Although it was a birthplace of the blues, writer T.S. Eliot and the ice cream cone, the American city of St. Louis enjoyed cultivating its fame as the national capital of beer. It was here, on the banks of the Mississippi, that one of the greatest American icons was born, Budweiser, produced since 1876 by Anheuser-Busch. Over the years, the company and the city developed a rare symbiosis. The Busch clan, which was at the helm of the brewery for six generations, worked as a sort of local patriarch, donating tens of millions of dollars to charity and financing artistic events. Youths dreamed of working at the "brewery", as Anheuser-Busch is called in the city. The salaries were above average and the company pampered its employees with free cases of beer, tickets to baseball games at Busch Stadium and to the Busch Gardens theme parks (as you can see, the family name is everywhere). St. Louis was loyal in return: almost seven out of every ten bottles of beer consumed in the city came from Anheuser-Busch's factory, a far greater average than the country's 50%. Drinking Budweiser was a matter of city pride, given the enormous rivalry between St. Louis and Milwaukee, where Miller was born. But that story came to an end on November 18, 2008, when St. Louis' dearest company was bought out by the Belgian-Brazilian group InBev. The city has been trying to grow accustomed to a new reality ever since - St. Louis is no longer the capital of anything. To make matters worse, the aristocratic and generous Busch family was replaced by a small group of Brazilian executives who wear worn jeans, could not care the least about centuries-old traditions and are turning the largest brewery in the United States upside-down. The employees themselves summarized the painful transformation: the address of company's headquarters, 1 Busch Place, has a new nickname among them - 1 Brito Place.
The Brito in question is Carlos Brito, from Rio de Janeiro, ABInBev's global president. He runs that which is the largest brewery in the world, born after InBev acquired Anheuser-Busch. Although its headquarters is in Belgium, ABInBev has the DNA of a Brazilian company. Nine of the top 13 executives made their careers at AmBev, the brewery's Brazilian branch. Luiz Fernando Edmond, of Rio de Janeiro, former president of AmBev, was sent to St. Louis to personally command the incorporation of Anheuser-Busch. Today, those Brazilians have the most difficult mission of their careers: make the largest acquisition in the history of the sector work. The purchase of Anheuser-Busch was an old dream of AmBev's controllers, investors Jorge Paulo Lemann, Marcel Telles and Carlos Alberto Sicupira, who currently share command of ABInBev with a group of Belgian families. But the deal ended up being concluded at the worst time possible, in the midst of the panic at the end of 2008. In order to close the deal, InBev had to pay a lot and go dangerously in debt - 45 billion dollars in loans were taken out to conclude the 52 billion dollar acquisition. Besides that, the greatest post-war recession made the American beer market shrink.
However, results show that Brito, Edmond and their personnel were up to the task. On March 4, the company releases the results for its first full year at the helm of AB. According to analysts heard by EXAME, the company will announce that Brito and Edmond cut more than 1 billion dollars in costs at AB last year - more than promised on the day of acquisition. At the same time, the company paid part of its debt by raising nearly 9 billion dollars from the sale of its Busch Gardens parks and of breweries in Europe and Asia. Once again, that is more than promised. This performance can be explained by the size of the reward awaiting the Brazilians should they be able to make the purchase of Anheuser-Busch work. AB InBev shareholders offered a major incentive for the executives to reduce the company's indebtedness to levels considered normal: a package of 28.4 million in stock options for the 40 executives at the top. They have until 2013 to reach the goals. If they fail, they don't get a penny. If they succeed, things will be very different indeed. According to calculations by Stifel Nicolaus, an analysis company, the 40 employees will share nearly 1 billion dollars if ABInBev's market value remains at current levels. However, since this award will be paid in stock, the value could multiply. If the stock doubles in value over coming years (something considered plausible by analysts), the package could exceed 2 billion dollars. In this optimistic scenario, Brito alone would take options evaluated at more than 200 million dollars. If the envious reader has already begun to cheer against them, here is some bad news: "If they maintain the current pace, they could reach the goals at the end of next year, two years before their deadline," says Trevor Stirling, analyst at Sanford Bernstein.
For the Brazilian executives, cutting heads and costs after acquisitions is already a tradition that began when Brahma bought Antarctica in 1999. Then came Quilmes, in Argentina, Labatt, in Canada, and Interbrew, in Belgium. The recipe was the same in each of these cases: a mixture of obsession for efficiency with remuneration tied to performance. These are the pillars of the model born at Brahma and that spread like a dominant gene after each merger or acquisition, always improving results on the way. However, this never occurred on the scale, and most of all, at the speed with which ABInBev's Brazilians are transforming the largest brewery in the United States. Until November 2008, Anheuser-Busch was a sort of anti-AmBev. The company had six planes and two helicopters to transport its employees (the fleet was known as Air Bud). While Brito goes from his house in Connecticut to his office in New York by train, the boss August Busch III used to go to work by helicopter. The executives had luxurious offices. Even Busch Gardens employees used to get two free cases of beer per month. As the workers enjoyed their free Buds, Anheuser-Busch kept getting less and less efficient. For example, its operating margin was less than half the margin obtained by AmBev. "I don't need free beer," said Brito in 2008, in an involuntary summary of the abyss that separated the two companies. "I can buy my own beer."
