To understand how Anheuser-Busch InBev (AB InBev) ended up as the most powerful beer company in the world, you need to go back to the 1970s — a heady time when marketing departments ruled beer companies.
Back then, if you did right by the marketing wonks, you could conquer the globe or whatever parts of it you wanted. Anheuser-Busch’s CEO at the time, August Busch III, was living proof of that.
After wresting control of Anheuser-Busch from his father in 1975, he poured billions into an exquisitely executed advertising campaign that transformed the mediocre beer that is Budweiser into the King of Beers.
Its market share tripled, as August III (known deferentially as "The Third") created an iconic brand that boasted almost 50% of the most valuable beer market in the world — the US — by the late 1990s.
Beer became the quintessential American drink and as recently as 2010 Budweiser was ranked the 16th most valuable brand in the world, ahead of McDonald’s, Disney and Apple.
By then, of course, Anheuser-Busch had been taken over. InBev had nailed down its US$53bn takeover in 2008, breaching the defences of what many believed was an impregnable institution.
What "The Third" had failed to understand was that, by the 1990s, the financial wonks had seized power from the marketers. By then, having a reasonably good quality beer with an attractive storyline was taken for granted; if you wanted global dominance, you needed the finance guys on your side. Without that, you were prey for hungrier firms who knew exactly how to wring every cent from the balance sheet.
And they don’t come hungrier than Jorge Paulo Lemann, the 77-year-old Harvard-trained Brazilian who had built up the private equity empire of 3G Capital. (Lemann’s storied life includes, implausibly, a stint as a journalist as well as a champion tennis career that included playing at Wimbledon.)
That it involved beer was almost incidental to Lemann’s 30-year odyssey from little known Brazilian businessman to multibillionaire genius behind the phenomenal growth of what is now AB InBev. The truth is, if he’d put his mind to baked beans or soda he probably would have been just as successful.
In The Beer Monopoly, Ina Verstl and Ernst Faltermeier add a crucial but little-mentioned detail to Lemann’s often quoted comment made in the early stages of his career.
"I was looking at Latin America and who was the richest guy in Venezuela: a brewer. The richest guy in Colombia: a brewer. The richest in Argentina: a brewer," said Lemann.
The rest of that statement, say Verstl and Faltermeier, is probably more significant. "These guys couldn’t all be geniuses. It’s the business that must be good," added teetotaller Lemann.
So he set out to build the Coca-Cola of beer, "a brewing company to dominate the world, by taking over stable focused businesses with high margins and market shares", says the book.
What "The Third" also got staggeringly wrong was his unshakeable conviction that being the dominant player (by far) in the most profitable beer market in the world was enough to secure Anheuser-Busch’s number one status forever.
Perhaps he’d imbibed too much of Budweiser’s advertising Kool-Aid, which told over and over the story of US "exceptionalism", and how his company had to play a role in the industry’s global consolidation. As the millennium dawned, "The Third" refused to see the writing on the wall.
As a result, Anheuser-Busch’s discussions with most of the major global beer groups (including SAB) were perfunctory and abandoned before any progress was made. Apart from the purchase of 50% of Grupo Modelo in Mexico, the company’s only outward venture was the establishment of breweries in China.
Meanwhile backed by increasingly enthusiastic funders, Lemann and his lieutenants were buying their way to the top of the rankings. From 10th position in 1987, Brazil’s Brahma (the launch vehicle used by Lemann) edged up to eighth, just behind SAB, in 1990 — far behind Anheuser-Busch.
In 2000, the US giant was still number one but AmBev (Brahma plus Antarctica) was now number three behind Heineken. SAB, on a march of its own, wasn’t far behind either, in fifth place.
By 2015 the rankings had changed dramatically. In 2004 AmBev had "merged" with Belgium’s Interbrew to create InBev — a deal that gave Lemann’s Brazilian team control of the merged entity. Interbrew’s controlling shareholders were far too impressed with Lemann to allow them to be overshadowed by the Belgian team.
From here, a move on SABMiller was inevitable. From then on, the job of SABMiller’s top executives was to secure the best exit price possible.
What it means: Anheuser-Busch’s complacency facilitated Jorge Paulo Lemann’s march on the global beer market.