BACKGROUND

History

Anheuser-Busch (Anheuser) was founded in 1860 when Eberhard Anheuser financed a loan to

save a struggling local brewery and later bought out the interests of creditors. In 1864, his son-

in-law, Adolphus Busch joined as a salesman and later became a partner and president of the

company. Adolphus is considered the founder of the company because he was the driving force

that took the struggling local brewery and started it on its way to becoming the industrial giant it

is today. Aldophus is credited with starting the industry’s first fleet of refrigerated freight cars,

the use of pasteurization to ensure beer’s freshness, and the creation of best-selling Budweiser

and Michelob. The continuation of the Busch family leadership has contributed to the

company’s success.

SITUATION ANALYSIS

The Company

Anheuser-Busch Companies, Inc., a St. Louis-based corporation is comprised of the brewing

organization, manufacturer of aluminum beverage containers, theme-park operations, recycler of

aluminum beverage containers, malt production, rice milling, real estate development, turf

farming, creative services, metalized and paper label printing, railcar repair and transportation

services. For the brewing organization, they have 12 breweries, 900 independently owned

wholesalerships, and 11 company owned wholesale operations to provide an extensive and

effective beer distribution system. Anheuser-Busch credits its success to unsurpassed quality

and innovative approaches, and has instilled those factors as a way of life for the company.

Adolphus Busch’s strategy of innovation implemented 120 years ago is still used today to

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continually find new ways to think about the business. As a company that has maintained family

in high positions, Anheuser-Busch is rich in heritage and tradition.

Anheuser-Busch is creating an empowerment type of environment by encouraging all employees

to share ideas, practices, and experiences not only across divisions, but also across the continent.

Training and development is more extensive to create talented people at all levels of the

organization and to properly develop those who will lead the company in the future.

Objective

Anheuser-Busch’s number one priority is continued profitable reinvestment in the core

businesses. The second priority is making substantial cash payments directly to shareholders

through continued dividend payments and stock repurchase program. Although the current

market share is mare than double that of their closest competitor at 45.2%, Anheuser has set a

goal of acquiring 60% of the U.S. market share.

Community Awareness

Anheuser-Busch’s motto of “Making Friends Is Our Business” drives the company to focus on

relationships with employees, wholesalers, shareholders, business partners, customers, and

communities. Their charitable foundation provides donations for things like educational

programs and disaster relief. They are also committed to promoting responsible consumption of

their products.

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THE GLOBAL MARKET

Anheuser-Busch International, Inc. is the company’s international beer subsidiary formed in

1981 to develop markets outside the U.S. Anheuser-Busch is the world’s largest brewer with

just over an 8% share of the world’s beer market. The continuous exploration into different

markets is helping Anheuser-Busch become the world’s beer company.

Americas

Budweiser is currently marketed and distribute in several Central and South American countries

through agreements, joint ventures, and ownerships. Anheuser-Busch has a 37% interest in

Mexico’s leading brewery. Anheuser-Busch has signed agreements with the number one

brewers in Costa Rica, El Salvador, Guatemala, Honduras, and Panama to distribute and market

Budweiser in those countries. In Argentina, they have purchased a small equity position in a

brewer and signed an agreement to produce, market, and distribute Budweiser there. Brazil’s

second largest brewer has signed an agreement with Anheuser-Busch to allow them to purchase a

5% equity stake in their subsidiary. They are also in a joint venture to sell, market, and distribute

Budweiser in Brazil. The largest market for Budweiser outside the U.S. is in Canada where it is

brewed and distributed by a local brewer.

Asia

Anheuser-Busch has successfully introduced their brands into the Asia/Pacific region.

Budweiser Japan Company, Ltd. is a joint venture between Anheuser-Busch and a Japanese

brewery that provides marketing and distribution of Budweiser. This has helped Budweiser

establish a strong local presence as the leading international beer brand in Japan. Budweiser is

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also dominant in Korea where they have a license-brewing agreement. Anheuser-Busch owns a

5% interest in China’s leading brewer and an 85% interest in Budweiser Wuhan International

Brewing Company, Ltd., which produces and distributes Budweiser in China. A new partnership

has allowed for the brewing and distribution of Budweiser in the Philippines. The beer is also

exported to Micronesia and Taiwan. Anheuser-Busch brands exported to this region are

continuously growing.

Europe

Budweiser is the number one premium packaged lager in the United Kingdom. Anheuser-Busch

European Trade Ltd. was formed to sell, market, and distribute Anheuser-Busch brands in

Europe. They now trade in 24 countries, including all European community member states.

