CEO’s need to be comfortable with some level of diversification to keep their companies relevant over the long-term. Long-time Anheuser-Busch InBev (ticker: BUD) CEO Carlos Brito was not afraid of big acquisitions. However, his most notable large acquisitions (Anheuser-Busch and SABMiller) failed to add new beverage categories to the tired product portfolio while weighting it down with more of the same dull products (mainstream beer). Did BUD’s Board voice concerns about the company’s growth strategy to Brito?
We ran a case in business school on InBev’s acquisition of Anheuser-Busch (AB) – a deal championed by Brito. Brito was touted by the business press of the day for his cost-cutting prowess (you can’t cut your way to prosperity). What seemed obvious to anyone paying attention was that Brito was putting two tired giants together in the hope that the deal would create a synergistic brew that would accelerate revenue and profit growth. Consumers at that time were voting with their feet as craft brew sales took off in the mid-to-late 1990’s while mainstream beer products lagged.
Missed trends. InBev missed the craft brew trend of the mid-1990’s and its successor AB InBev (BUD) missed it again 20 years later. BUD also missed the bottled water and flavored water trends, the coffee trend, the energy drink trend, the vodka and flavored vodka trends, the hard cider trend… there’s a pattern here. We are not suggesting that Brito ought to have diversified into unrelated businesses as former Coca-Cola (ticker: KO) CEO Roberto Goizueta did with movie studios or the way Jack Welch operated General Electric (ticker: GE) as a diversified holding company. However, shareholders should have the expectation that CEO’s diversify into adjacent businesses when it makes sense to do so. As a result of missing these significant trends in the beverage industry BUD’s organic revenue has under-performed for years.
Who was focused on BUD’s top line? Did Brito’s direct reports pitch M&A ideas to him outside of mainstream beer? Did all revenue idea generation start and end with Brito? Were Brito’s direct reports empowered to pursue M&A ideas? Has BUD’s Board asked any of these questions or were they passive, uninterested observers?