| STRATEGIC MANAGEMENT
AND BUSINESS POLICY –
ANHEUSER-BUSCH COMPANIES INC.
The extent and tempo of change in globally competitive
business environment is progressively changing
the rules of business management. As old rules
no longer apply [Mockler, 2002] businesses are
turning towards more integrative and strategic
approaches to management, continuously evaluating
and revising business policies and strategies
to maintain their competitiveness and to remain
successful. The paper presents a case study on
the strategic management and business policies
adopted by Anheuser-Busch Companies – the
parent company of the major U.S. brewer Anheuser-Busch,
Inc. in spearheading the company to a position
of advantage and market dominance.
While attempting to analyze the business performance
and the underlying strategic factors and policies,
it would be imperative to present a brief introduction
of the profile and major business operations of
the company.
Anheuser-Busch Companies -- Business Profile
Anheuser-Busch Cos. – called as BUD in short
– as mentioned above, is the holding/parent
company of the largest U.S. brewer, Anheuser-Busch,
Inc. (ABI), the brewing company established in
1875, Anheuser-Busch International, Inc. (ABII),
the division handling international operations,
and other subsidiaries that conduct various other
related business operations including can manufacturing,
metalized paper printing, barley malting and also
operates theme parks for entertainment. In a survey
of 10,000 business leaders and securities analysts,
Anheuser-Busch ranked first overall in quality
of products and services among nearly 600 companies
researched in FORTUNE magazine’s 2004 “America’s
Most Admired Companies” listing. Based in
St. Louis, the company presently employs over
23300 employees in the different divisions worldwide.
Anheuser-Busch promotes responsible drinking
and operates 12 breweries that are strategically
located across the U.S., to economically serve
the company’ distribution system. Anheuser-Busch,
Inc. (ABI) produces major beer brands including
Budweiser, Bud Dry, Bud Light, Bud Ice (Light),
Michelob, Michelob Amber Bock, Michelob Light,
Michelob Golden Draft (Light), Michelob Black
& Tan Lager, Michelob Honey Lager, Michelob
Hefe-Weizen, Michelob Marzen, Michelob Ultra,
Busch, Busch Light, Busch Ice, Natural Light,
Natural Ice, King Cobra, “Doc's” Hard
Lemon, American Red Tequiza and Bacardi Silver.
The company’s non-alcoholic malt beverages
include O’Doul’s and Busch NA. In
2003, the worldwide sales of the company’s
beer brands totaled 111.0 million barrels, an
increase of over 1.1% from 109.8 million barrels
in 2002. Domestic sales totaled 102.6 million
barrels in 2003 (up 0.8%), or approximately 50%
of U.S. industry sales.
Anheuser-Busch, International Inc. (ABII)–
the international division of BUD-- runs the sale
and marketing of Budweiser and other ABI brands
outside the U.S., resolves and administers license
and contract brewing agreements with the foreign
brewers on behalf of ABI, operates breweries in
the United Kingdom (U.K.) and China, and also
negotiates and manages equity investments in foreign
brewing partners. Apart from selling in the U.S.
territories, BUD’s beer products are sold
in more than 80 countries across the globe. In
2002, the international beer volume was 8.4 million
barrels, up 3.8% from 8.0 million barrels in 2002.
Presently, BUD holds 50.2% including direct as
well as indirect interest in Diblo, the subsidiary
of Modelo , Mexico’s largest beer manufacturer,
29% direct and indirect ownership interest in
the Argentinean subsidiary of Compania Cerveccias
Unidas S.A. (CCU ) the Chilean brewer and a 9.9%
equity interest in Tsingtao Brewery Company, Ltd.
In October 2002, BUD entered into an agreement
with Tsingtao to increase the company’s
ownership to 27% over the ensuing seven-year period.
As a part of the expansion strategy BUD agreed
to acquire a 29% stake in Harbin Brewery for HK$3.70
a share in May 2004. The ownerships stakes in
Tsingtao Brewery Company and Harbin Brewery is
expected to offer the company a major, prospective
exposure in China, the world’s largest beer
market.
BUD operates a number of subsidiaries essentially
involved in various beer-related operations that
are strategically chosen so as to shield the company
from intermittent rises in packaging and ingredient
costs. These operations include can- manufacturing,
metalized paper printing, and barley malting.
