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Big Beer Looks for Super Bowl Bump

9 February 2016 in Trading Ideas

Key Takeaways

  • Anheuser-Busch drew up a Super Bowl ad with Amy Schumer and Seth Rogan as part of its gameplan to recruit more Millennials to its customer base.
  • The world's top brewers are using takeovers to get their own piece of the faster-growing craft beer market.
  • Motifs mentioned: High Spirits
  • Stocks mentioned: , Anheuser Busch InBev SA (NYSE:BUD), Craft Brew Alliance Inc (NASDAQ:BREW), Diageo Plc (NYSE:DEO).

In an attempt to boost sales of its top-selling US beers, Anheuser Busch InBev SA (NYSE:BUD) has recruited a younger team.

Comedian Amy Schumer and actor Seth Rogan starred in “The Bud Light Party” Super Bowl commercial last Sunday, as the brewer targets the Millenial audience amid an event that regularly brings in the most TV viewers all year. Last year, a record 114.4 million watched the game.1

As the Wall Street Journal reported last week, Anheuser-Busch, the game’s beer advertiser in the big game, planned to air three-and-a-half minutes of commercials for four brands. The company’s Bud Light, the country’s leading seller, is the official beer of the National Football League.

Thirty-second spots in this year’s game are selling for as much as $5 million, according to CBS, the network that broadcasted the game.

Bud Light sales fell 0.9% and volume fell 1.6% during the 52 weeks ended Jan. 9, according to Nielsen data cited by Morgan Stanley. Sales have fallen the past seven quarters.

Meanwhile, sales of craft beers in the US are booming. American craft beer production volume rose 16% from January through the end of June 2015 as compared to the same time last year, according to mid-year data released Monday by the Brewers Association.2

It’s no coincidence that Anheuser-Busch has sought its own piece of the craft beer market with an “If you can’t beat them, buy them” strategy. At the end of last year alone, the company scooped up Arizona’s Four Peaks Brewing Company, the UK’s Camden Town Brewery on Monday and Colorado’s Breckenridge Brewery.3

That now gives the beer giant eight craft breweries. It bought Goose Island back in 2011 and followed that up with purchases of Blue Point, 10 Barrel, Elysian and Golden Road Brewing.

The company also owns a nearly 32% stake in publicly traded Craft Brew Alliance Inc (NASDAQ:BREW), the parent company of Widmer Brothers Brewing, Redhook Ale Brewery and Kona Brewing.

Those deals and the marketing buzz from the recent month’s pro football playoffs may have contributed to Anheuser Busch’s relative outperformance in the last month. Its shares are down only 1%; the S&P 500 has lost 3.2%.

Shares of Anheuser-Busch comprise a 19.6% weighting in the High Spirits motif. It’s down 1.3% in the past month.

Over the last 12 months, the motif has lost 2.4%. The S&P 500 has lost 8.5%.

Two key issues facing global brewers and distillers are changing tastes and changing economic growth rates. As the Financial Times noted, “brown” spirits like whiskey have seen something of a revival in the US over the past two years – especially among the coveted Millenial set — after falling out of fashion for more than a decade.4

That trend also was helped by emerging economies when they were enjoying high rates of economic growth earlier this decade. The greater wealth pushed more people into the middle class and minted fresh millionaires, keen to demonstrate their newfound status by buying more expensive drinks, usually western brands.

But that party came to an abrupt end in 2013, as economic growth slowed sharply in countries important to the drinks industry, including Brazil, Venezuela, Russia and China. The slowdown in China was compounded by a government clampdown on conspicuous consumption and corruption.

That has essentially left North America as the lone bright spot and its singular battleground. “The US is the emerging market right now based on what’s going on in the world,” says Larry Schwartz, North America president at Diageo Plc (NYSE:DEO).

Even though it’s a mature market, the US remains the world’s most profitable spirits market, accounting for 7% of global drinks sales, but 21% of profits. Its resurgence means distillers are renewing their focus on the continent.

Despite the global struggles, investors cheered Diageo’s recent earnings report, which suggested signs of a turnaround. The company reported a better-than-expected 1.8% rise in organic net sales for the first half of its financial year, while volumes edged up 1%.5

Continued upticks in sales reports by the sector’s top companies could be a refreshing taste for investors in 2016.

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  1. Nathalie Tadena, “Bud Light Bets on Amy Schumer and Seth Rogan With Super Bowl Ad,” wsj.com, Jan. 22, 2016.
  2. Tom Rotunno, “Craft beer growth posts solid numbers…again,” cnbc.com, July 27, 2015, http://www.cnbc.com/2015/07/27/craft-beer-growth-posts-solid-numbers-again.html, (accessed Feb. 7, 2016).
  3. Paul R. La Monica, “Bud goes on a craft brew buying binge,” cnnmoney.com, Dec. 23, 2015, http://money.cnn.com/2015/12/23/investing/anheuser-busch-inbev-craft-brewery-acquisitions/, (accessed Feb. 7, 2016)
  4. Scheherazade Daneshku, “Drinks industry: Low spirits,” ft.com, Dec. 23, 2014.
  5. “Diageo sales improve, profit takes a hit from FX,” ft.com, Jan. 27, 2016.