Through agreements in the Republic of Ireland and Italy, and partnerships in Spain and France

have contributed to the growth of Budweiser in Europe and has shown how popular the brand is

in this region.

MANAGEMENT INFORMATION

The Strategy Committee for Anheuser-Busch is made up of the following people: August A.

Busch III, Chairman of the Board and President, Patrick T. Stokes, Vice President and Group

Executive, John H. Purnell, Vice President and Group executive, W. Randolph Baker, Vice

President and Chief Financial Officer, Stephen K. Lambright, Vice President and Group

Executive, Alloys H. Litteken, Vice President-Corporate Engineering, William L. Rammes, Vice

President –Corporate Human resources, John B. Roberts, Chairman of the Board and President-

Busch Entertainment Corporation, Joseph L. Goltzman, Vice President and Group Executive,

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Donald W. Kloth, Vice President and Group Executive, John E. Jacob, Executive Vice President

and Chief Communication Officer, Gerhardt A. Kraemer, Senior Vice President-World Brewing

and Technology, Thomas W. Santel, Vice President-Corporate Development.

STRATEGIC MANAGEMENT

August A. Busch III has stated “As we grow toward becoming the world’s beer company, we

will continue to leverage the synergies that exist between beer and other core businesses-

packaging and entertainment.” He initiated strategic restructuring movement in 1995 that led the

company to benefit during 1996. Before that time, the company had an unrelated diversification

strategy and incorporated businesses ranging from baseball teams to snake food producers into it

portfolio. Throughout 1995, Anhueser-Busch completed the sales of St. Louis Cardinals

baseball team and the spin-off of The Earthgrains Company (formerly Campell Taggart, Inc.).

They also exited the snack food business by selling their majority assets in Eagle Snacks, Inc.

Today, Anheuser-Busch is a company more focused on what it does best, the mass production of

beer products and entertainment. Naturally, these core businesses provides the company with an

inevitable opportunity for long-term growth and competitive advantage. As a way of

maintaining its competitive advantage, management committed significant resources to provide

incentives to wholesalers in their efforts to encourage them to carry only Anheuser-Busch

products. Management felt that the request for a 100% focus on Anheuser-Busch by their

wholesalers would drive up volume and result in higher sales and market share.

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Management’s philosophy for every action taken is to be on behalf of the company, and in an

effort to enhance the shareholders wealth. Setting aggressive performance objectives is one of

the keys to enhancing shareholder value. In order to achieve this, management has set a goal of

attaining a 60% share of the U.S. market. Management also believes that a strong commitment

to quality is another way of enhancing shareholder value. Therefore, the concept of quality

goods is filtered through the organization from its relationship with suppliers, to all the products

and services it offers. The company is positioned as a market leader, with firm a hold on every

segment it serves. Its label signifies greatness to beer consumers.

INDUSTRY ANALYSIS

The U.S. Brewing Industry

Total National Economic Contribution of the Beer Industry: $174,942,000,000

Industry Full Impact

Jobs 872,500 2,611,800
Wages (millions) $13,558 $56,408
State & Local Taxes (millions) $5,092 $10,906

Federal Excise Taxes on Beer Sales (millions) $3,379

Total Beer Sales Retail (millions) $48,898
Economic Activity (millions) Full Impact
Agriculture $6,876
Construction 1,067
Packaging Materials 6,013
Transportation and Communication 11,540
Food Processing 23,561
Wholesaling 12,003
Food Stores and General Retail 12,224
Finance, Insurance and Real Estate 22,012
Business and Personal Services 9,167
Travel and Entertainment 22,167
Other 48,312
Total $174,942
Jobs Full Impact

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Agriculture $57,200
Construction 18,700
Packaging Materials 48,500
Transportation and Communication 135,400
Food Processing 86,500
Wholesaling 160,500
Food Stores and General Retail 439,300
Finance, Insurance and Real Estate 373,900
Business and Personal Services 216,300
Travel and Entertainment 663,000
Other 412,500
Total 2,611,800
533 Brewers
• 3,060 Wholesalers
• 534,400 Retailers

The top 10 U.S Brewers and their 1996 market share and sales:

Anheuser-Busch 45.2% 91.1 million barrels

Miller Brewing* 21.8%
Coors Brewing 9.9%
1. Stroh Brewing**
2. Pabst Brewing 2.8%
3. Genesee Brewing
4. Boston Beer Co.
5. McKenzie River
6. Pearl Brewing 0.5%
7. Latrobe Brewing
* Includes Molson, ** Includes Heileman Brewing
43.9 million barrels
20.0 million barrels
8.9% 18.0 million barrels
5.7 million barrels
1.0% 2.0 million barrels
0.6% 1.2 million barrels
0.5% 1.1 million barrels
1.0 million barrels
0.5% 1.0 million barrels

Major Brewers of the U.S.

