3 years after InBev deal, a new Anheuser-Busch

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They wear jeans to work now. It no longer feels odd. They walk by flower beds that might not be tended as obsessively as in years past. Certainly fewer of them report to work each day on Pestalozzi Street, at the brewery and adjacent brick-and-glass rectangular office building. This was once the global headquarters of Anheuser-Busch. Today it’s the North American headquarters of Anheuser-Busch InBev.

They still make big decisions here, the kind of big-spending, imaginative deals that made this place so envied. But now executives in New York City sometimes sign off on them, too.

Today marks the three-year anniversary since InBev took control of A-B in a $52 billion deal that rocked St. Louis, spreading justified fear of job losses and the anxiety that comes with losing control of a business widely considered a cultural institution.

Three years out, some things are clear. A-B is a diminished but still huge, powerful presence. The worst of the cost-cutting appears over. The brewery and some executive functions have remained in St. Louis. But the corporate culture of the old A-B — tradition-bound, perfectionist, focused more on dominating the beer market than making money — has given way to an aggressive austerity.

The extensive cost-cutting has squeezed more profits out of A-B, but questions remain over whether the company’s new bosses can grow brands and sell more beer.

And St. Louis is no longer the center of the company universe. A-B is now the U.S. subsidiary of A-B InBev. With that, old assumptions — and wistful illusions — about the relationship between the company and the city have changed, too.

“There’s still people who bleed Budweiser when you slit their wrists,” explained one former high-ranking A-B executive who spoke on condition of anonymity. “But some people don’t feel that way anymore.”


The changes were wrenching.

Early on, Carlos Brito, CEO of A-B InBev, announced plans to slash $1.5 billion at just A-B over three years. That was upped to $2.25 billion throughout the newly combined company. InBev also brought zero-based budgeting to A-B — costs are never assumed, but rather justified every year.

InBev’s brass “are not known for their gentle demeanor,” noted veteran industry-watcher Tom Pirko of Bevmark Consulting.

The cost-cutters found a target-rich environment at A-B, which by all accounts had grown fat. Even before InBev arrived, A-B sensed its heady days were over. The U.S. beer market for big brands like Budweiser and Bud Light was stagnant. The company’s stock price had stalled. So the brewer developed its own plan, code-named Blue Ocean, to slash $1 billion.

Dave Peacock, a longtime A-B executive who is now president of A-B, the subsidiary, recalled urging Brito to move fast. Integration would be painful, and he wanted to spare workers the anguish of uncertainty.

“I told him to just rip the Band-Aid off,” Peacock said.

They did. And it hurt. Just as the U.S. economy fell into a steep recession, thousands of A-B workers nationwide lost their jobs. The company did not provide exact numbers. But in the city of St. Louis alone, the number of A-B workers fell 15 percent from 2007 to 2009, according to city government records. A-B had 4,396 workers in the city at the end of 2009, falling from the city’s seventh-largest employer to its tenth. But A-B was shedding workers long before InBev arrived, employing 1,158 fewer workers in the city — an 18 percent drop — in 2007 than seven years earlier.

Today, the subsidiary employs about 14,000 people nationwide, about 4,000 in the St. Louis region, including Southern Illinois, down from 6,000 in 2007, according to the company.

But the devastating cost-savings plan connected to integration ends this year. A-B InBev noted last week in an earnings report that it had saved $195 million in “integration synergies” in the first nine months of 2011, with $75 million more needed before year’s end to reach its company-wide three-year goal.

All along, InBev has been up front about its plans to slash costs and people at A-B, analysts said.

“They’ve done what they said they would do,” Stifel Nicolaus financial analyst Mark Swartzberg said.


InBev did not just cut. It changed the way A-B operates and, to some degree, thinks.

Talk of “a culture of excellence” filled hallways. Workers were closely evaluated. Managers looked not just to sell more beer but to make more money. Pressure to perform, which seemed to wane under A-B CEO August Busch IV’s brief leadership, was ramped up.

“It had coasted for a long time,” Pirko said. The changes bordered on “a revolution.”

The business model developed in St. Louis was replaced by a model shipped in from Sao Paulo, Brazil, home to AmBev, the InBev subsidiary that owns the Brazilian market. It has a jaw-dropping 70 percent market share there. By comparison, A-B has almost 48 percent of the U.S. market. AmBev also was the training ground for many of the company’s current leaders, including Brito and North American zone president Luiz Edmond, the seldom-heard-from top A-B InBev executive in St. Louis.

In another big change, A-B InBev judges its performance against firms such as Procter & Gamble and Unilever. The beer company sees its peers as companies selling soap and toothpaste. This year, A-B hired its new marketing chief from Wrigley, makers of chewing gum.

“As far as how we operate and who we look at, it is other consumer-products companies,” said Peacock, who spoke of the “phenomenal” changes that have taken place.

“It is a markedly different company,” Swartzberg said. “From a culture standpoint, I like what I’m seeing.”

The way A-B operates today is almost entirely InBev.

“There were two pre-existing cultures and ultimately one prevailed,” said David Wolfe, a marketing executive who left A-B after 19 years in 2010.


The new A-B was not for everybody.

Executives seemed to be fine with that, former workers said. Peacock said more attrition and hiring are part of the company now. Ideally, the best and brightest stay, the rest leave.

