AB InvBev's Anheuser-Busch unit will invest close to $500 million in its U.S. operations in 2017, and $2 billion through 2020, which is among the largest-ever capital investment programs in U.S. brewing history, the company said in a statement. This announcement begins the next phase in a period of ongoing investment by Anheuser-Busch, which started in 2011. At the end, total investments are expected to total $4.5 billion.
The expenditure program will help drive the company’s growth strategy beyond beer into other drinks through new and innovative collaborations such as its partnership with Starbucks' Teavana to sell ready-to-drink teas and the development of an in-home alcohol drink system with Keurig Green Mountain. “These investments are a huge vote of confidence in our business plan strategy, our people and the future of American brewing," João Castro Neves, president and CEO of Anheuser-Busch, told reporters.
Investments include more than $200 million for brewery and distribution projects, $180 million for product packaging and innovation initiatives and $58 million to improve and increase sustainability at its facilities.
The spending by Anheuser-Busch, touted by the company as among the largest capital expenditures in U.S. brewing history, reflects an investment in American beer. It comes as the global industry is now largely consolidated among a few major players.
Companies need to make routine investments in their operations all the time, both to modernize equipment and facilities, and increase their competitiveness with other companies who are taking similar steps. This $2 billion commitment by the AB InBev unit in its 21 breweries likely checks these boxes.
During a call with reporters Monday morning, Neves said the funding will help maintain and strengthen the quality of core brands such as Budweiser and Bud Light through improvements, including beechwood-aging tanks and new distribution facilities to get products to market faster. The expansion of some operations also reflects Anheuser-Busch's increased complexities with a larger roster of brands.
The company also is investing more in its import beer business and its craft partnerships to help those operations grow. Those portfolio expansion efforts are crucial. Research firm Euromonitor estimates overall U.S. beer consumption will decline through 2019, but that of ale — which includes the most popular craft beer styles such as India Pale Ale and pale ale — is expected to increase at a compound annual growth rate of 8%, USA Today reported last March.
"The market continues to be very competitive and much more fragmented," Neves said of the beer industry. When that happens, "there is much more complexity that comes, not just within the breweries, but in the distribution centers. (This investment) is in response to that."
The American beer market has effectively turned into a duopoly where Molson Coors and AB InBev control about 90% of the beverage’s production in the U.S. today. Still, large manufacturers of the popular alcoholic beverage can't let up, with ongoing challenges from popular craft breweries and imported Mexican beers. With Hispanics making up a growing percentage of the U.S. population, it's not a surprise that of the 10 fastest growing beers in the United States, four are Mexican imports.
Miller Coors and AB InBev are taking time to integrate their recent deals before considering whether to make another acquisition. Pete Coors, vice chairman of Molson Coors, said at the Beverage Forum in April he expected more mergers, but noted there are only a few remaining players left that could combine. "At some point down the road ... I have no doubt there will be additional consolidation globally," Coors said.
It remains to be seen when the next wave of mergers take place, but when they do, it will leave even fewer independent companies left to compete. For beer companies, the ability to squeeze out savings from mergers is dwindling, leaving them to depend more on improving efficiencies internally and rolling out new products.
Among its investments, Anheuser-Busch will be spending $82 million to enhance nationwide supply chain operations and to build new state-of-the-art distribution facilities in Los Angeles and Columbus, OH. It will also spend $18 million at its Williamsburg, VA brewery for new technology and equipment to maintain quality, including installation of new labeling machines.
Each of these investments is unlikely to move the needle by itself, but together they set the groundwork for helping Anheuser-Busch, best known for Budweiser and Bud Light, to compete in the years ahead.