• Anchor Steam Brewing

• Anheuser-Busch, Inc
• Boston Brewing
• Boulder Brewing
• Cold Spring Brewing
• Adolph Coors Brewing
• Dixie Brewing
• Eastern Brewing Corporation
• Falstaff Brewing Company
• General Brewing Company
• Genesee Brewing Company
• Joseph Huber Brewing Company
• Hudephol-Schoenling Brewery

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 • Latrobe Brewing Company
• Jacob Leinenkugel Brewing
• Lone Star Brewing
• Miller Brewing Company
• Pabst Brewing Company
• Pearl Brewing Company
• Pitsburgh Brewing
• Stroh/Heileman

Major Importers of the U.S.

A & M Importing
• Advanced Brands
• Artois Importers
• Barton/Gambrinus
• Brand Beer, Inc.
• Carlton Importing Company
• Century Importers
• Cibco Importing
• Dortmunder Actien Brauerei
• Dribeck Importers
• Efco Importers
• Grolsch Importers
• Global Beverage Incorporated
• Gunness Corporation
• Hans Holterbosch, Incorporated
• Heineken USA
• Holsten Import Company
• IFC International
• Kern Importers
• Kirin, USA
• Medley

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1997 has been one of the most competitive years in the beer industry. The competitors of

Anheuser-Busch have sought to gain market share through aggressive discounting. Anheuser-

Busch has been able to achieve record volume this year by meeting these discounts. Anheuser-

Busch’s unsuccessful attempt at increasing market share by discounting has lead to expectation

of less discounting through 1998.

Boston Beer, the maker of Samuel Adams is one of Anheuser-Busch’s competitors. Through its

research it has found that only 63% of the public recognize the Samuel Adams name as opposed

to 96% recognition of Budweiser. This left an untapped market of 37% in addition to those who

know the name and can be converted, but do not yet drink Samuel Adams. Situation such as this

often causes aggressive advertising program and price wars within the industry.

Competition

Domestic Beers Ranked by Sales

Brand Rank 1988 1993 1994 1995 1996
Budweiser 1 26.5% 22.8% 21.9% 21.1% 20.3%
Bud Light 2 5.3 8 8.7 9.8 11.1
Miller Lite 3 10.5 8.9 8.3 8.5 8.6
Coors Light 4 4.7 6.7 6.8 7.1 7.2
Busch 5 4.5 5.1 4.9 4.8 4.7
Natural Light 6 1.3 3.6 3.6 3.6 3.5
Miller Genuine Draft 7 2.1 4 3.7 3.6 3.3
Miller High Life 8 4.5 2.8 2.6 2.6 2.5
Busch Light Draft 9 N/A 2.1 2.1 2.3 2.4
Milwaukee's Best 10 3.1 3.1 2.7 2.5 2.2

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U.S. Beverage Consumption
Soft Drinks 49.9%
Beer 23.0%
Fruit Juice/Drinks 12.4%
Bottled Water 8.9%
Wine 1.7%
Spirits 1.4%
Sport Drinks 1.4%
RTD Tea 1.3%

Top Five Brewers Internationally

1. Anheuser-Busch
2. Heineken
3. Miller
4. Kirin
5. Kronenbourg

Top 10 Beverage Company Rank based on worldwide sales

1. The Coca-Cola Co. $18,500,000,000

2. Nestle SA $13,400,000,000
3. PepsiCo Inc. $10,524,000,000
4. Anheuser-Busch Inc. $8,100,000,000
5. The Seagram Co. $6,984,000,000
6. Cadbury Beverages $4,600,000,000
7. Miller Brewing Co. $4,327,000,000
8. IDV North America $2,827,000,000
9. Quaker Oats Beverages $1,929,000,000
10. Coors Brewing Co. $1,732,000,000

EXTERNAL ENVIRONMENT

Market Size: U.S. beer industry sales represented approximately 200 million barrels (the world

beer market is 1 billion barrels). $900 billion international.

Scope of Competitive Rivalry: International. Although U.S. brands are dominant, there is

competition from imported brands. U.S. Companies have also entered into international

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partnerships. The number of competitors is increasing, but Anheuser-Busch still dominants with

a 45.2% share of the U.S. market.

Market Growth Rate: 2-3 percent annually. Because the market is not growing rapidly, firms

with excess capacity may cut prices and use other tactics in an attempt to increase sales.

Stage in Life Cycle: Mature.

Number of Companies in Industry: 533 brewers currently exist in the U.S.

