AB InBev Enlists Madonna, Pussycat Doll Amid Marketing Splurge

March 26, 2010, 4:28 AM EDT

March 26 (Bloomberg) -- Anheuser-Busch InBev NV hosted Madonna and Pussycat Doll Nicole Scherzinger in its Brahma Box and plastered Rio de Janeiro’s streets with billboards during last month’s Carnival as part of an advertising blitz.

Better known for its cost-cutting culture, the maker of Budweiser and Stella Artois kept marketing spending as a percentage of sales near 2008 levels last year, while SABMiller Plc and Heineken NV cut back.

Chief Executive Officer Carlos Brito, who flies economy class, boosted advertising spending by 20 percent to $1.4 billion in the final quarter of last year alone. That increase came at the expense of profit, with the Belgian company missing analysts’ earnings estimates by about 7 percent.

“There has never been any doubt that Brito and his team are the best cost-cutters in the industry, the question was whether they could simultaneously build brands,” said Matthew Jordan, head of research at Matrix Corporate Capital LLP in London. The increased marketing “puts AB InBev at the vanguard of the industry’s race to rebuild advertising and promotions.”

Brazilian-born Brito, CEO of InBev NV since 2005 and formerly head of Cia de Bebidas das Americas, or AmBev, oversees a management team with a zero-based budgeting approach -- where every expense must be justified each year. After paying down or refinancing debt from 2008’s $52 billion purchase of Anheuser- Busch Cos Inc., the world’s largest brewer is giving all its attention to growth from its existing brands for the first time.

Building Brands

AB InBev will invest in its main brands “come hell or high water,” Chief Marketing Officer Chris Burggraeve said in an interview from New York.

“Our company is often seen in one way, but this is a story of ‘and’ and not ‘or’ when it comes to operating efficiently and building brands,” he said.

With few options for transformational beer mergers, and an ongoing arbitration with Grupo Modelo SAB standing in the way of AB InBev buying the 50 percent of the Mexican brewer it doesn’t own, the company is using marketing to drive growth.

AB InBev shares have risen 4.3 percent this year, trailing Carlsberg A/S’s 20 percent gain, Heineken’s 16 percent jump and SABMiller’s 7.2 percent climb. They more than doubled in 2009.

Budweiser Select 55

In the second half of 2009, AB InBev released Bud Light Golden Wheat and Budweiser Select 55 in the U.S., and new varieties of its Antarctica and Bohemia brands in Brazil to attract new consumers. In the U.K., a new Budweiser campaign was supported by billboards, TV commercials, and print advertisements, while on-pack promotions focused on the brand’s sponsorship of soccer’s World Cup in South Africa.

“The fact that against a backdrop of media deflation, AB InBev have increased spend shows they’re playing things for the long-term,” said UBS’s Earlam. “It’s what you want to see.”

Investing more in advertising its brands will not only spur volume sales this year, it will give AB InBev greater power to increase prices in the future, Burggraeve said.

“Brand health today is price-premium potential tomorrow,” said the executive, who worked at Coca-Cola Co. and Procter & Gamble Co. prior to joining AB InBev in 2007.

Simulated Striptease

AB InBev trails Heineken in terms of price per hectoliter of beer sold with the Belgian brewer generating about $92 per hectolitre this year, compared with 123 euros ($164) per hectolitre sold at Heineken, according to the analyst survey.

“In the past AB InBev may have been more concerned with volume share than value share in markets,” said Evolution Securities Ltd. analyst Andrew Holland, who has a “buy” rating on the shares. “Big, dominant positions, like they have in Brazil, will make it easier to get prices up.”

The company’s sales growth will be amplified when it begins to sell Budweiser into Latin American markets and sells more Stella Artois and Beck’s in the U.S. through Anheuser distributors. The brewer is evaluating which markets are the most suitable for Budweiser, though is in “no hurry,” Chief Financial Officer Felipe Dutra has said.

In Brazil, AB InBev called on Madonna and Scherzinger to help promote its brands when its main rival in the country got Paris Hilton to simulate a striptease on TV.

The singers joined local celebrities in the Brahma Box during last month’s five-day Rio Carnival as Primo Schincariol Industria de Cervejas e Refrigerantes SA aired commercials with Hilton fondling a can of Devassa at the window of her apartment.

New Campaigns

While the sales impact of new campaigns in Brazil was immediate, a return on the sudden increase in spending in more depressed markets or on previously neglected brands will take longer, said Matrix’s Jordan.

“If the brands were in poor health, it will take some time, perhaps even a few years, of heavy advertising for them to catch up with competing brands,” Jordan said.

In the U.K., outspending every other lager brand last year has already paid off for AB InBev: billboards designed by James Bond poster artist Robert McGinnis spurred market share gains for Stella Artois, reversing five years of retreating share in the 18 billion-pound ($27 billion) market.

SABMiller has cut sales and marketing expenditure in Latin America from around 11 percent of sales in the prior two years, when it invested in revamping the Bavaria brand in Colombia, to between 7 percent and 8 percent.

Most Valuable Brands

“Our approach is primarily about optimizing return on marketing investment,” said SABMiller’s brand communications director Charlie Hiscocks. “Expensive marketing does not necessarily equal effective marketing,” he said, also noting that the cost of advertising has fallen.

Heineken’s marketing spend was 11.3 percent of sales last year, down from 11.7 percent in 2008. “We haven’t launched many new propositions,” said spokeswoman Veronique Schyns.

AB InBev now controls the world’s most valuable beer brands in Budweiser and Bud Light, which explains the shift in its attitude towards marketing, according to Royal Bank of Scotland Group Plc analyst Jonathan Cook.

“InBev recognize that the branding side wasn’t necessarily their utmost priority, and they’ve got such an opportunity with Budweiser that that had to change,” said Cook, an analyst at in London with a “hold” rating on the shares. “They are showing they’re much more than just an acquisition machine.”

--Editors: Paul Jarvis, Heather Harris