Sam Adams vs. Anheuser Busch

1. Background information

Sam Adams and Anheuser Busch are both brewing companies in the United States with mass appeal for their products. Sam Adams was established in 1984 in Boston, Massachusetts by three entrepreneurs namely, Jim Koch, Harry M. Rubin, and Lorenzo Lamadrid. The Sam Adams Company initially contracted the Pittsburgh Brewing Company for the brewing of its brands prior to the establishment of Sam Adams’ own brewing plant in Cincinnati making it the current largest American-owned brewery.

Anheuser Busch on the other hand was established as a company in 1860 by Eberhard Anheuser after he acquired a small brewery in St. Louis, Missouri (Fuhrmann 8). In 1880, the company was taken over by Adolphus Busch, an innovative brewer who used new methods to secure the popularity of Anheuser Busch brands (Roberto 12).

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Such methods include pasteurization of the beer to keep it fresh as well as the introduction of artificial refrigeration and refrigerated railroad cars to preserve the beer in addition to being the pioneer in the widespread bottling of beer making Anheuser Busch the largest brewer in the United States by 1957. In 1981, Anheuser-Busch International was established with the role of monitoring the parent company’s foreign beer processes and equity investments (Fuhrmann 17).

2. Performance of Sam Adams

In 2005, Sam Adams (NYSE: SAM) attained fourth quarter net revenue of $64.8 million, an increase of 16% over fourth quarter 2004. Net revenue rose up by 9.7% to $238.3 million in 2005 compared to the previous year (Roberto 7). There was also an increase in net revenue per barrel mainly because of price increases and a change in the package mix.

Advertising, promotional and selling expenses increased by $6.0 million, due to higher shipment fuel costs, selling costs and promotional investment supporting the brands (Fuhrmann 10). In 2006, fourth quarter net revenue was at $73.3 million due to an increase in shipment volume and a net revenue per barrel.

Net revenue rose by 20% to $285.4 million in 2006 relative to 2005 revenue. Gross margin for the fourth quarter 2006 dropped to 56.0% from 57.7% in the fourth quarter of 2005 because of rising supply chain costs perpetuated by the increase in beer demand and increase in package material costs (Roberto 8).

There was also an increase in net revenue per barrel due to package change costs. In 2007, the fourth quarter net revenue was $92.2 million which was perpetuated by an increase in core shipment volume. The 2008 fourth quarter net revenue grew by 13% with the net income being $3.6 million mostly motivated by the raise in costs of raw and packaging materials (Fuhrmann 11).

Other expenses included the new Pennsylvania Brewery which brought about start-up costs and the Latrobe Brewery asset impairment charge. The net revenue for the fourth quarter of 2008 increased by13% to $103.8 million, because of volume and pricing gains. 2009 saw the net revenue for the fourth quarter rise by $3.4 million to $107.2 million again mostly because of core volume gains. The net revenue of the year 2009 rose to $415.1 million a 4% increase (Fuhrmann 14).

3. Performance of Anheuser Busch

The performance of Anheuser Busch(NYSE: BUD) was lower than expected in 2005 with consolidated net sales increasing by a mere 0.7% for the whole year (Fuhrmann 11).

However, wholesaler sales to retailers rose by 0.8% due to enhanced beer volume and increased market share augmented by tactic sales promotions, improved packaging, new products and improved domestic market initiatives (Blake 8). Equity income increased by $94 million to $498.1 million, a 23% increase from the previous year and net income was $1.8 billion, a drop of $401 million.

2006 saw Anheuser Busch sell 102.3 million barrels of beer domestically and 22.7 million barrels internationally, an increase from 101.1 million and 20.8 million barrels respectively. Consequently, the gross sales rose to $17.9 billion a 4.1% increase from 2005(ABIB 2).

The net income for 2006 was therefore up to $1.9 billion from the previous year’s 1.8 billion (Blake 12). In 2007, the barrels of Anheuser Busch beer that were sold globally were 128.4 million, up from 125 million (Blake 15). Gross sales rose from $17.9 billion to $18.9 billon and thus the gross profit rose form $5.5 billion to $5.8 billion.

2008 was a heated year for Anheuser Busch after the Brazilian-Belgian brewing company InBev announced it would purchase the company for US$ 46 billion. On July 13, 2008, Anheuser-Busch and InBev announced that they had arrived at a neutral transaction deal and were waiting for the authorization from shareholders for InBev to acquire the company at $70 per share (Fuhrmann 15).

The eventual result was the emergence of Anheuser-Busch InBev Company after the completion of acquisition in November 18, 2008, the world’s largest brewer. Total barrels of Anheuser Busch InBev beer that were sold globally in 2008 were 285 million but the acquisition led the company to have a debt of 40.7 million Euros.

The merge however led an increase in the total revenue generated by Anheuser Busch from $23.5 billion to $39.1 billion combined (ABIB 4). In 2009, consolidated revenue rose by 2.5% while the consolidated cost of sales decreased by 3.4 % (Fuhrmann 18). This was mainly because of the global economic crisis where consumer spending was greatly reduced.

Consequently, operation expenses reduced by 2.5% since there was reduced consumption of beer in general and hence certain operational procedures and staff had to be reduced in order to remain profitable. Cash flow from operating activities increased from $5.5 billion to $9.1 billion in 2009 due to higher profits brought about by the 2008 acquisition as well as excellent capital management (ABIB 6).

4. Conclusion

When compared to other participants in the beverage industry, both Sam Adams and Anheuser Busch companies have performed in an outstanding trend. Sam Adams has managed to outperform most of its competitors and was driven by the U.S craft brewing movement. On the other hand, Anheuser Busch has been an international competitive company since 1981 coming close in rank to SABMiller the industry giant.

However, after the acquisition of Anheuser Busch and subsequent formation of Anheuser Busch InBev, the company, combined yearly sales rose to more than $35 billion, exceeding the sales performance of the current leading brewer worldwide which is London-based SABMiller.

It should be noted that after the takeover of Anheuser Busch’s by InBev on November 18, 2008, Sam Adams became the largest American-owned brewery in the US and this is because Anheuser Busch InBev is currently half South American owned.

Though Anheuser Busch InBev has mainly targeted the international market, recent developments have led the company to concentrate on the American market. Unlike Anheuser Busch, Sam Adams targeted the American market from the start and only partially ventured into the international market. Consequently it has been able to retain a large market share in the U.S when compared to Anheuser Busch.

Works Cited

Anheuser-Busch InBev (ABIB). Press Release: Anheuser-Busch InBev Obtains 17.2 Billion USD in Banking Finance. 26 February 2010. 18 April 2010.http://www.ab-inbev.com/press_releases/hugin_pdf%5C347491.pdf

Blake, Robert. Anheuser-Busch. 10 August 2007. 18 April 2010.
http://www.docstoc.com/docs/11386171/Anheuser-Busch-Financial-Statements/

Fuhrmann, Ryan. Sam Adams Brewing Growth in the U.S. 11 March 2010. 18 April 2010.
http://stocks.investopedia.com/stock-analysis/2010/Sam-Adams-Brewing-Growth-In-The-U.S.-SAM-BUD-FO-HOOK-SBMRY0311.aspx

Roberto, Michael. Anheuser Busch and Sam Adams. 27 May 2008.18 April 2010.
http://michael-roberto.blogspot.com/2008/05/anheuser-busch-and-sam-adams.html.

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