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Digital Investments & Premiumization to Aid AB InBev (BUD)

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Anheuser-Busch InBev SA/NV (BUD - Free Report) , alias AB InBev, has been in investors good books thanks to its unique commercial strategy, strong brand portfolio and investments in operation excellence. This has been aiding market share growth across most key markets. The expansion of the Beyond Beer portfolio, and investments in B2B platforms, e-commerce and digital marketing bode well. The premiumization of the beer industry has been a key growth opportunity for AB InBev.

Despite strong revenues, investors’ sentiments continue to be hurt by high costs and supply-chain headwinds, affecting margins. The company’s gross and EBIT margins declined in second-quarter 2022, driven by higher cost of sales and SG&A expenses. Higher SG&A expenses resulted from elevated supply-chain costs.

Let’s take a sneak peek into the factors positioning BUD for growth.

Premiumization & Business Momentum

Continued business momentum due to relentless execution, brand investments and accelerated digital transformation aided AB InBev’s second-quarter 2022 performance. The company is anticipated to retain the strong business momentum on continued premiumization efforts and favorable industry trends. The company has been investing in a diverse portfolio of global, international and crafts and specialty premium brands in its markets. Apart from the premium brands, BUD’s global brands lead the way in premiumization.

Backed by the continued business momentum, AB InBev retained its upbeat view for 2022. It expects EBITDA growth in line with the medium-term outlook of 4-8%. BUD anticipates revenue growth to be higher than EBITDA growth, driven by strong volume and pricing.

Digital Expansion

The rapid expansion of its digital platform and leveraging of technology such as B2B sales and other e-commerce platforms have been key drivers for BUD. The company has been witnessing an acceleration in the B2B platforms, e-commerce and digital marketing trends, aiding growth for the past few months. The company’s proprietary B2B platform, BEES, is live in 18 markets and has reached 2.9 million monthly active users.

In the broader beverage space, Coca-Cola (KO - Free Report) has been witnessing a splurge in e-commerce, with the growth rate of the channel doubling in many countries. The company has been accelerating investments to build strong digital capabilities. KO is evolving into an organization that efficiently executes marketing, commercial, sales and distribution, both offline and online.

Coca-Cola is strengthening consumer connections and further piloting numerous different digital-enabled initiatives through fulfillment methods, be it B2B to home or B2C platforms in many countries, to capture online demand for at-home consumption. Additionally, the online-to-offline partnerships with multiple food aggregators ensure beverage availability and visibility.

Fomento Economico Mexicano (FMX - Free Report) , alias FEMSA, is another beverage company focused on offering customers more options to make contactless purchases by intensifying digital and technology-driven initiatives across operations. The company’s Coca-Cola FEMSA (KOF - Free Report) is leading the way with its omni-channel business, while FEMSA Comercio is progressing with the adoption of digital initiatives.

Within its OXXO store chains, FEMSA is on track with investing in digital offerings, loyalty programs and fintech platforms to evolve stronger after the pandemic and over the long term. In the second quarter, FEMSA made progress on its digital efforts, with customer acquisition surpassing 15 million users. The users are part of the company’s digital ecosystem either through Spin by OXXO, OXXO Premia or both.

Coca-Cola FEMSA is the flagship segment engaged in the production and distribution of carbonated beverages. The division is the largest Coca-Cola bottler in Latin America and the second-largest Coca-Cola bottler globally in terms of sales volume.

Beyond Beer Investments

AB InBev is steadfastly growing its Beyond Beer portfolio, including products like Ready-to-Drink beverages like canned wine and canned cocktails, hard seltzers, cider, and flavored malt beverages. The Beyond Beer trend has been recently gaining popularity due to the rise in demand for low-alcoholic or non-alcoholic drinks.

The company remains focused on expanding its Beyond Beer portfolio, which has also been aiding the top line. The Beyond Beer portfolio contributed more than $425 million to revenues in the second quarter. BUD witnessed double-digit growth in Brutal Fruit and Flying Fish in South Africa. In the United States, the company’s portfolio witnessed growth ahead of the industry in the spirits-based ready-to-drink segment, driven by its Cutwater and NUTRL vodka seltzer.

Headwinds to Overcome

While AB InBev has been gaining from improving trends in key markets and continued premiumization in the majority of its markets, commodity cost inflation and higher supply-chain costs in some markets continue to be major headwinds. Higher commodity costs mainly resulted from increased aluminum and barley prices. Like others in the industry, the company expects higher commodity costs to continue, exerting pressure on input costs. BUD’s presence across various countries exposes it to negative currency translations. The company anticipates foreign currency to remain volatile.

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