So I was in New York, donning my Smirnoff cap to try to sneek into a Diageo meeting, when I was invited to pop into Brunswick’s office to meet InBev chief Carlos Brito, or Brito as everybody calls him (see why below), to get acquianted. I was led to a small conference room by legendary M&A reporter, late of the Wall Street Journal (and now Brunswick senior partner) Steve Lipin, the man you see interviewing Brito on the videos on their website, and Marianne Amssoms, InBev’s chief of media relations.
I found Brito there at a conference table which he seems to have turned into his US office. He is in shirt sleeves with a single note pad with handwritten notes in front of him which he never consulted. He is built like a soccer player, compact and lean, and in fact he made several references to the benefits of being in shape which started to make me feel self-conscious as I haven’t exercised since – well, never. He was very cordial and courteous, and answered my questions freely but with a measured succintness that belied a deep understanding of what he was about in this U.S. beer business. Here is an excerpt of our conversation. You, my friends, are a fly on the wall.
Harry Schuhmacher: Brito, my readers, as you may know, are mostly distributors, and there’s some anxiety about whether you believe the three-tier system is the best way to go to market.
Carlos Brito: You know, Harry, the idea of the three-tier system to me is very pragmatic. In markets like the US, Canada, and Korea, it’s the law, and as a public company, we abide by the law. Second, it makes sense from a business perspective. Coincidence or not, in those places [where they have regulated three-tier] the profitability in those markets is very good. Third, we believe in ownership, and when we talk with distributors, we’re talking to the owner. And the owners, who are usually second or third generation, they are not looking at the short term, just as we don’t. Brand building takes years, there are no shortcuts, and distributors understand that…
We deal with wholesalers and distributors in 99% of the markets in which we operate – yes, some are hybrid systems, but we have distributors everywhere. What I always tell them is that we are business partners. So we need to offer them a business proposition which is attractive enough so they can invest in the market. What I don’t like is when wholesalers start losing interest in their business and profitability goes down and they start to invest elsewhere. The systems where I see greatness are where distributors have interest, profitability, and focus.
HS: There’s also a concern that InBev would push costs down onto the distributor.
Brito: In every business relationship, there are moments of negotiation, for sure – price increase, surcharges, that sort of thing. But in terms of margin pool, it’s always better to generate that buck in the marketplace, and then bring it to our margin pools together, than to fight over dimes amongst ourselves.
HS: A-B hasn’t been as aggressive as Miller and Coors regarding distributor consolidation. Would you attempt to consolidate the A-B system?
Brito: Harry, I think that’s a question that is best answered by the marketplace. It’s just like price. People think they can control price, but at the end of the day, you have to read the marketplace….. If consolidation means having the best delivery system, meeting cost pressures, and beating competition, so you can invest in the marketplace, then yes it comes into play. But it’s a very market-by-market situation. It’s best to let things happen at their own pace.
HS: When referring to your cost cutting, the word used most often is “ruthless.” Is that a fair characterization?
Brito: I don’t think that ‘ruthless’ is the best way to describe it. Look, we work for the consumer. People sometimes call me ‘boss’, but the real boss is the consumer. We work for them. People often ask me about zero-based budgeting. But common sense has to prevail. We have a policy that you can’t stay in a hotel above a certain amount, or you can’t buy dinner for people. But if you, as an owner – and this is why ownership is so important – if you feel that there’s a good reason, and you feel justified, in going over the amount in the policy, then do it. But don’t do it and then hide it. If it’s good for the company, then do it. Exceptions, there are exceptions everywhere.
HS: Are you brand builders or corporate raiders? You’ve got Stella Artois that’s a winner, and Brahma that was a dud.
Brito: We are not corporate raiders or a hedge fund. We’ve been in this business for 600 years…. We’re not new to the business and we’re in this for the long term. People get so caught up in the cost cutting, that they forget that the cost cutting is what gets the topline to the bottome line. If our primary objective was just to cut costs, then we should just close down the business and say we’ve succeded, because there are no costs. That’s not why we’re in business. It’s just like exercise. Is it better to be lean and fit, or not? We all know what the answer.
HS: I like being fat. It keeps me out of trouble with the ladies…
Brito: Yes, but being lean gives us more money to put into the marketplace. Which brings us to brand building. Harry, if you go to Brazil, Argentina, Germany, US, UK, Korea, Canada, Ukrain, you’ll see that we’re brand builders [Ed. Note: I’ve been to all of those places, with the exception of Korea, Canada, Brazil, and Ukrain]. Some brands were bought, some were created. Some are leaders and some are challengers. We’re not perfect, nobody is, and Brahma is an example of that. With Stella Artois, it was the seeding, brick by brick, that made that brand. With Brahma, they tried to shortcut the process. We believed, incorrectly, that we could have four global brands. We really have two that could be global brands, but four is a non-starter. If you look at all the guys in global beverage, Pepsi, Coke, they don’t have four global brands, they have one or two maxinum. Stella and Beck’s.