Customers: All those who choose to drink with the exception of persons under the age of 21

Degree of Vertical Integration: The larger companies are integrated both backward and forward.

Ease of Entry/Exit: Entry barriers exist due to capital requirements, especially in fixed cost. The

most obvious capital requirements are manufacturing plants and equipment, distribution

channels, favorable locations, advertising, sales promotion and need for backward and forward

integration. However the high profitability of the industry continues to encourage entry. Philip

Morris’s move into this industry is a classic example: “Philip Morris, a leading cigarette firm

with excellent marketing know-how, shook up the U.S. beer industry’s approach to marketing by

acquiring stodgy Miller Brewing Company in the late 1960’s. In short order, Philip Morris

revamped the marketing of Miller High Life and pushed it to the number two best-selling brand.”

Technology/Innovation: Brewery technology is standard and changes have been slow. The

biggest changes have occurred in products, such as the introduction of low-calorie light beers by

Miller, which is now the fastest growing segment in the beer industry, and legal regulations that

require the recycling of beer containers.

Product Characteristics: Highly standardized. Low prices allow customers to switch easily

from one brand to another.

Scale Economies: Higher volume in terms of production provides cost advantages

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Capacity Utilization: Capacity surpluses push prices and profit margins down which gives way

to a more aggressive form of selling.

Industry Profitability: A slow growth rate has results in intense price-cutting and has resulted in

lower profits for those that can not reduce cost.

KEY SUCCESS FACTORS

• Production process innovation capability

• Product innovation capability

• Low cost production efficiency

• High utilization of fixed assets

• A strong network of wholesale distributors/dealer

• A well trained, effective sales force

• Breadth of product line and product selection

• Attractive styling and packaging

• Ability to come up with clever, catchy ads

• Favorable image/reputation with buyers

• Access to financial capital

ALCOHOL AWARENESS

“America’s brewers and wholesalers have invested nearly $200 million over the past decade to

fund research, public safety, education and prevention campaigns to curb alcohol abuse, drunk

driving and illegal underage drinking.

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The nation’s largest brewers, Anheuser-Busch, Miller, Coors, and Stroh, are involved in a range

of consumer awareness activities designed to help fight drunk driving and underage drinking,

and to promote responsible consumption of beer by adults who chose to drink.” Included in

prime-time television commercials, billboards, and newspaper ads, the messages are positive

reminders of the responsibility each individual has when choosing to drink. Below are a few

examples of the catchy slogans used to heighten the public awareness: “Know When To Say

When” (is a consumer awareness and education program which has developed by Anheuser-

Busch to remind beer drinkers to drink responsibly.), “Think When You Drink”, “Drink Safely”,

Drink Smart or Don’t Start”, “Let’s Stop Underage Drinking Before It Starts” and “Now, Not

Now”.

Retailers, brewers, and wholesalers also sponsor and promote special holidays, several training

programs, and designated driver and taxi programs to promote awareness and responsible

drinking at bars, restaurants, home parties, and social events. In addition, Beer Institute

Community Fund (BICAF) was founded to provide grants of up to $10,000 to nearly 200

community-based organizations in need of support. These funds would allow for the effective

administration of substance abuse education and prevention programs. Furthermore, Anheuser-

Busch has contributed funds to such organizations as the Alcoholic Beverage Medical Research

Foundation and the Alcohol Research Center at the University of California, LA.

Most importantly, voluntary industry advertising guidelines were developed to help brewers

maintain the highest ethical standards in the advertising and marketing of their products. The

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U.S. Department of Health and Human Services and the U.S. Department of Agriculture

acknowledge that responsible consumption of alcohol beverages can be a part of a healthy

lifestyle for adults who choose to drink. This statement which appeared in the “Dietary

Guidelines for Americans” was naturally looked highly upon by the beer industry as it served in

strengthening its image and reputation.

Anheuser-Busch Worldwide Beer Sales Volume

1997 1996 Change 1996 1995 Change

Domestic 89.6 88.9 Up 0.7% 88.9 88.5 Up 4.0%

International 7.0 6.2 Up 13.4% 6.2 5.4 Up 15.5%
Worldwide 96.6 95.1 Up 1.6% 95.1 90.9 Up 4.7%

Worldwide beer volume is comprised of domestic and international sales. Domestic volume

represents beer produced and shipped within the U.S. International volume represents exports

from the U.S to markets around the world, and all Anheuser-Busch brands produced overseas

and under license and contract agreements.

