FOXA - Anheuser-Busch InBev Likely Won't End 'Woke' ESG Strategies

2023-07-15 01:51:30 ET

Summary

• Fox News has doubled its negative coverage of Bud Light in just 10 days. Despite the prolonged & continued attack, AB InBev has remained silent.
• YouGov poll suggested Bud Light was no longer a top 10 favorite beer in the US. Yet the beer remains a top 5 selling beer in the US in May.
• Positive quarterly reporting suggests the AB InBev is not feeling a hit to its bottom line, most likely due to its larger portfolio of brands.
• ESG strategies are unlikely to change at AB InBev, as the debate remains focused on the Bud Light brand and has not spread.

Anheuser-Busch InBev ( BUD ) is showing no sign of backtracking from its commitments to ESG, including gender inclusivity which saw the brand face consumer backlash over its marketing campaign featuring trans activist Dylan Mulvaney.

Transgender Support Was Already Entrenched Prior To Mulvaney Video

Just weeks prior to the Instagram video in particular that sparked the backlash , AB InBev released their 2022 ESG report . Within the document, they highlighted a focus on gender equality, including for LGBTQ+ employees. One of the brand's initiatives was described as;

...inclusive benefits such as gender-affirming medical support for transgender colleagues in the US and Canada and financial and legal support for name changes for colleagues in Brazil and Colombia.

The brand has also made no secret of the fact that it wishes to change its image within the consumer's mind, as the marketing VP described in an interview "fratty" and "out of touch" humor of the brand.

AB InBev is highly unlikely to deviate from any of its inclusive and LGBTQ+ strategies, given the debate has been almost exclusively focused on the Bud Light brand. It would not make sense to change its global policies, based on the backlash concentrated around just one brand in one market.

And despite the noise from right-wing voices, AB InBev's portfolio of brands has delivered on continued growth, despite reports that Bud Light sales had fallen as much as 30% .

Brand Silence On Controversy

The brand has also famously released very little in the way of official statements regarding the controversy.

But in mid-June the brand made an announcement to the market that it was providing financial support to wholesalers who had struggled to place the beer brand on store shelves.

The third point of this statement noted;

Third, to all our valued consumers, we hear you. Our summer advertising launches next week and you can look forward to Bud Light reinforcing what you’ve always loved about our brand – that it’s easy to drink and easy to enjoy.

As we move forward, we will focus on what we do best – brewing great beer and earning our place in moments that matter to you.

This statement to the market is interesting from a marketing and PR perspective, in that it was completely hidden away where the consumer wouldn't be likely to actually see this. This document, part of a Form 6-K, would have barely been read by the majority of retail investors who would have been alerted to its presence, let alone the general public.

Search news headlines in the week following this announcement , and you'll note the press failed to pick up on this statement altogether (in fact, only 2 news articles appeared to even note the financial support for wholesalers).

One of the golden rules of managing a PR crisis, is not to ignore a crisis or offer "no comment". Brands cannot hide from crisis, especially in the era of cancel culture.

That said, its hard to ignore the "...we hear you.", and consider that there may be some change at a strategy level. However, I believe the brand will not waiver from their goals of promoting inclusivity, though they may be a little more selective in their partnerships going forward. If the brunt of criticism is past them, why stop now?

And head over to AB InBev or Bud Light's Twitter pages and you'll note that marketing efforts have largely continued "business as usual". Further evidence the brand has chosen to ignore the angry mob.

However you would note that replies to the brand's content continues to be filled with comments angry at the brand, alongside anti-trans messages and claims the brand has not apologized to its customers.

Last 10 Days: Fox Has Doubled Coverage Of Bud Light

Fox News (owned by Fox Corporation ( FOX )) has stepped up its coverage of Bud Light in recent days, doubling its content critical of the brand since the April controversy.

Much of the news outlet's coverage has focused on the brand's attempts to start to move beyond the controversy through marketing campaigns for July 4th and the summer holidays.

Fox has chosen to push narratives suggesting the boycott by angry consumers continue to mock the brand and that marketing campaigns appear "desperate", and featuring 4th of July interviews with consumers pledging not to consume the beer.