If you look at what we did with Beck’s in Germany, it’s an amazing story. Germany is a mature and declining market. But Beck’s is growing there, and exports are growing too.
HS: If you succeed in buying A-B, do you fear there could be a consumer backlash against Bud?
Brito: What we’re trying to tell consumers is that a change in ownership doesn’t mean a change in what matters. As a consumer, what matters is the beer, the heritage, the positioning, the distribution, the events that you sponsor, where it’s brewed and by whom, etc. None of that changes.
One of the senators told me that the owners of TWA said that they would never move. But because of September 11, they had to move. But we don’t have other hubs to go to. If I had a big office in Chicago or New York, people could be worried that we would move away from St. Louis. Where would we go?
HS: You have an office in Buffalo.
Brito: [Laughs]. Yes, but the weather is not so nice there, right?
HS: How did you get into the beer business? What’s your background?
Brito: I went to a Jesuit school for 12 years. That’s why people call me Brito. People there call you by your last name. It’s very pragmatic, because if you call out Carlos or Mike or John, ten people will say ‘yes.’ It’s a more pragmatic way of saying it.
I got my degree in mechanical engineering and worked for Shell. Then I went for my MBA at Stanford. I didn’t have the money so I got a scholarship. When I got back to Brazil I went to work for an investment bank who was in the process of acquiring Brahma at the time. And then I went with the four guys that went with the beer business. That was 19 years ago, and I never looked back.
HS: When AmBev and Interbrew merged, the Interbrew people seemed to be in charge at first and now the AmBev people seem to be in power. How did that come about?
Brito: That’s a good question. When we merged the two companies, on day one, the board decided to have the best people and the best processes. Forget about passports, forget about source, forget egos, it’s about something bigger than ourselves – it’s all about the company. And that’s how we did it. It’s an international environment with many nationalities. It’s a mertitocracy…..
HS: What happens with Modelo?
Brito: We admire what they’ve done with their brand – how they’ve made Corona into an international brand. We would love to have them as partners. We would like to propose ways to expand their business even further.
HS: Would you seek to import Modelo into the U.S.?
Brito: At this point Harry it would be too early to speculate.
HS: What’s the next step in your A-B bid?
Brito: We’ll proceed with our board slate, which was well-received I think. They are highly experienced with lots of business experience. And they have a high level of independence.
HS: Yeah, not too many slackers there. Is your financing in place?
Brito: We do have committed financing in place, so that is not a worry. We would like to get the shareholders to voice their opinion. We’ve thought a lot about this. For us it is a natural step. We still would like to have a friendly combination, because we think it would create the most value for everybody. We’ve been friends with the people at A-B for years, even before Interbrew. For many years we’ve had a relationship with them, from August to Steve Burrows in Canada to MoJo…. We like these guys, we like the brands, and we’ve learned a lot from them over the years. We just think that together we can do more. Look at Canada and Korea and the US. Look at what we were able to do together.
HS: Thank you for your time.
NY TIMES: A-B IN TALKS TO SELL TO INBEV
The New York Times reports that A-B may have engaged with InBev. Says the NY Times: “In a reversal of its previous hostility to the idea, Anheuser-Busch is in active talks to sell itself to the Belgian brewer InBev in a friendly deal, people briefed on the matter said Thursday night.”
The talks might still break down, but the Times says that “people briefed on the matter” say that A-B may be more receptive to a deal above $65 a share, particularly as major A-B investors, like Warren Buffett, are for the deal.
BEER THE ROOT OF ALL CIVILIZATION
We all know that beer is proof that God loves us and wants us to be happy, as Ben Franklin famously remarked (at least it’s widely attributed to him, even though he probably never uttered anything of the sort. He was a wine guzzler). But who knew that beer is also the root of all modern civilization? That’s the take of pundit George Will in yesterday’s Washington Post. Will cites a book by Steven Johnson called “The Ghost Map”, which makes the case that waterborne diseases like cholera were a bottleneck on population growth, except to those peoples who were smart enough to drink beer instead.
“The search for unpolluted drinking water is as old as civilization itself. As soon as there were mass human settlements, waterborne diseases like dysentery became a crucial population bottleneck. For much of human history, the solution to this chronic public-health issue was not purifying the water supply. The solution was to drink alcohol.”
In fact, the genetic trait of being able to process alcohol normally was basic to survival, and therefore through natural selection, that trait prevailed in most cultures, but not all. The fact that many Native Americans and Australian aborigines typically don’t process alcohol well is perhaps because they didn’t live in cities and therefore didn’t have to drink beer to avoid disease like their European and Asian counterparts. So yet another example of how important beer is, maybe even more important than the invention of the wheel and opposable thumbs. Interesting stuff.
“You can’t love a crowd the same way you can love a person. And a crowd can’t love you the way a single person can love you. Intimacy doesn’t scale. Not really. Intimacy is a one-on-one phenomenon.”
-Hugh Macleod
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