Among the main reasons for acquisitions to fail, so-called "culture shock" is one of the main suspects. This shock causes paralysis and the consequences are slowness in obtaining results and disappointment for purchasing company shareholders. When the union between InBev and AB was announced, analysts prophesied - here comes culture shock. But that's not what happened. There was, let's say, a culture massacre. Brito and Edmond adopted the Machiavellian maxim according to which it is best to do all the damage at once. Weeks after concluding the deal, 1400 employees were laid off and 480 of the company's 1200 BlackBerries were taken back. One beautiful day, the executives arrived at 1 Busch Place and noticed that their luxurious offices were being demolished by sledgehammers. "It looked like they had thrown a bomb on the 9th floor," says a top executive at Anheuser-Busch. "There was mahogany everywhere." Large community tables were set up for the directors, the secretaries began to be shared and the furniture was auctioned. Air Bud was put up for sale and the employees began to fly economy class. In order to make it clear that times had changed, lists of those executives who spent the most on trips or with tips began to circulate at the company, like a sort of "employee of the month", but the other way around. The remuneration structure will change in the future. Salaries will be set below market average and the variable part will be higher than the average. Benefits like life insurance for retired employees are already being cut. But the 230 Clydesdale horse, symbols of Anheuser-Busch and kept by the brewery, have not been affected by the changes, yet.
The arrival of the new owners was received with contradictory feelings among AB executives. At the same time that they fought against InBev's hostile offer, there wasn't much hope things would get better under the command of the Busch's - since they had a good portion of the shares, the acquisition could be good business. "We could have bought AmBev ten years ago," says a former director of the company. "But we stood still, and this is the result." The disappointment was so great that even Goldman Sachs, hired by AB to assist in defending against InBev's offer, nicknamed the Busch's Crazy (August Busch III, who didn't know what he wanted) and Lazy (his son August Busch IV, who did little to avoid the sale). At the same time that disparagement for the Busch's grew, Brito impressed with his masked theater performance so characteristic of hostile takeover attempts. In an interview with the St. Louis Post Dispatch, Brito said AB's executives shouldn't be afraid. "We love, respect and like them and what they did with the company and the brand," said Brito. Finally, some aspects of AmBev's culture fascinated Anheuser-Busch's top executives. Employees accustomed to taking pride in their looks were informed that jeans would be the uniform from that moment on. A new boss full of love; go to work in jeans. Didn't seem all that bad. The joy lasted a few weeks. Soon, 14 of Anheuser-Busch's 17 top executives lost their jobs.
St. Louis Blues, one of the most famous songs in American history, tells the story of a depressed woman who lost her lover to an uptown girl with diamond rings. The song was written 96 years ago, but it perfectly captures the spirit that hit the city after the sale of Anheuser-Busch. Of course, inside the company, the climate is very tense after a year of such dramatic change. "No one knows who will be next to go," said an employee with more than three decades at AB to EXAME. They are certain company headquarters will end up being transferred to New York, taking even more jobs away from St. Louis. But, in reality, the changes at Anheuser-Busch affected the entire city. The comment pages for the blog specialized in beer, Lager Heads, of the St. Louis Post Dispatch, have become the best thermometer to measure the popularity of Anheuser-Busch's new owners. There, employees, former employees and common citizens are dedicated to throwing stones at the Brazilian executives. Brito, who they call "Carlos Burrito", is the main target. The commentators are NOTOBRITO, InBevhater and BoycottBud. To them, Anheuser-Busch's new owners are "Brazilian banditos" (just like that, in Spanish) and "Third World administrators". "The new owners do not have the least bit of respect for Anheuser-Busch's traditions, and their greed is a slap in the face of the American worker," an employee who left the brewery in April told EXAME. "Rest in peace, AB." Sound like a blues tune?
It is true that under the command of Edmond, the company is no longer concerned about being a good corporate citizen and began to use its power to make every cent possible. One of its first moves was to squeeze suppliers. Payments began to be made in 120 days, and no longer in one month. Small, local companies that had supplied AB for six decades were cut, and those that were kept were obliged to wait four months to get paid. These changes created some noise in the city until local giant Emerson, which earns 21 billion dollars per year, declared war on the new brewery owners. In April, the equipment company that supplies Anheuser-Busch decided to boycott the brewery's products at its corporate events. "After InBev's acquisition of AB, we saw bad things happen in the city of St. Louis and in our relationship with InBev," the company informed in an internal communiqué. "We want all divisions to obey and to stop buying ABInBev products. We suggest Coors, Miller, Modelo (Corona etc.) and Heineken." The generalized ire caused a rare phenomenon: Anheuser-Busch's market share in St. Louis fell last year. Meanwhile, sales of the local brewery, Schlafly, grew 38% in the same period. "The city was very loyal to AB, and that changed with the sale to InBev," says Dan Kopman, founder of Schlafly. In 2009 alone, he received nearly 1000 resumes from former Anheuser-Busch employees.