Boycott? What Boycott?

A YouGov poll (of a statistically insignificant 1,468 consumers) is being pushed by some media outlets suggesting that Bud Light has fallen "...outside top 10 favorite beers in the US" . Despite this, Circana reports that the top-selling brands in the US for May were:

• Modelo Especial ($333.1 million)
• Bud Light ($297.3 million) Owned by AB InBev
• Michelob Ultra ($267.6 million) Owned by AB InBev
• Coors Light ($241 million)
• Miller Lite ($216.4 million)

While sales are no doubt down for Bud Light, the brand is still a top seller, and other brands owned by AB InBev (including Corona, Stella Artois ( a major 2023 Wimbledon sponsor ) & Becks) will no doubt see a trickle-down lift in sales.

Investors: Nothing To Worry About Here

Despite breaking the golden rules of crisis management, an aggressive and continued campaign by a major news outlet, a 30% slump in sales, and burying the lead on a response to angry consumers, AB InBev looks to be weathering the storm extremely well.

Posting some excellent quarterly figures has certainly helped the case for the brand, and the vast majority of critics will eventually lose interest in the boycott campaign and move along.

I believe investors can, and should, remain bullish on AB InBev and see market jitters about a boycott as little to be concerned about.

Looking forward, US Elections are coming in November, and these will dominate the news cycle as Joe Biden looks to be re-elected, while Donald Trump will continue to be unpredictable and newsworthy as he fights off Republican nominee contender Ron DeSantis.

This will give Fox plenty to play with, and AB InBev can take a drinks break.

Is InBev A Large Cap Value Buy?

Given the stock has fallen some 12.6% since the controversy began, the PE ratio has fallen from ~17.5 to 15.59, and now sits at a PEG of 0.20, suggesting strong value exists in the stock's current price vs future earnings.

InBev is the largest listed brewer on the market, which deserves a premium valuation (InBev is almost double the size of its next largest listed competitor, Heineken N.V. ( OTCQX:HEINY ), with a PE of 21.22).

BUD's PE ratio has typically floated around the 24 mark, suggesting a typical price at today's EPS ((TTM)) of $88.94.

This positive value thesis is supported by several other SA Authors , but readers will note the overwhelming majority of analysis placed BUD on a HOLD recommendation. However, I would critically consider the majority of the "hold" analysis place long-term views on a short-term news cycle around the Mulvaney controversy. Not to mention that is a controversy affecting only one brand in one market, in their global portfolio.

What If This Is Forever?

Imagining a scenario where irreversible damage has occurred to the Bud Light brand, and traditional consumers of the beer don't return, InBev will need to consider whether it will discontinue the beer, spin off the asset, or consider attempting to rebrand the beer in line with its organizational beliefs.

Whilst discontinuing a brand or spinning off the asset have relatively predictable outcomes (write-off on the InBev balance sheet or swap assets, likely at a discount), a rebrand however carries some unknowns, and both upside and downside risk.

Bud Light would not be the first brand to upset its consumers and have to undergo an overhaul. Consider Volkswagen ( OTCPK:VWAGY ), in September 2015 news broke of what became known as "Emissionsgate", after the EPA issued a notice of violation of the Clean Air Act when it was discovered the carmaker was cheating in emissions tests.

In 2020, the brand deployed a campaign to completely reinvent itself, adopting a human-first, digitally focused brand , moving away from the stiff, cold, old-school European brand.

The rebrand included a new logo, a no-filter vision of the company's image, and a female voice to present the cars. The brand's visual identity includes a color-pop, a simplified 2D logo, a more "realistic scenarios" for consumers to relate to, according to the brand's CMO Jochen Sengpiehl.

The rebrand will take time to permeate the market, no investor can hope for an overnight success, VW's car sales have been sliding over the years, but the brand continues a positive trend on its recovery, building back trust.

InBev should expect a slow shift as well in market sentiment in the event of a rebrand, and the challenge will be finding what direction that shift should take.

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