ENVIRONMENTAL ISSUES

Anheuser-Busch is strongly committed to environmental protection. The company has an

Environmental Management System, which provides specific guidance for how the environment

must be factored into business decisions. It also mandates special consideration of

environmental issues in conjunction with other business issues when any of the company's

facilities or business units plans capital projects or changes in process.

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INTERNAL ENVIRONMENT
Corporate Structure

Anheuser-Busch has an immense corporate structure with offices and executives located

worldwide. It is vertically oriented with a tall organizational structure. They use a matrix type

structure within their functional areas with an emphasis on product lines. Each division operates

as its own unit reporting to the central administration office located in St. Louis, MO. The

president of each division reports directly to August A. Busch III. Anheuser-Busch also

incorporates some geographic structural traits since much of their operations are located

internationally. These units operate as their own entities to ensure fast decision-making and

control.

The board of directors is composed of both top management and officers from other related

businesses. Each individual has some stake in the company so they are a very aggressive board

in terms of control. The Board is made up of a diverse group that takes an active role in the

governance of the company. There are seventeen members on the broad:

August A Busch III, Chairman of the Board and President-Anheuser Busch Companies Inc.,

Charles F. Knight, Chairman of the Board President and Chief Executive Officer-Emmerson

Electric Co.; a manufacturer of electrical and electronic equipment,

Douglas A Warner III, Chairman of the Board and President-J.P. Morgan & Co., Inc. and

Morgan Guaranty Trust Company of New York; an international commercial ad investment

banking firm,

Andrew B. Craig III, Chairman of the Board-NationsBank Corporation,

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Vernon R. Loucks Jr., Chairman and Chief Executive Officer-Baxter International Inc.; an

international manufacturer and marketer of health-care products, systems and services,

William H. Webster, Partner-Milbank, Tweed, Hadley & McCloy; attorneys,

Bernard A. Edison, Former President-Edison Brothers Stores, Inc.; retail specialty stores,

Vilma S. Martinez, Partner-Munger, Tolles & Olson; attorneys,

Edward E. Whitacre, Jr., Chairman and CEO-SBC Communications Inc.; a diversified

telecommunications company,

Carlos Fernandez G., Vice Chairman of the Board of Directors-Grupo Modelo, S.A. de C.V.; a

Mexican company engaged in brewing and related operations,

Sybil C. Mobley, Dean of the School of Business and Industry-Florida A&M University,

Richard T. Baker, Former Chairman and presently Consultant-Ernst & Ernst (now Ernst &

Young); certified public accountants,

Peter M. Flanigan, Director-Dillon, Read & Co., Inc.; an investment banking firm,

James B. Orthwein, Partner-Huntleigh Asset Partners, L.P.; a private investment partnership,

Antonino Fernandez R., Chairman and President-Grupo Modelo, S.A. de C.V.; a Mexican

company engaged in brewing and related operations,

John E. Jacob, Executive Vice President and Chief Communications Officer-Anheuser-Busch,

Andrew C. Taylor, President and CEO-Enterprise Rent-A Car Company; a national car rental

Company.

Corporate Culture

The company has a very fast paced upbeat culture. Its employees take an active role in the

operations of the company. Management focuses on maintaining the diversity of the existing

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workforce, which includes people who understand other cultures and who speaks a variety of

languages. This aids them in their commitment to discover and appreciate the uniqueness of

each market. The company has several team oriented areas that functions as a tool to spark moral

and innovation. Much of their effort is spent on ways to make the organization more like a

family rather than a business. Anheuser really takes a lot of pride in empowering its employees

and retaining them for the long-term. This has enabled it to remain the top manufacturer of beer

and related products within the United States. The empowerment among its employees has also

aided it in becoming strategically positioned to become the world’s beer supplier.

Corporate Resources

Marketing

Anheuser commands a strong 45.2% of the United States beer market, and has a good presence

in the $900 billion dollar international arena as well. Their market share is increasing gradually

each year at the competition’s expense. Their primary customers are beer consumers worldwide.

Before 1990, Anheuser targeted only males who drink alcohol, however, during the early 1990’s

Anheuser spent a great deal of time and money changing this emphasis to include females.

Anheuser has a goal of becoming the leading beer producer to the world. Their plans for

establishing this are to slowly acquire key relationships with distributors and manufacturers

around the world in order to cut their costs and reduce the chance of failure. They have currently

been forming joint ventures with key distributors within the markets pinpointed for entry.

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The St. Louis based beer company has establishing superior marketing efforts for its brands.

This has been the key to their long-term profitability and image. The Budweiser image has made

it a mainstay in American life. Anheuser’s products have established this image through a variety

of innovative and creative marketing campaigns. Its diverse grassroots sales force has enabled

the company to gain inroads into essentially every retail liquor sales location in the country. It

has also maintained this strategy in its international penetration. The availability of its products

has made it a sure choice for beer drinkers.