In 2003, BUD’s packaging operations contributed
8.7% of total net sales.
BUD’s subsidiary in Entertainment Sector,
Busch Entertainment Corp., operates nine theme
parks in the United States, including Sea World
parks in Florida, Texas and California; Busch
Gardens in Florida and Virginia; water parks in
Florida and Virginia; and an educational play
park in Pennsylvania; BUD also operates the Baseball
City Sports Complex in Florida. Through a Spanish
affiliate, BUD owns a 13.6% equity interest in
Port Aventura S.A., a theme park near Barcelona,
Spain. Busch Entertainment represented 6.5% of
total net sales in 2003.
Current Performance
With strong growth from all of its major operating
segments, Anheuser-Busch achieved record sales
and earnings for the first six months of 2004.
The consolidated net sales increased 6.2%, while
diluted earnings per share increased 13.6% during
the period. With the second quarter of 2004, the
company has achieved 23 consecutive quarters of
double-digit earnings per share growth and remains
confident in its ability to consistently achieve
its double-digit annual earnings per share growth
objective over the long-term, with earnings per
share growth target of 11.7% for 2004.
Worldwide Anheuser-Busch beer sales volume --including
domestic as well as international-- for the first
six months of 2004 rose 1.7%, to 56.6 million
barrels respectively, in comparison with the 2003
sales volume. For the first six months of 2004,
the company’s domestic market share, excluding
exports, was 49.8%, nearly equaling the 2003 market
share. The company has ascertained the domestic
market share based on estimated U.S. beer industry
sales using information provided by the
Beer Institute and the U.S. Department of Commerce.
In the first half of 2004 Anheuser-Busch Companies
achieved record gross sales of $8.6 billion (increase
of 5.7% over 2003 sales), and record net sales
of $7.5 billion (increase of 6.2% over 2003 sales).
The increases in the consolidated gross and net
sales are principally the result of 4.7% sales
increases for the domestic beer segment, due to
increased beer volume and higher revenue per barrel.
However the improved result also includes higher
sales for all the other business segments of the
company. International beer net sales increased
to around 15% due to volume growth in Canada,
China and the United Kingdom; packaging segment
recorded a net sales increase of 9% essentially
from sales volume increases of soft drink cans;
and entertainment net sales increased about 15%
due to higher attendance and admissions pricing.
[Edgar Online , 2004]
Anheuser-Busch Companies – Strategies and
Policies
The history of Anheuser-Busch may be said without
doubt, to be that of a remarkably successful business
organization, marked by innovation and vision.
Starting off as one among the 22 brewing companies
in St. Louis in 1875, the company has grown to
its current position of market dominance, holding
about 50% of the United States domestic market
share. This obviously has to be the result of
the management strategies and futuristic business
policies adopted by the management.
In this context it may be worthwhile to define
and differentiate a management strategy and business
policy. Strategy is defined as the direction and
scope of an organization over the long term: ideally,
which matches its resources to its changing environment,
and in particular its markets, customers or clients
so as to meet stakeholder expectations.”
[Johnson & Scholes, 1993, p10] where as, Business
Policy is “the study of the nature and process
of choice about the future of independent enterprises
by those responsible for decisions and their implementation.”
While strategic management may be a new concept
in management, a research of the Anheuser-Busch
management initiatives in solving the day-to-day
management and supply-chain issues as well as
eliminating obstacles to sustained growth, the
tactical approach to long-term objectives etc
reveal the strategic management principles and
policies adopted by the company to gain and maintain
the competitive edge of the company. A few of
these include
- The vertical integration of subsidiary business
units that help the company contain the price
increases in raw materials and packaging
- The decision to test waters in the international
markets for market expansion and value creation
- Support profit growth in the company’s
entertainment and packaging operations
- The integrated comprehensive, strategic, and
sustainable approach to water and energy issues
- Creating and developing leaders for tomorrow
using the ‘Shadow Committee’ program
- Strategic leadership in Environment –
BUD received 2003 Vision for America Award by
Keep America Beautiful stewardship, helping the
company gain a brand value
The Strategic Managers Of the Company
Managements today perceive effective and successful
leadership as the single most attributes to successful
if not the key to successful business operations.
