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It's been 25 years since Budweiser sales peaked in the U.S., and it's been a long, steady slide ever since. In 2012, sales were down by more than 66% off that high point and are continuing to tumble.
The King of Beers was overtaken by Anheuser-Busch InBev's (NYSE: BUD ) Bud Light as America's best-selling bottle of suds nearly 20 years ago. It was leapfrogged in 2011 by Molson Coors' (NYSE: TAP ) flagship Coors Light to lose even its second-place rank in U.S. sales.
Americans have been gaining a taste for craft beer, fueling the growth of smaller labels here, including Boston Beer (NYSE: SAM ) and Craft Brew Alliance (NASDAQ: BREW ) , both of which reported good numbers last month that whet investors' appetites.
A-B InBev has not really had an answer to stopping Bud's hemorrhaging sales in the states. Tinkering with ingredients like hops in an effort to save money probably didn't help, given the shifting preference to more flavorful beers, not less.
Internationally, however, Budweiser's appeal is growing, and fast. It's also pumping more money into growing Bud in markets like China, Russia, and Brazil. Can A-B InBev pull off a coup overseas while the King continues losing appeal here?
The King sells well in China
It's looking good so far. Global sales of Bud were up 8.1% in the most recent quarter, and 7.5% year to date. Beer consumption has been growing at a healthy clip in China, up more than 30% between 2007 and 2009.
A-B InBev is capitalizing on that growth, beating the overall market. Three labels -- Budweiser, Harbin and Sedrin -- which make up nearly three-quarters of of A-B InBev's sales in the Middle Kingdom, saw volumes up nearly 15% so far in 2013.
Things have not been so rosy in Brazil, another key market for Bud's growth. A-B InBev's volumes down 5% in the last quarter, and management says that was due to the weak economy and a shortage of disposable income. But A-B's fared worse than the overall market, which saw a 4.3% drop in beer volumes.
AmBev (NYSE: ABEV ) , the A-B InBev-controlled South American brewer that controls about two-thirds of the Brazilian market, has also struggled in selling popular South American beers like Brahma and Skol as the weak economy persists. In 2011 and 2012, AmBev maintained mostly flat volumes in Brazil. But in early 2013, it posted its worst quarter on record, with beer volumes down as much as 8%.
Still, A-B CEO Carlos Brito remains optimistic about Brazil, saying, "we remain confident in the medium- to long-term growth potential of the Brazilian beer market." It is banking on a bump in the second half of 2014 from the FIFA World Cup, an event Brito says will provide "lots of new beer drinking occasions." He says A-B is "locked and loaded."
Right up A-B's alley
Aside from increasing its overall revenue and earnings, there's another reason why growth of Bud in these countries is important to A-B. Here in the U.S., A-B has been forced to compete in categories outside its comfort zone -- mostly craft-style beer and now cider. Brito and company are experts in cost-cutting and efficiency -- in squeezing every last cent possible from a barrel of beer to boost earnings and expand margins. Old standards like Bud, Beck's, and Stella Artois are perfect for that work.
But the fast-growing U.S. craft segment is all about experimentation and adventure. Brewers build bold flavor profiles with costly ingredients and techniques. See Boston Beer's new Samuel Adams Juniper IPA or the Widmer Brothers bourbon-barrel-aged ales and barleywines being brewed by Craft Brew Alliance.
So, while A-B and MillerCoors -- the U.S. partnership between Molson Coors and SABMiller -- have had success with their craft-style brands, they've had to venture far from their wheelhouses to do so.
Foolish bottom line
Growth of the Bud label in China is especially encouraging for A-B InBev as it looks to cancel out continued losses in U.S. market share with increasing sales of its flagship brands in emerging economies overseas. Growing big brands and finding efficiencies in their production is what A-B does best. Investors will want to keep an eye on the international numbers, particularly those out of China and Brazil, to see if A-B can keep the global growth engine running.
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