Along with a great sales force is an excellent distribution network. Those in the network control

the sales force and their efforts to gain new business. The distributors are responsible for getting

the product to each and every one of their locations, which range from bars to large discount

stores. Anheuser owns and operates the truck fleets and warehousing facilities, which gives all

employees an incentive to maximize efficiency since these businesses directly effects the profit

of the overall company. In the international arena Busch has formed several key joint ventures

with established suppliers would carry its brands. This has given it a cheap and effective

distribution outlet for new markets worldwide. International sales have become a key ingredient

in the company’s revenues because of the increasing excise tax on spirits within the United

States. This emphasis on international sales has enabled the company to maintain sales while its

domestic competitors have lost ground.

Anheuser’s beer products are competitively priced with a wide variety of products covering the

entire beer spectrum. It has increased its presence in the specialty brew segment by acquiring

new and unique brands domestically and internationally. They also have established brands in

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the premium market (Michelob) and the discount market (Natural Light). Anheuser has also

maintained its presence in the light beer market by surpassing Lite Beer, produced by Miller, to

become the market leader. Its entry into the ice beer segment with Bud Ice has been a success

and it holds the market leader position in this segment as well. Anheuser has also maintained its

flagship brand Budweiser and poised it as a world brand.

Anheuser has used a wide variety of promotional ideas and advertisements within the different

geographical regions to promote the sale of its products. Its promotional programs have come in

the form of sponsorships of sporting events, print, radio, and television. Its sponsorship of the

1998 Nagano Winter Olympics helped establish it as a beer for the entire world. Some of the

most noted campaigns are the Budweiser frogs, the lizards, and the Bud Ice penguins.

Finance

Anheuser-Busch has proven to be an industry leader in terms of profitability and sales. The

company has improved its financial position, and has sold off its less profitable businesses and

focused its efforts on its beer production. This was proven to be the pivotal move in its return to

superior profitability and growth. The financial analysis will focus on the past six years of

business (1991-1996).

The company has experienced some problems with its liquidity from 1991 to 1996. Its current

ratio has fallen from 1.16 in 1991 to 1.02 in 1996 (Appendix A1). This implies that the company

has sufficient funds to cover short-term debts, but only at a minimal level. Its quick ratio shows

an even grimmer picture of its position. The ratio has been fairly stable at around 0.5, an

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insufficient figure with regards to meeting short-term obligations. The company has a high level

of inventory (0.5) and when it is removed from the current ratio, gives an idea that it has an

insufficient supply of capital.

The working capital per share figure has shown extreme drops in 1996 and 1993, due to large

write-offs for certain acquisitions and discontinuation of operations. Anheuser has successfully

lowered its collection period from a high of 23 in 1994 to 19 days in 1996 for all account

receivables (Appendix A1). This could prove beneficial in terms of providing adequate cash

flow to meet short-term debt. The inventory turnover has is fairly steady at about 11 times a year.

This is significantly better than the industry average of 3.82 (Appendix A2). Anheuser’s total

asset turnover of 1.03 is slightly better than the industry, which is currently .91 (Appendix A2).

The accounts receivable turnover of 18.49 is significantly higher than the industry average of

10.18 times a year (Appendix A1).

There is a huge disparity in the operating cycles of the companies within the industry.

Anheuser’s cycle in 1996 is 51 as compared to 259 for the industry (Appendix A2). This shows

that Anheuser is much more efficient in turning over its receivables and inventory than the

industry. The company also shows that its performance measures are higher than the industry for

1996. Its sales to net PP&E in1996 was 1.51 versus a 2.89 figure for the industry (Appendix

A2). Total sales to stockholder equity was slightly higher in 1996 (2.73) when compared to the

industry (2.7), (Appendix A2). Anheuser posted a higher gross margin than its rivals for the year

ending 1996 at 31.05%, 13.96% over the industry average of 17.09% (Appendix A2). However,

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its net margin was only 9.43% for 1996, while the industry posted a net margin of 11.09%

(Appendix A2).

Anheuser-Busch’s capital structure shows why the company has been losing attractiveness to

investors in recent years. The company’s total debt ratio in 1996 was 31.26%, an increase of

almost 5% since 1991 (Appendix A1). This figure is significantly higher than the industry which

stands at 21.47% (Appendix A2). This is due to Anheuser’s renewed emphasis on aggressive

expansion and its need for capital in order to accomplish that task. Its total debt to invested

capital was 44.81% for 1996, a 7% increase over 1991 (Appendix A1). Its times interest earned

figure has grown from 7.38% in 1991 to over 9% in 1996 (Appendix A1), which confirms its

ability to operate at a higher rate of debt effectively.

