Guest commentary by Jay Brooks
Wow, these guys are good. Just a few weeks ago A-B was talking about their earnings dip like the sky was falling, running around doing anything they could think of. “Pick up more imports” (Grolsch), try to buy up some microbreweries, “create an ad campaign to celebrate beer” (Here’s to Beer), and “introduce new products” (Michelob Ultra Amber). Well I guess it was all worth it because yesterday it was anounced that Anheuser-Busch was “restoring sales and earnings momentum.” Whew, I’m glad that’s over and we can all relax.
Of course, I can’t help but wonder what “Restoring Sales And Earnings Momentum” actually means. Just on a purely semantic basis, how can you restore momentum? Merriam-Webster defines momentum as “strength or force gained by motion or through the development of events.” Is it even possible to “restore” so quickly something that by definition takes time. Momemtum must be gained slowly, it’s not like a race car weaving through the business landscape. But that’s propaganda for you. Frame something in a positive light and the facts or common sense hardly matter.
Frankly, if I were a shareholder I’d be concerned about these wide swings. First we’re up, then we’re down, now we’re up again all in the space of a few months. You’d think people would be more concerned with fixing any problems (not that any have been admitted, it’s always someone else’s fault) on a long term basis so they wouldn’t resurface. But shareholders are apparently a finicky bunch afflicted with a economic form of ADD. They want growth and earnings and they want it now dammit, or they’re selling. It’s the adult equivilent of play-my-way-or-I’m-taking-my-ball-and-going-home. They’re not in it for the long haul. So it’s not terribly surprising to see A-B float some small positive numbers and then spin it so they’re magically back on the road to recovery. Nothing will really change, but the share price goes up and everybody’s happy.
From the press release:
Through a number of new sales initiatives, the company restored its domestic beer volume and market share growth in the second half of 2005. Anheuser-Busch’s wholesalers’ sales-to-retailers increased 0.8 percent in the second half and grew 2.7 percent in the fourth quarter (both on a comparable selling day adjusted basis). Anheuser-Busch brands gained six-tenths of a share point at the consumer level in both the third and fourth quarters, according to IRI supermarket data. The company’s sales momentum has carried over into 2006, with wholesalers’ sales-to-retailers up 2.9 percent through mid-February.
Watch out any time you hear the euphemistic “new sales initiatives” which most likely means lowering prices. Most beer companies already do this a bit more in January and February, because they are traditionally the slowest months for beer sales. But lowering prices also has the curious effect of raising volume but lowering profit, and wasn’t that A-B’s problem in the first place?
And check out these numbers they’re crowing about. People tend to read headlines and maybe the first paragraph, studies have shown. So it’s no surprise the actual numbers that indicate restoring of momentum are in paragraph two, where it’s finally revealed that “wholesalers’ sales-to-retailers increased 0.8%” and “grew 2.7 percent in the fourth quarter (both on a comparable selling day adjusted basis).” Woo hoo. Now I know in terms of dollar amounts, because A-B so large, that even small percentage gains probably equal millions, it’s still not exactly the sort of numbers you expect people to start sending out press releases about. But also look at the paranthetical information. “Comparable selling day adjusted” is basically a trick to compare periods of time that have different numbers of days in them, that is it’s another way to potentially lie with statistics or at least show things in the most favorable light possible.
More from the press release:
Restoring cost stability is expected to take longer than restoring volume and pricing. Over the last three years, the domestic beer company has experienced substantial increases in commodity costs, most recently from aluminum, glass and energy. Commodity cost pressures continue in 2006. Commodity costs tend to be cyclical over the long-term and the company is actively working on a number of productivity initiatives to improve the cost outlook.
Just as an aside, I love the language that corporations use. Craft brewers use ingredients, supplies, etc. A-B uses “commodities.” Small brewers pay higher electric bills, big corporations experience substantial increases in commodity energy. That just cracks me up.
Normally, when supply costs go up you’d expect that prices to consumers would also rise. And while there have been modest increases, A-B and to some extent the other big breweries (because they’ve had to align their pricing with A-B to stay competitive) have minimized these as much as possible due to perceived consumer resistence to paying more for beer. Over the years this has kept big beer prices relatively low, especially compared with craft beer (which is generally much more expensive to produce). So their complaints about costs seems more like whining to me. They could raise prices to a percentage of actual supply costs anytime they wanted, but over the years they’ve trained their customers to expect low prices and now this strategy is starting to backfire. Plus, of course, profits would also suffer further indignities.
The other effect of keeping their prices artificially low is that the gap between a six-pack of Bud and a six-pack of something with flavor is necessarily higher. This has been a bone of contention of mine for quite some time. If A-B’s pricing reflected the same markup as craft brewers then the difference between their beer and something worth drinking would be substantially lower, making it much more possible for craft brewers to persuade consumers to trade up to their beers. But any consumer that is driven by price alone needs a lot more education about what he’s buying before he’ll be willing to change his buying patterns.
But the general meaning of this latest missive from Anheuser-Busch is, I think, yet another attempt to change their recent fortunes. When I wrote earlier that big companies will do anything to get the share price up, this is one of those “anythings.” I think we’ll see a lot more of these smiley face upbeat press releases over the next few months. We just have to remember to take them for what they really are: propaganda.
Jay Brooks is a beer writer living in Northern California.
He has been a beer aficionado since the late 1970’s and has been working in the beer business for over 25 years.
Most recently, Jay was General Manager of the Celebrator Beer News until recently becoming a full-time parent and a part-time writer. He continues to write for the Celebrator as the Ale Street News.
With Jay’s perceptive interpretation of the beer industry and the business of beer, ProBrewer welcomes Jay as a regular contributor to our Commentary section.
For much more of Jay’s great ramblings, visit his beer blog at www.brookston.org/beer/