The vision, mission and values of the leaders
are the driving factors of success. Successful
leaders are those whose understand their business
thoroughly and capable of guiding the business
through difficult and adverse external and internal
situations. Thus the modern concept of successful
leadership signifies the level of collaboration,
power sharing and empowerment that a leader extends
to the group. Appropriate decision making skills,
futuristic approach, envisioning ability etc are
other attributes of successful leadership. [Rogers,
1992.] These skills, as one can easily understand
depends on the exposure of the leadership to the
industry vagaries as well as the organizational
set-up established by the management. The leadership
building programs including the practice of adopting
shadow cabinet for identifying and developing
capable managers to assume leadership roles.
Apart from the different committees for routine
management and governance, the Company has a strategic
committee in place, which is comprised of the
company’s 17 most senior corporate officers
and managers who are responsible for setting the
company’s direction and objectives. The
members of the strategic committee report to Patrick
T. Stokes, the chief executive officer of Anheuser-Busch
Cos. Inc. The following presents a brief evaluation
of top executives of the company, leading the
strategic committee, who have guided the management
through the turbulent times of global competition.
Though a detailed evaluation of the other strategic
managers are not undertaken, it is noted that
he members of strategic committee, has held different
positions of influence and leadership, and has
proven abilities of vision and influence as well
as knowledge in leading the company to success.
- Patrick T. Stokes -Chairman of the Board and
Chief Executive Officer
Aged 61, Stokes has served as Vice President and
Group Executive of the Company from 1984 to July
2000.
Director since 2000, and was Senior Executive
Vice President of the Company from July 2000-June
2002
President and Chief Executive Officer of the Company
since July 2002.
- August A. Busch III- Chairman of the Board
Mr. Busch, 66, has been a director since 1963.
Chairman of the Board of the Company since 1977
President of the Company from 1974 to June 2002
and as Chief Executive Officer from 1975 to June
2002.
Also a director of Emerson Electric Co. and SBC
Communications Inc
Anheuser-Busch Companies – Strategic Development
While attempting to understand the strategic development
of a business organization it is imperative to
understand the external as well as the internal
environment—the strengths, weaknesses, opportunities
and threats associated with these systems that
would have influenced and shaped the appropriate
strategies and policies adopted or that are needed
to be adopted by the organization. The following
sections shall attempt to probe into these areas:
Anheuser-Busch Cos. -- External environment
A strategic analysis the company’s external
situation essentially involves analyzing the dominant
economic features of the brewing industry.[Thompson
& Strickland 2003] In terms of the domestic
market share and growth rate BUD has established
a position of dominance, achieved scale of economies,
standardized on technology and holds the advantage
of differentiated beer brands aimed at meeting
both high, middle as well as low end markets.
However, competition cannot be ruled out, though
the strengths of competitive forces --the rivalry
among competing sellers, the presence of attractive
substitutes, the potential for new entry, the
competitive pressures stemming from supplier-seller
collaboration and bargaining-- are presently not
substantial, particularly in the U.S. market.
The major competitors include Adolph Coors, Heineken
and Miller Brewing. While in the United States,
BUD has succeeded in influencing the industry’s
competitive rules in the company’s favor,
in many of the emerging international businesses,
appropriate strategies need to be devised to tackle
competition so as to gain a competitive edge.
Anheuser-Busch Cos. -- Internal environment
Analyzing the internal environment, strategically
involves assessing and evaluating the company
resources – human and capital assets and
the company’s competitiveness and capabilities.
This would also essentially involve evaluating
the current strategy from a qualitative as well
as quantitative standpoint. [Thompson & Strickland
2003]
The strong performance of BUD in comparison with
its competitors suggest that the company has a
effective strategy in place, which does not need
radical changes in its approach, but may be enhanced
to enhance the stockholder value.
A SWOT analysis of the company also reveal a highly
advantageous position for the company with strong
human and asset base, competent and highly experienced
management, strategic position of the brewing
units enabling sound distribution network, competitive
costs and pricing policies, differentiated products
to meet all market ends. The brand recognition
and the sound business practices followed by the
company place it at a dominant potion in the US
beer market, which may be strategically applied
to the companies’ expansion programs in
foreign markets.
