Why Bud Light’s Transgender Campaign Isn’t Resonating with US Conservatives
Bud Light, the popular beer brand, is in hot water with US conservatives over a recent marketing campaign that featured a transgender influencer. The controversy has led to a significant drop in sales, with Bud Light losing 24.3% year over year. Furthermore, AB InBev, the parent company behind Bud Light, has lost a fifth of its value since the campaign began in April. This trend is ironic as AB InBev wanted to expand its appeal to the LGBT+ community and millennials, who are drinking less beer than traditional customers.
Beer Consumption in the United States is Declining
The beer industry in the United States is facing several challenges, one being steadily declining beer consumption. According to the International Wine and Spirit Research (IWSR), beer consumption in the United States fell 2.7% to 21.5 billion litres, and AB InBev experienced a 4% decrease in beer volume. These trends are puzzling given the summertime is the peak beer drinking season, and people often associate warm weather and barbecues with cold beers.
The Decline in Sales has Benefited Rivals
While AB InBev has seen a significant reduction in sales, their rivals, such as Molson Coors and Constellation Brands, have experienced growth during this period. Molson Coors, the company behind Coors and Carling, has reported a 20% surge in shares since early April. Constellation Brands has enjoyed an 11% increase in shares in the same period.
AB InBev Has a Strong Presence in Emerging Markets
Despite the recent controversy and decrease in sales, AB InBev remains a solid investment option, as the company has a strong presence in emerging markets. The beer industry’s slow growth in Western markets such as Canada, Great Britain, and the United States means that Molson Coors’s business is concentrated in these mature markets. Comparatively, AB InBev’s normalized EBITDA margin is double that of Molson’s, making the company more profitable.
Will AB InBev’s Shares Recover?
Investors are unsure whether AB InBev’s shares will recover when the controversy over the transgender marketing campaign dies down. The company’s strong presence in emerging markets makes it a desirable investment option, but a potential decline in sales in Western markets could cast a doubt in investors’ minds. However, as a more profitable company with a broader range of beers and significant appeal in emerging markets, there is a possibility of a resurgence in AB InBev’s shares over time.
Additional Piece: The Boom and Decline of the Beer Industry
While beer has been an integral part of American culture since the nation’s inception, the beer industry has experienced several fluctuations in recent years. Beer consumption in the United States saw a decline of 2.3% in 2018, the largest yearly decline in five years. Moreover, many breweries have shuttered across the country, with 219 closures in 2018 alone, indicating a shaky industry.
One reason contributing to the decline is a shift in drinking habits, particularly among millennials and younger generations. These generations are less likely to drink beer than other alcoholic beverages, such as wine and spirits. A report published by Beer Cartel shows that in Australia, the rise of craft beer is slowing, with beer drinkers who consume four to six different brands each month falling from 40% to 34% in 2021. Not only is this a shift away from beer, but drinkers are also opting for variety and quality rather than brands tied to traditional concepts. Moreover, as younger people become health-conscious, they tend to avoid calorie-dense drinks like beer.
The popularity of the home-brewing trend and the rise of microbreweries and craft beer have undoubtedly impacted larger beer companies. These smaller operations are gaining traction with those who seek locally-made, unique, and high-quality beers. However, brands like AB InBev have responded by acquiring smaller operations into their portfolio and capitalizing on the appeal these brands have in the marketplace.
Beer manufacturers have also faced higher overhead costs due to inflation and tariffs enacted by the United States government on imported materials needed to produce beer. For example, aluminum tariffs have significantly impacted the price of beer cans, significantly increasing the overall price of distributing beer. Furthermore, climate change, heatwaves, and droughts have affected the production of hops, a crucial ingredient in making beer.
Despite the challenges facing the beer industry, it remains an economic powerhouse. In 2020, the beer industry contributed $328 billion to the United States economy and was responsible for supporting 2.1 million jobs. Despite the recent controversy impacting AB InBev, the company’s strong presence in emerging markets backed by a strong portfolio of beverages makes it a viable investment opportunity.
Summary
The decline in beer consumption is an ongoing trend in the United States. AB InBev, the parent company behind Bud Light, has experienced a significant reduction in sales as US conservatives have opposed Bud Light’s recent marketing campaign featuring a transgender influencer. However, despite the controversy, AB InBev remains a solid investment opportunity due to their strong presence in emerging markets. Although the beer industry faces a decline in Western markets, it continues to be an economic powerhouse in the country, contributing billions to the economy and being responsible for millions of jobs.
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Summer heralds the start of the peak beer drinking season in the United States. Warm weather and barbecues are traditionally accompanied by cold beers. The four months between May and August can generate between 35 and 40% of total annual beer sales.
A brewer has little to toast. US conservatives are angry at Anheuser-Busch InBev, the Belgian company behind Budweiser. They oppose a Bud Light marketing campaign which featured a transgender influencer.
The furore has hit Bud Light sales hard. They fell 24.3% year over year in the week ending May 20, according to Bump Williams Consulting, citing NielsenIQ data.
The stock has lost a fifth of its value, or $22 billion, since the first week of April when the controversy began. AB InBev shares are now trading at about 16 times forward earnings, down from 20 times two months ago.
The debacle is ironic. AB InBev wanted to broaden its appeal to millennials and the LGBT+ community because traditional customers drink less beer.
Beer consumption in the United States is steadily declining. Last year it fell 2.7% to 21.5 billion litres, according to beverage market consultancy IWSR. At AB InBev, beer volume in North America decreased by 4% in 2022.
AB InBev’s woes have been a boon for rivals. Shares of Molson Coors, the Canadian brewer behind Coors and Carling, are up by a fifth since early April. Constellation Brands, which owns the brand licensing for Corona and Modelo in the US, gained 11% during the period.
AB InBev investors are not expected to jump ship just yet. Molson’s business is concentrated in the mature markets of Canada, Great Britain and the United States. AB InBev has a strong presence in emerging markets which counteracts slow growth in Western markets. The firm is also more profitable than Molson. Its normalized EBITDA margin, at 33.5%, is about double that of Molson.
Investors should ponder whether AB InBev shares will recover when a silly row over a frothy marketing campaign is forgotten.
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