Anheuser-Busch has established a good strategy in its use of debt. This additional debt has

enabled management to increase corporate returns through aggressive international expansion.

Its return on assets has increased from 9.41% in 1991 to 11.05% in 1996 (Appendix A1). It has

done this while the industry posted a return of 7.82% in 1996. Return on common equity was

28.69 in 1996, compared to 22.3 for the industry (Appendix A2). Total return on investment was

15.84% versus 14.15% for the industry (Appendix A2), which represents a 2% increase from

13.27% in 1991 (Appendix A1). This has been the key to its success within the industry. Its

rapid increase of returns, while its competitors post lower returns, has made it a market leader in

terms of profitability.

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Anheuser has shown some instability in its earnings and cost structure over the previous five

years. Using 1992 as a base year, the trend analysis in Appendix A3 gives a picture of the

direction in which Anheuser’s financial future is headed. Sales have decreased since 1992 to

95.5% of the $11,393.7 earnings figure posted in 1992 (Appendix A3). Cost of sales has also

decreased over this period, but has decreased at a higher rate providing for a higher gross profit.

Operating expenses decreased over this period to 81% of the 1992 amount (Appendix A3). The

remaining expenses also increased over this period due to expansion and increases in debt and

operating profit were only 14% in terms of 1992 numbers.

The most notable increase comes in the adjusted net income figure. It increased by 29.69% over

its 1992 amount (Appendix A3). Earnings per share increased by over 45% (Appendix A3), and

trends imply that as time progresses, even though some costs will increase, the company will

become increasingly profitable. This is done through greater efficiency in utilizing its assets.

Research and Development

The St. Louis based brewery has spent much of its time trying to improve its brewing processes.

Its latest development of cold filtration to replace the pasteurizing process has allowed the

company to drastically reduce production time. It has a long tradition of being an innovative

leader within the beer industry. It originated new ideas such as the use of refrigerated railcars to

transport its product and mobilizing grassroots sales people to market its product. These things

have made the company successful. Its new direction into the specialty brew market has allowed

it to experiment on new flavors and packaging ideas. It is continually looking for new ways to

make its product better in both quality and taste.

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Operations and Manufacturing

Anheuser-Busch has a wide variety of manufacturing and packaging plants located throughout

the world. The company has successfully vertically integrated itself by acquiring key

components for its production and distribution systems. It has breweries located in Columbus,

Ohio, Fairfield, California, Fort Collins, Colorado, Jacksonville, Florida, Merrimack, New

Hampshire, Williamsburg, Virginia, and at its headquarters in St. Louis, Missouri. These

locations are strategically placed to utilize their geographic locations to cut down on shipping

and related costs. Since the inception of the born on dating plan (a stamp of the production date)

it is essential that the company move its product to market as quickly as possible. Along with its

national locations, Anheuser also has international the following locations throughout the world:

Argentina, Brazil, Canada, China, Ireland, Italy, Japan, Philippines, South Korea, Spain, and the

United Kingdom. These locations are the result of a continued effort to establish the company’s

products on a global scale.

Anheuser also owns its own canning facilities in the United States. This gives it a cost advantage

in relation to what its competitors costs are to obtain their containers. Its canning operations

constitute the second largest aluminum can recycling and production operations in the country.

It has also used these facilities to increase the level of recycling and reduction of waste material

associated with its products. The company has owned and operated its own fleet of refrigerated

rail cars since the early 20th century. This has allowed it to reduce the costs of transporting its

products to distributors. These cars have also allowed Anheuser to maintain the high level of

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quality that it has become known for. Anheuser’s packaging business is also located in St. Louis,

and ships out materials to individual breweries when needed.

Anheuser has an extensive distributor network that is owned by private individuals which it feels

will ensure higher performance. These individuals distribute the product to local retail outlets

for ultimate consumption. The use of the franchised distributorship allows the company to

maintain control over their distributors and also allows Anheuser to spend more time on its

production process. Anheuser also owns several other non-related properties such as theme parks

and media groups throughout the world.

Human Resources

Anheuser’s human resources department has a strong commitment to obtaining the right people

for its core business. Their emphasis is on retaining their employees and allowing them to

become a part of the corporation.

Information Systems

Anheuser-Busch has recently funded a new high speed ordering systems for its distributors. This

system allows the distributors to order new products immediately from remote locations within

their territory. The system should eventually run much like the EDI system Wal-Mart installed

in its retail centers. As with Wal-Mart, when a product is sold at a retail location, it is then

automatically ordered from the brewery in its area, sent to the distributor, and then delivered to

the location. Its intention is to reduce stock-outs, and improve the efficiency of product delivery.