Strategic Factors
The factors that needs to be considered in devising
appropriate strategies for retaining BUD’s
strategic advantage over its competitors in the
U.S, and also to gain significance in the international
and or global brewing industry include:
- Globalization of competition in the industry
- Impact of emerging e-commerce transactions
- Changes in the long-term industry growth rate
- Product innovation
- Entry or exit of major competitors
- Changes in cost and efficiency
- Changes in buyer composition
- Market positions of rival/competitive companies
- Changing societal and lifestyle factors
- Changing buyer preferences for standardized
versus differentiated products or services
- Regulatory influences and government policy
changes
- Uncertainties and business risk
- Competitors’ strategies
- Competitive capabilities of the company
[Thompson & Strickland 2003]
The Best Alternative Strategy
While the strategies and policies adopted by Anheuser-Busch
has aided the company to achieve a position of market
dominance, with a sound market share 50%, ‘the
degree to which Anheuser-Busch leaders can think
and plan globally while acting and responding locally
will be the determinant of their length of rule’.
[Edmunds, 2003] Since the current strategies followed
by the company have resulted in advanatageous and
strong overall performance, it is assessed that
no radical changes is required. What is needed is
perhaps a value enhancing strategy, rather than
an alternative strategy, to retain the market dominance
in the domestic market as well as extend the succesful
strategies adopted by the company to the emerging
markets such as China, Canada, Argentina/ Chile
and the European market to creat further value to
stockholders .
Tom Arnold and Richard L. Shockley, Jr. have
assessed the real options example of value creation
at Anheuser Busch, and observe that during the
three-year period 1996-1998, the company created
$11.5 billion in market value though the value
of BUD’s assets-in-place grew only slightly
in excess of invested capital representing low
growth in BUD’s existing market. The real
value creation was found in the company’s
generation of nearly $10 billion worth of growth
options. [Arnold & Shockley , n.d]
The company understands that investment in core
business is vital to the success of the firm and
in order to create growth, BUD would need to turn
to markets where beer demand is expected to increase,
viz. turn towards foreign capital investment.
While assessing the strategies, BUD seemingly
have decided to choose the strategy of entering
into small joint venture through low level equity
stakes to understand the market prior to undertaking
huge investment, so as to limit the downside risk.
Using the real options model for strategy evaluation,
Tom Arnold and Richard L. Shockley have in their
study quantified the factors that strategic value
of the decision and examined the volatility estimate
to confirm the “strategic value” of
the decision. However, they have observed that
while the test and trail program would create
a real option for growth, the small equity information
can only be seen as investments in information
that would help the management in taking informed
decisions in future foreign investment. [Arnold
& Shockley , n.d]
In this regard it is important to not that in
a global business environment marked by fast paced
changes brought about by information and communication
technologies, it would a highly conservative approach
to test the market for years to achieve real growth
options. While it may be have been possible for
the company in its investment strategies in Argentinean,
Chilean and other Western market between the period
1996 to 2002, it is possible that the company
is left behind in the cut-throat competition and
technologically advanced Chinese and other eastern
market. Strategies and policies that would enhance
the growth of the company in the foreign markets,
where the company has established equity/joint
venture relationships as well as other countries,
where the beer sales volume is expected to grow
in the coming years, needs to be implemented
Recommendations for Implementation and Control
Research on understanding alternate and/or value
enhancing strategies by global companies suggest
that managements may align their policies and
strategies to match with the following, [Mockler,
2002] so as to gain a strategic advantage in foreign
markets and to realize faster growth in
- The growing potential of e-commerce as a business
option – considering the low levels of investment
in building e-commerce enterprises, Anheuser-Busch
may be able to introduce the company’s brands
to whole salers and distributors world-wide. This
direct access to customers and retailers, would
help the company in product innovations.
- Inititaing the strategic decision to create
reward system for a foreign distributor also as
the company rewards the domestic distributor,
to exclusively sell the companies products as
well as other programs to build whole-saler loyalty.
While exclusive distribution may be a easy strategy
in domestic market, it may prove difficult in
other markets, though may be a viable option for
faster growth in markets that are not consolidated.
- The company may look at vertical integration
in foreign takeovers also so as to have the price
advantage.
- Cultural diversity between the management, company
staff and the foreign counterparts would be a
real issue for a U.S. investor in the East, particulalry
China. The company would need to provide extensive
diversity training to management and related employees
so that effective and beneficial business relationships
are established.
|