E-Malt.com News article: USA: Anheuser-Busch offers retail discounts to boost sales

Anheuser-Busch Inc. plans to offer retail discounts on several Budweiser products in California beginning next month, with the purpose to boost lagging beer sales volume, according to an analyst's report.

The so-called "scanbacks" will act like coupons. Retailers will receive $1 per 18-pack and $2 per 30-pack of beer they sell. The brewery will cover the costs so that retailers can sell the beer at a lower price with the hope of driving up sales volume, according to American City Business Journals.

Shipments from the brewery to wholesalers were down 2.7 % for the first quarter of 2005 compared to the same period last year. Shipments from wholesalers to retailers were down about 1 percent in the first quarter. Overall weakness in the beer industry combined with stepped-up competition from rival SABMiller have cut into sales.

"A-B's evident intention is to regain lost share on the view that short-term pain is outweighed by potential long-term gain," wrote Mark Swartzberg, a beverage industry analyst with New York-based Legg Mason Wood Walker, in an April 19 research report. "A-B's tactic may indeed help reverse it and the category's worsening volume growth, but we believe the net effect may lead to an even greater-than-expected worsening of category profits."

California is the country's largest beer market, accounting for about 11 percent of beer consumption. The 8 percent to 11 percent price discounts there will be significant, and similar promotions are also planned for Florida and potentially other states, Swartzberg said.

"California and Florida are very big markets, so it's a big deal," said Christopher Growe, an analyst with A.G. Edwards & Sons Inc. in St. Louis. "I don't believe it's good for the business to do, and I thought they were aware of that. We're seeing targeted promotions, which shows they are at least trying to be smart about it. But even with other promotions, volume has seen little or no improvement thus far."

Similar promotions and discounts are prevalent in other markets already, Growe said. Anheuser-Busch has launched Budweiser Select, as well as a new Bacardi malt beverage flavor, new packaging, and other products and initiatives in recent months to promote sales and reinvigorate the Budweiser brand, especially in light of the increasing popularity of wine and spirits.

But analysts have been cautious to pessimistic about the impact such marketing will have on sales.

"It should help over time, but it's going to be a pretty slow road," said Growe, who does not recommend the stock. He estimates shipments to wholesalers will be slightly down for the year while shipments to retailers will be up about 1 percent.

Anheuser-Busch Cos. Inc. stock hit a 52-week low of $45.65 a share April 6 after the company predicted lower-than-expected results for the first quarter. The stock reached another 52-week low April 20 before closing at $45.10 a share.

Swartzberg, who has a Sell recommendation for Anheuser-Busch stock, maintains a cautious outlook on the brewery's latest plan to turn things around.

"Initiation of scanbacks is a slippery slope," he wrote, "and strongly suggests erosion of a favorable pricing environment."


27 April, 2005