The loss of market share in St. Louis was already being projected at ABInBev. But Brito's problems are much bigger than that. Anheuser-Busch's sales volume fell 2.2% in the United States last year. According to preliminary data, it fell 12.2% in January. Of course, that is one of the effects of the recession - and the fact that Anheuser-Busch and MillerCoors, which together control 80% of the market, raised prices by 5% in 2009 did not help. But, according to analysts, Anheuser-Busch's recent performance is the result of two different problems. The first is the decadence of the Budweiser brand, a phenomenon that has been occurring for two decades now. In 1989, Budweiser owned 25% of the American market. Today, its market share does not exceed 9.3%. Over the fast five years, Budweiser's fall has cancelled out the growth of all other Anheuser-Busch brands. The second phenomenon is the change in consumer habit. Americans are drinking more and more craft beers, like Schlafly, creating a problem for large breweries. "Anheuser-Busch doesn't have good craft beer brands, and that is where growth is today," says Mark Swartzberg, of the resource manager Stifel Nicolaus, in St. Louis. This phenomenon is expected to intensify in coming years, when the economy rebounds and consumers don't need to tighten their belts as much. Actually, that's a problem ABInBev knows well: in Western Europe, consumers have been switching from traditional beers to more expensive brands, or even other types of beverage, like wines and spirits, for years now. In Belgium, Interbrew's birthplace, beer consumption fell 20% from 2000 to 2008.
This drop in sales last year shows that cutting 1 billion dollars in costs does not come without some risk. One of Brito and Edmond's main targets was Anheuser-Busch's celebrated marketing department, responsible for simple and anthological campaigns, like the frogs that croaked Bud-wei-seeeer. InBev fired all the heads in the department. The victims included Robert Lachky and Tony Ponturo, two of the most influential marketing people in the United States. At the same time, the new administration cut commissions paid agencies, reduced the number of ads produced per year and decreased the emphasis given sports events. "Anheuser-Busch's marketing executives were among the best in the world. They are people who know the American consumer better than anyone," says Ann Gilpin, of Morningstar, a company that analyzes publicly-held companies. "It is very risky to make changes that way." For ten years running, Anheuser-Busch won awards for the best Super Bowl ads, the American football championship final and the most important advertising event of the year. It stopped winning in 2009 and 2010.
In face of the drop in sales, ABInBev executives will have to find new ways to achieve their performance goals. One of those is the purchase of Mexican brewery, Modelo, which would help drive cash generation at ABInBev (today, ABInBev already owns 50% of the Mexican brewery's shares). From now on, no one doubts that cutting costs will be an even more difficult task than last year. In St. Louis, the announcement of more layoffs was expected for March - due to an agreement made just before acquisition, employees who belong to the union are guaranteed their jobs until 2013. One possible source of savings is an attack on the enormous and powerful network of Anheuser-Busch's independent distributors. The company can try to increase the amount of beer it sells directly to retail. In Europe, ABInBev announced in January it would layoff 10% of its employees, and the decision was followed by a wave of protests that included work stoppages at factories. Protesters went to the point of taking brewery employees hostage. "ABInBev social assassin", said the banners extended by strikers, who could not accept the fact the company was announcing fantastic results every quarter and still insisted on layoffs.
The magnitude of protests in Europe is an indication of the image risks ABInBev is running in the American market. It is curious that the management model adopted by Jorge Paulo Lemann at Garantia bank, at Brahma, at Lojas Americanas and at the GP investment fund was born in the United States. Lemann never hid the fact he was inspired by the meritocracy culture at the investment bank Goldman Sachs, famous for its intolerance for mediocrity. But, in the post-Lehman Brothers world, Goldman has become the biggest whipping boy for American capitalism - and the culture based on rewards for achieving performance goals is now in check. In February, after the most profitable year in Goldman history, the bank's president, Lloyd Blankfein, was forced to accept a smaller bonus than his rivals to avoid a public relations crisis. Now imagine what could happen with the ABInBev executives if they meet their goals and make hundreds of millions of dollars in bonuses after a drastic cost cutting program at one of the greatest American icons. Therein lies the irony. The Brazilian management culture at ABInBev was born on Wall Street, traveled around the world and ended up back in the United States, but it arrived at a time when success is totally out of fashion.