Budweiser Tries to Make Beer Stocks Fashionable Again

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AB InBev chief executive Michelle Doucheris looks to entice shareholders back down the alcohol aisle

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This is the first time that AB InBev has set such a target and shows that the new top management believes in the profit growth needed to clear the company’s huge debt.

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One of the hardest parts of Mr. Doukeris’ job will be undoing the notion that beer is running out of alcohol. This assumption is true in North America, where AB InBev still generates more than a third of the group’s sales and operating profit. Beverage companies leaning toward alcohol brands like Diageo,

There has been a boom in home-cocktail making. According to Euromonitor, the share of beer in US alcohol sales was 43% in 2020, up from 50% in 2006. The share of alcohol has increased from 31% to 39% in the same period.

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However, the share of beer in the worldwide alcohol market has remained stagnant at around 43% for the past 15 years. To fuel growth, AB InBev will also continue to grow premium beer brands, such as Michelob Ultra, which already generate 30% of total revenue. High-end beers are booming in markets as diverse as the US, Brazil and China, where the company expects the number of middle-class households to more than quadruple by the end of the decade. In low-income countries, the brewer will offer cheaper products to try to convert drinkers from home wine to branded beer.

AB InBev also announced a surprise push in the name of biotech. Instead of giving the malted barley byproducts of the brewing process, it will turn them into plant-based proteins that can be sold to the food and beverage industry. This nascent business is expected to generate an additional $20 million in revenue next year. It won’t move the needle past about $57 billion in expected sales, but it could juice up growth over time.

Investors have developed a clear preference for hard liquor during the pandemic. Shares of global wine companies Diageo and Pernod Ricard have both risen nearly 40% since the Covid-19 crisis began, while winemakers AB InBev and Heineken are roughly flat. Based on multiples of Ebitda’s enterprise value, the two liquor stocks trade at a 76 percent premium to the two beer names—the highest since 2008.

There are early signs that taste may be changing: AB InBev’s sales growth has improved dramatically in recent quarters, and its shares are up nearly 4% on Monday. But consumer trends in the beverage industry usually take years to appear. Investors may continue to be more interested in the liquor cabinet.

Carol Ryan [email protected] . Feather

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