank and Royal Bank of Scotland.
Some people say that such a deal will be an embarrassment for America altogether. Those voices even call on the government to step in and prevent such deals from ever taking place (e.g. foreign companies buying out American “iconic” businesses). Of course, most of these people don’t look at the larger picture – one of an American economy based on continuous deficit spending financed by foreign capital. Truth be told, we need these foreigners to pour their money into American assets in order to keep our balance of payments in check.
For those of us who are not so much into macroeconomics, we can only look forward to the Budweiser of tomorrow that will hopefully have a little more of a Belgian taste

Here are some noteworthy links with more info on this topic:

Reuters

Business Journal

Market Watch

Company 2 Watch: Zipcar

If you live in a large city, you’ve probably seen people driving in Zipcars. These are not your typical rentals. Zipcar operates a fleet of 3,000 cars in 23 cities, but you won’t find one at any airport. They are more likely to be Volkswagen Jettas or Mini Coopers than the bland sedans you get from Avis and Hertz. And there are no customer service clerks to deal with, no lines, no paper contracts to sign.

Instead, you book a car on the Web, where a map shows the vehicles currently available in your neighborhood. You swipe your wireless ID card to unlock the door, and the keys are inside. You are able to reserve a car via an app on your cell phone. Insurance and gas are included in the fee. The cost: a $50 annual membership fee plus $8 to $15 per hour.

CEO Scott Griffith doesn’t think he’s disrupting the car rental business as much as car ownership. “You don’t need to have a car at all,” he says. “You can use one anytime you want and save a lot of money while you’re at it.” Griffith estimates that 40 percent of Zipcar’s members (100,000 and growing quickly) either sell their cars or don’t have any, and that they save thousands of dollars a year compared with the costs of parking and operating their own vehicles.

Founded in 1999, Zipcar is already profitable in the major cities where it has been in business for more than two years (Boston, New York, San Francisco and Washington). Lately the company has been on a growth spurt, adding 11 cities to its network, including London and Vancouver, British Columbia. It’s on track to bring in more than $60 million in revenue this year, staying well ahead of competitors like Flexcar and City CarShare.

Built from the ground up as a self-serve operation (using the Web and wireless technologies that monitor the health of the cars), Zipcar manages its entire fleet of 3,000 cars with just 110 employees. That means Zipcar can handle 27 cars per employee, compared with Avis’s 15, and its cars are available 24 hours a day, so they can be used more often. “We don’t have all those people that you interact with,” Griffith says, “so as we scale, we’ll have twice the margins.”

Zipcar, with its original idea, great application of their service, and an already successful business model is positioned well to be the next big thing. This is why it is a company 2 watch!

Starbucks and the Science of Making People Spend Their Money on Crap.

If there is one company that truly knows how to leverage its brand, it will be Starbucks. The Seattle-based coffeehouse company currently operates in excess of 15,000 stores in 44 different countries. 15,000! What’s even more significant is that the brand has almost become indistinguishable with coffee itself (especially in the US). How many times have you heard the expression: “I need my Starbucks in the morning”, or “Let’s go grab some Starbucks”? The brand has recognition rivaled only by such icons as Coke (in soft drinks) and Gillette (in shaving accessories).
What really, truly impresses me the most however, is the value that Starbucks actually provides – namely not much at all. Their brewed coffee has consistently been rated worse than McDonald’s or BK’s coffee, yet it sells for three times the price. It has become a ritual for many Americans to get their Grande Latte in the morning for the not-so-modest sum of $4. And that’s every weekday. Think about it – many people actually spend more money on Starbucks than on their utility bills. And these are regular folks I’m talking about – people on tight budgets. How does that work?
In my opinion, it all has to do with marketing strategy – creating an image, an association in people’s minds whenever they see the Starbucks logo, store, or product on the grocery’s shelf. It is an image of gourmet coffee experience, even the scent of coffee that is so addictive to most of us. And of course, the price to pay is only a detail. Once you really crave something, you will always find a way to justify to yourself spending the extra money for it.

I stand in owe in the possibilities out there for so many other companies to use similar marketing strategy. Other companies can imitate Starbucks, and elevate their brands to a new orbit in which they only compete with themselves, and in the process charge extra for quality of a product or service that is really only perceived to be superior to others. I only wonder if such strategy is feasible for most companies, or if it is only available to marketing geniuses.

What is Hewlett-Packard Thinking?

As everyone following the newswire already knows, HP announced on May 6^th that it plans to acquire no one less than the second largest IT services provider in the world – EDS (Electronic Data Systems Corp.). According to analysts, the deal worth nearly $14 billion is saying a lot about what’s going to happen in the market in the coming months. Arguably, companies that are sitting on lots of cash (think Microsoft) are going to go out on a shopping spree looking for great deals in the current suppressed market conditions. But why is HP spending such considerable sum of cash on EDS?

For one, EDS is going to bring huge increase in revenue. For 2007, EDS has reported $22.7 billion in revenues from its IT services. This means that the new HP will more than double its current $16.6 billion in IT services sales instantaneously. Pretty sweet, but is that all that HP is after? Hardly.

HP is primarily in business for making technology hardware. Lately, IT services have grown to become a very big and strategic part of the marketplace for technology. For example, when IBM global Technology Services (currently the number one provider of IT services in the world) is working with a client at the services level, there is a great chance that the client will purchase IBM technology. If you can’t sell your products directly, you can simply take the backdoor way – create relationship with the client on a different level, and then sales will come organically.

With this deal pretty much set in stone already, we can expect that HP will be more competitive in the years to come. Clearly, HP shareholders can cheer for the time being. I wish we could predict what this all means for HP customers, however. Are they going to enjoy the wider range of services at cheaper prices, or is HP going to instead use its new power to maximize profit and squeeze its clients. I suppose time will show.

Did you find this subject interesting? These articles may shed some more light on it:

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