• Anheuser-Busch


Brewing Up Trouble: My Reflections on the Anheuser-Busch InBev-SAB Miller Merger

Today is a special day. Twenty years ago, I was suiting up for my wedding, and one of the fun things my bride and I did was follow Charlie Papazian’s advice (“Relax, have a home brew!”) and brew our own beer for the wedding reception – I think it was a Märzen. Flash forward to today and we’re taking a long weekend up to Vermont to return to these roots. We’ll be hunting for IPAs at microbreweries by the name of Alchemist, Lawson’s Finest Liquids, Hill Farmstead, Rock Art and Prohibition Pig. For those in the know, you know why I’m so psyched. And doing it with my best friend is even better.

Anyway, I saw the recent news of the proposed merger of Anheuser-Busch InBev and SAB Miller, and it made me think about procurement. (Shocker, I know.) For simplicity's sake, I’ll just call the combined company “MegaBrew.” At a combined market capitalization of $245 billion, this merger would be the world’s largest merger ever and would combine the top-2 brewers in the world.

You might think, “Monopoly!” And after my multipost series (see here, here, here, here and here) on the proposed merger of Staples and Office Depot, you might think I would be crying foul. But, my response is, “Meh.” Yes, the combined entity might have a little more buying power with media networks, packaging suppliers, logistics providers and so forth, but really, the customers could care less. The Staples deal has a much more pronounced impact on B2B procurement – even if it’ll turn out to be a nuisance more than anything else.

MegaBrew is about using mega scale to drive incremental cost savings and create shareholder value. It would be the Wal-Mart of beer brand holding companies – the promise of low price for a quality product, in the eyes and tastebuds of the mass consumer. It is not about innovation. Yes, beverage firms are hotbeds of supplier innovation: nitrogen cans for Guinness, aluminum bottles that don’t break (and that warm your beer quickly to encourage you to buy another cold one), personalized cans with other people’s names and so on.  

Does this mega aggregation and cost take-out, with some dabbling in supplier innovation, sound familiar? It’s a lot like procurement. And as you might expect, MegaBrew would be a finely tuned machine. SAB Miller has an amazing supply chain, and you won’t find a more badass procurement shop than AB InBev.

Speaking of badass, check out this MIT video interview of Tony Milikin, chief procurement officer at Anheuser-Busch.

I first met Tony during his days at MeadWestvaco, and he’s done very well. I think he’ll be an ISM Shipman winner within a decade – if not much sooner. He is really “fit for purpose” for maximizing cash flow returns, as evidenced by the firm’s sophistication in:

  • E-sourcing execution: 31,000 auctions representing over $5 billion spend puts AB InBev in top-5 territory of practitioner firms
  • Use of zero-based budgeting in spend management, but as a corporate philosophy, going back to private equity management approach from its past. (See more on ZBB in procurement.)
  • Price forecasting and smart hedging strategies. Using a “crowd of mathematicians” was an interesting comment.
  • Buy-sell arrangements (e.g., buying fertilizer on behalf of farmers)
  • Supply risk management, including IP protection. AB InBev provides seeds to farmers that have genetic markers that can trace their product so that it’s not used in competitor products – and to help improve product quality. Yes, what this means is that your US beer is genetically modified. Is GMO a big deal? I don’t know – your choice. If you live in Europe, though, you’re OK due to regulations. (A little trivia: Michelob complies with Reinheitsgebot, but Michelob Ultra’s main ingredient is rice. Budweiser also has a lot of rice in it, so for all you Harley guys scoffing at “rice burner” race bikes, make sure to enjoy your Budweiser rice beer. But, if you like pilsners, there are many to choose from here that don’t have rice. Barley-only beers include: Becks, Kirin and Spaten.)
  • Tax-efficient supply chain strategies (i.e., maximizing profits in tax-advantaged countries)
  • Joint venture with PepsiCo to aggregate US buying volumes for indirect spend
  • Supply chain finance, which works well to fund early payment discounts that suppliers will choose over 120-day payment terms

Anyway, you get the picture. Don’t get me wrong – this is not bad but rather a finely honed cash generating machine to the tune of $14 billion in annual positive cash flow from operations. Let that number sink into your head. Heady numbers indeed.

But speaking of heady, I’m going to leave you and head up to the land of Heady Topper. I like my products localized whenever possible, and as supply chains become “glocalized,” the mega supply chains will need to follow suit, and procurement will need to focus on how to not just enable a mass customization of the physical supply chain, but also its own procurement services value chain.

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