Page last updated at 12:53 GMT, Monday, 14 July 2008 13:53 UK

The Brazilian recipe for brewing success

By Tim Bowler
Business reporter, BBC News

The Belgian-Brazilian brewer InBev has just secured its biggest deal to-date: the $52bn (26bn) takeover of America's iconic beer-maker Anheuser-Busch.

A glass of Stella Artois being poured
The new company will own Stella Artois, Budweiser, Brahma and Beck's

It will create the world's largest brewer, but this agreement is only the most recent coup for a firm that is itself only four years old.

While this merger has been seen by some as a takeover of one of America's most popular household names by a Belgian-based rival, perhaps the most important element has been the contribution of InBev's largely Brazilian management team.

It is by focusing on the story of Brazil's beer brewers, that this latest deal can best be understood.

The recent history of the brewing industry has been one of recent and rapid consolidation, as many national beer markets have seen little growth.

Brewers have sought to merge with one another to gain from economies of scale amid rising costs for their raw materials such as barley, aluminium and glass.

Brazilian multinational

Back in 2001, Brazil's two largest beer companies, Brahma and Antarctica, decided to join forces. To allay fears about any loss of competition, executives at both companies played on feelings of national pride.

They touted the idea that the new firm would be "a Brazilian multinational". Their arguments prevailed and a new firm, AmBev, was the result.

Yet the Brazilians weren't finished. They then turned their sights to Europe, looking for an opening that would give them access to new beer markets.

They found what they were looking for in the shape of Belgian-based brewer Interbrew, best known for its Stella Artois and Beck's beers.

The two firms merged in an $11bn merger in 2004. Soon afterwards, the canny Brazilians proved their worth as corporate players, by out-manoeuvring their European opposite numbers.

Carlos Brito
Great people attract more great people. Mediocre people attract more of the same.
Carlos Brito, chief executive, InBev

While the new firm, InBev, started out with a European chief executive, just over a year after the deal the Brazilian Carlos Brito became the boss. Other Brazilians then moved into most of the key posts.

Belgium's economy minister Vincent Van Quickenborne recently said that InBev was first "totally Belgian, then it was Belgian-Brazilian, and now it's Brazilian-Belgian".

Whatever its exact national make-up, in the four years since InBev was formed, the firm has built a presence in 130 countries with 200 brands, such as Stella Artois, Beck's, Labatt Blue, Hoegaarden and Brahma.

Business culture

So what has been the secret of its Brazilian management team's meteoric success?

One clue can be found in a speech earlier this year made by InBev's boss Carlos Brito at Stanford University business school, where he himself studied.

Anheuser-Busch headquarters
There are worries about the potential job losses that may follow the deal

He said that the Brazilians at AmBev had an advantage over their rivals: their business culture.

"At AmBev, we had this culture that has never changed."

"Great people attract more great people. That's obvious, but the opposite is even more dangerous. Mediocre people attract more of the same," he said.

What has also marked out the Brazilian managers at AmBev and then InBev, is their ferocious cost-cutting.

In the run-up to this deal, Anheuser itself announced plans to cut about 1,000 full-time workers. Most analysts expect the new firm to go ahead with these job cuts.

While the US remains the world's largest beer market in terms of profit, brewers there are entering a new era.

In the past, Anheuser and its US rival Miller engaged in price wars in attempts to capture market share from each other. While this benefited their customers, it did not always help their own profits.

This deal now sets the stage for a new battle in the US beer market, this time between two foreign giants: the newly merged Anheuser-Busch InBev and its London-based rival SABMiller, where gaining market share is not going to be as significant as controlling costs.

The result is likely to be a slimmed-down industry with fewer workers, and it is unlikely that consumers will benefit from significantly cheaper beer.


SEE ALSO
Stella firm buys Budweiser brewer
14 Jul 08 |  Business
InBev aims to sack Anheuser board
07 Jul 08 |  Business
Budweiser brewer rejects takeover
27 Jun 08 |  Business
Bid talk boosts Budweiser maker
23 May 08 |  Business
Brazil's Brahma beer goes global
04 Dec 05 |  Business

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