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The new emphasis on born on dates can also be monitored through this process in order to cut

down on the sale of stale beer.

SWOT ANALYSIS

Potential Internal Strength

• Core competencies in marketing, distribution, production, and procurement

• An acknowledged leader (ranked #1 world wide)

• Outstanding image and reputation

• Economies of scales – cost advantage due to volume of production (91.3 billion barrel)

• Advertising know-how – lots of memorable campaigns

• Product innovativeness

• Lower overall unit cost relative to competitors

• Cultural diversification due to its wide international presence and partnerships

• Excellent manufacturing facilities established world wide

• Adequate financial resources

• Strong tradition in quality and service

Potential Internal Weakness

• Heavily leveraged

• Overly restrictive with regards to distributors

• Disloyalty to employees

• Conflict among top management and union officials

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Potential External Opportunities

• Expansion into new markets and segments (Russia and the Baltic states)

• Expand product line – for new areas and to accommodate changes in taste and preference

• Ability to transfer skill to new business units domestically and internationally

• Integration forwards and backward

• Ability to grow rapidly because of expansion into new markets

• Falling trade and ownership regulations in foreign countries

Potential External Threats

• Tax regulations on the beer industry

• Declining segments within the domestic market

• Slowed industry growth rate

• Legal issues dealing with underage drinking – retailers license may be revoked or suspended

• High quality import beers with lower prices

• Changing buyer taste and preference

• Consumer health concern (switching to non-alcoholic beverages)

PROBLEMS
• The beer industry is experiencing a decline in some of its market segments

Americans are drinking less beer, which comes as a shock to the beer industry

who was enjoying a long-term upward trend. There is only a 5% annual growth

rate of people turning 21 as opposed to the 2 % annual growth rate in the past.

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 The other cause of the decline is attributed to the aging baby boomers (age 34-52)

that are drinking less, but require the best when they do drink. In addition, people

are drinking more fruit juice and water as refreshment, which can be associated

with the trend toward healthier lifestyles. There is also a growing trend in coffee

shops as a replacement for bars.

• Possible Teamsters Strike

Talks are being held for negotiations on a new contract for 8,000 Anheuser-Busch

workers. The negotiations began November 18, 1997. The Teamsters union's top

priority is job security and the company's proposals would result in a loss of more

than 400 jobs nationwide. Anheuser-Busch wants to make jobs more flexible,

change the grievance process and reduce absenteeism. Both sides have said they

do not want a strike, but should there be one all breweries will continue to operate

with salaried personnel.

Currently, the Teamsters are encouraging the workers to reject an 11.5 percent

pay rise because little progress has been made on key job security issues. The last

strike was in 1976 after the Teamsters rejected a 30% wage increase that would

have taken place over a 3 years period. The main cause for this strike was

Busch's six new and highly automated plants, which left 8,000 workers idle.

This strike shut down all Anheuser-Busch plants in the U.S.

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RECOMMENDATION
• Anheuser-Busch should increase advertising targeted at the baby boomer generation.

Anheuser should focus on some of its higher quality beers. Beers such as Michelob,

Ziegenbock, and Pacific Ridge Pale Ale would cater to the baby-boomer generation’s change

in taste/preference and offer a more distinctive taste.

• Anheuser uses contract worker throughout their brewery and packaging division. These

employees are forced to work overtime and are not paid benefits. This saves the company a

great deal of money, but causes uncertainty about job security and angry in the employees.

Dealing with this issue will take a lot of time and negotiation. It is vital that Anheuser-Busch

keeps the communication channels open as well as an open mind for solving these problems.

• Because of the stability and high relative dividend pay-offs that Anheuser provides its

shareholders, this stock would be recommended as a “buy” for investors who want a good

investment for the long-term. Since it is firmly established in its primary markets, and each

market has reached maturity, the chance for quick gain is small. However, for those

investors wanting a strong stock that should continually increase in value over time, and offer

high dividends, then this stock is for you.

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Anheuser-Busch
Company Audit

Present to:
April 15, 1998

Presented by:

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 TABLE OF CONTENT

BACKGROUND

SITUATION ANALYSIS

INDUSTRIAL ANALYSIS

FINANCIAL ANALYSIS

STRATEGIC ANALYSIS

MANAGEMENT INFORMATION

SWOT ANALYSIS

PROBLEMS

ALTERNATIVES

RECOMMENDATION

APPENDIX

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