AB InBev's Business Model
Overview
Anheuser-Busch InBev, also known as AB InBev, is the largest beer producer in the world, selling about 1 in every 3 beers drank worldwide. In terms of total volume, the company sold 595,133,000 hectoliters of beer in 2022. In case you are not familiar with how much beer is in a hectoliter, here are some comparisons:
595,133,000 hectoliters is 2,012,384,077,000 ounces.
Which is enough to make 168 billion cans of beer.
Which equals 21 cans of beer for every human on earth.
Another comparison is that AB InBev could fill over 1 million standard swimming pools with beer every year.
Now that we know the company makes a ton of beer, we can probably guess how they make revenue.
As a global enterprise the company’s revenue is distributed around the world but still heavily focused in the Americas. The company makes about $60 billion in annual revenue which comes out to about $7 per person in the world every year.
The company’s revenue is dependent on how much beer they sell (volume) and how much they sell the beer for (price per unit).
As we described earlier, AB InBev produces about 168 million cans of beer. The next question is how much do they sell it for? The answer depends on which country they sell it in:
On average, the company makes about 34 cents per can/bottle of beer it sells. The company has over 600 brands of beer so this an average of all beers, whether it cost 10 cents of $3 per can.
Now we have seen how the company makes money, how about its costs?
AB InBev’s main expense is its cost of sales - aka the costs it takes to make the beer including ingredients and brewing equipment.
Let’s take a look at the other expenses:
Distribution - transportation costs to deliver beer to warehouses or directly to retailers.
Sales and marketing - advertising spend and salaries for marketing employees.
General and administrative - employee salaries for corporate functions such as human resources, accounting, and management.
Notice that the company’s cost of sales has increased over the past six years which is the main driver as to why the company’s operating profit margin has dropped from ~31% to 25%.
To offset increasing costs, the company has reduced sales and marketing spend as a percentage of revenue resulting in an extra 300 basis points of operating margin.
Overall, the company remains incredibly profitable. In fact, AB InBev has recorded higher operating profits than Amazon in four of the past six years.
If you are a shareholder you probably want to know how the company is spending their profits?
Unfortunately shareholders are not seeing all of the profits. As part of the AB InBev’s buying spree acquiring its competitors, they racked up quite the debt burden. Over the past six years the company has been spending the majority of its profits on reducing the amount of debt they carry on the balance sheet while also maintaining an annual dividend.
As the company winds down its debt position (they still have $80 billion on the books), the company will have some choices to make in terms of capital allocation.
How should the company allocate its profits between investing it back into the business, acquiring brands to increase market share, and returning it to shareholders?
These decisions are looming for the company. For know, they remain the king of beers.