Some outsiders say it hasn’t always worked out that way. Bump Williams, a longtime industry analyst and A-B InBev investor, worries the company’s “slash and burn” actions have “run GREAT talent out of the company,” he wrote in an email. Not just people with marketing expertise, an admired part of the old A-B, but also workers with solid retailer and wholesaler relationships.

“That’s a big issue,” agreed Pirko. “The company is over the worst of it. But there are people still smarting from the change in style and management.”

Wolfe, for example, began his career at A-B straight out of college. He saw the brewer as “a place you could go to in St. Louis and end your career there.” The takeover by InBev was an exciting time, he said. The company suddenly had a global footprint and a new mission. But that came at a cost.

“I think the general feeling now is that there are opportunities for growth, but it’s not an end-of-career destination,” Wolfe said.

He left A-B last year to pursue a new dream, opening Urban Chestnut Brewing Co. in St. Louis with former A-B worker Florian Kuplent.

The former high-ranking A-B executive who spoke on the condition of anonymity said the new A-B bustles with a harsh kind of productivity. Executives operate on “Defcon 1” all the time these days.

“Quite frankly, that’s probably how a company should be run,” the former executive said.

Working for the old A-B felt more like a lifestyle than job, he said. At parties, people cornered him to find out what it was like to work at the brewery. That mystique and sense of pride has diminished, he said.

The new A-B is run by “very good financial engineers,” the executive said. They slashed costs. They ramped up cash flow, in part by vastly extending the time it takes to pay vendors and suppliers. The leadership, he said, seems to be forcing a choice between cutting costs and investing in people and brands. “They are squeezing that turnip as hard as you can squeeze it,” the executive said. And “that runs out of gas pretty fast.”


The lingering question is whether A-B InBev can not just cut costs but boost sales. This has long been a knock against InBev, which has grown through steady acquisition.

A-B InBev’s stock price skyrocketed after the A-B deal. But the price flattened in the last year. Speculation has bubbled that the company might buy SABMiller, the world’s second-largest brewer behind A-B InBev, which would launch a whole new search for ‘synergies.”

But in the U.S. market — A-B InBev’s largest — the company is selling less beer and losing market share. Yet earnings and profit margins have risen steadily with regular beer price increases.

Industry watchers say this cannot continue forever.

“I think if there’s a question that I’d like to see answered, it is, can this company really grow?” Pirko said. “And if so, how fast?”

Williams said he was alarmed by A-B InBev’s lack of concern about the drop in beer volumes. “They have yet to demonstrate to anyone that they know how to build brands,” he added.

A-B is trying to stabilize Budweiser sales in the U.S. and is searching for a new marketing direction for Bud Light.

Some of A-B’s struggles in the U.S. market have nothing to do with the company. Beer sales have suffered with high unemployment, especially among blue-collar workers, and a shift toward wine and liquor. And the rise of craft beer does not help a beer like Bud Light.

Swartzberg, the analyst with Stifel Nicolaus, said he felt A-B cut back too much on sales and marketing last year, cuts reversed this year.

Peacock disputed this, saying marketing spending has grown every year. He also said that having the resources of a global company — with profits streaming in from emerging markets such as Brazil and China — helped A-B weather the U.S. economic travails.

He noted the deal signed this year for Bud Light to be the official NFL beer, replacing Coors Light.

“I don’t know if the NFL happens without the global presence,” Peacock said.


Three years later, hard feelings about A-B’s new owners remain.

In a recent scene difficult to imagine when a Busch ran A-B, St. Louis Mayor Francis Slay was assailed for including Budweiser in a friendly wager with Philadelphia’s mayor over a baseball playoff between the Cardinals and Phillies.

The criticism came from a vocal minority online. They suggested the mayor consider a “true” St. Louis beer, such as Schlafly. But as one online commenter noted: “Civic boosters are beginning to forget how many St. Louisans AB still employs.”

A-B’s every action is scrutinized. Last year, critics jumped on the brewer for slashing its annual donation to Variety the Children’s Charity of St. Louis to $30,000 from $150,000. Yet, United Way of Greater St. Louis said last week that A-B and its workers contributed $3.2 million to the charity’s just-completed annual campaign, on par with previous years.

Rumors unimaginable back in 2007 take flight today: that A-B is getting rid of the Clydesdales (not true) or plans any moment to shutter the Grant’s Farm animal attraction (the brewer wants the National Park Service to take over, but will continue to run it for now).

The biggest fear is that A-B will pull up stakes, closing the headquarters and even the iconic brewery.

Williams, for one, thinks that is possible. The global headquarters has made a de facto move from Leuven, Belgium, to New York City. And that’s “where the action is,” he wrote. “This could be a PR nightmare, but so far I haven’t seen a real concern from InBev on how their image is perceived.”

Peacock dismissed the idea. He noted the millions invested in recent years at the St. Louis brewery. Starting early next year, all Beck’s beer sold in the U.S. will be brewed in St. Louis. The brewery is by far the company’s oldest, but it also produces the most beer. And the A-B headquarters is staying in St. Louis, Peacock said.

“This is going to be the North American zone,” he said.

Swartzberg agreed. A-B InBev, so focused on the bottom line, will keep its zone headquarters and brewery in St. Louis. If only to save money.