Michelob Ultra’s runaway success exposes Bud Light’s struggle

No doubt about it, Michelob Ultra Light is on a roll.

It’s consistently ranked at or near the top of Nielsen’s weekly Top 10 growth brand list, gaining 0.8 volume share so far in 2017. It now comprises nearly 10 percent of Anheuser-Busch Inbev’s total volume, the company says. It is so bullish about the brand, in fact, that it recently laid out plans to launch a brand extension called Michelob Ultra Pure Gold (see second item in link.)

But a big question facing the brewer is how much of that growth has come at the expense of flagship Bud Light, and whether it undermines the brewer’s ability to turn around the biggest beer in America.

The issue surfaced during ABI’s earnings call in late October, with CEO Carlos Brito acknowledging Michelob Ultra has been cannibalizing Bud Light.

“Some of the Bud Light issues are … caused by the growth of brands like Ultra,” Brito said. But he noted, “The thing to remember … is that … the Michelob Ultra margins are way better than Bud Light.”

That’s certainly true, but a higher-margin brand siphoning sales from the biggest brand in the industry can be a double-edged sword.

Bud Light and Budweiser “are the stability for the entire Anheuser portfolio,” says Joe Thompson, president of the Independent Beverage Group, a Richmond Hill, Georgia-based consulting firm.

“This clearly hurts the mother ship and it makes their overall platform less secure, rather than more secure,” Thompson said. “To the extent (Michelob Ultra) hurts Bud Light makes it more difficult to stabilize the entire company.”

That’s a point not lost on distributors.

“Look, they’re grateful and thankful for Mich Ultra because if they didn’t have it, they’d really be in trouble,” Thompson says. “But they’re (unhappy) with the fact they haven’t been able to turn Bud Light around. They’d like if Anheuser could walk and chew gum at the same time, and so far, they haven’t been able to do that.”

Indeed, the company’s share of the U.S. beer market fell to 44.1 percent in 2016 from 48.2 percent in 2011, according to Euromonitor International data cited by the Wall Street Journal.

Leadership changes

And that may have cost a few of ABI’s North American executives their jobs. João Castro Neves, who runs ABI’s U.S. subsidiary, Anheuser-Busch, will step aside Jan. 1 “to pursue other opportunities.” He’ll be replaced by ABI’s chief sales officer, Michel Doukeris.

Castro Neves’ departure is part of a larger leadership changeup that includes other executive changes including in its sales operation. Alex Medicis, who ran ABI’s North American sales operation, also is leaving the company, to be replaced by a former PepsiCo alum, Brendan Whitworth.

Among their immediate tasks will be to help prop up Bud Light, which has lost share in part because consumers are shifting into Michelob Ultra, Nielsen Homescan data for the 52 weeks ending Aug. 28 show. ABI brands drive about 46 percent of consumer shifting into Michelob Ultra, compared with about 23 percent for MillerCoors.

The biggest source of Michelob Ultra volume is Natural Light, though that's driven largely by an outsized performance in the Southeast region. That was followed by Bud Light with a low-teens share, and Miller Lite close behind. Coors Light represented less than 3 percent of the total volume moving into Ultra.

That runs counter to what Azania Andrews, the ABI vice present of marketing for Michelob Ultra, told Beer Business Daily earlier this month (subscription required.) According to the report, Andrews said Ultra is “sourcing a lot of share from Coors Light, which is the main area of their focus.”

Representatives from ABI did not return an email seeking comment.

In the Central region, which includes Texas, Bud Light is the No. 1 source of Ultra shifting, comprising 34 percent of source volume, per Nielsen.

Bud Light's quest for relevance

Indeed, even as Michelob Ultra has ridden on consistent positioning and marketing targeted at active-lifestyle adults (and price promotion), Bud Light is still trying to find its footing after nearly a decade of declining sales.

After cycling through a series of marketing leaders and campaigns, ABI brought back Andy Goeler from its High End division to rejuvenate the brand. Since returning, he has rolled out a series of ads that focus both on quality and humor.

The rise of Michelob Ultra, while damaging to Bud Light volume, isn’t all bad news, says Kevin Lane Keller, professor of marketing at the Tuck School of Business at Dartmouth College. “You’d rather keep people in your broader brand franchise than the alternative.” After all, he notes, drinkers “are still within the portfolio.”

Still, Keller says, Ultra’s ascent “is not the Bud Light problem. The Bud Light problem is more Bud Light.”

Which makes Goeler’s attempt to turn it around in the U.S. — ABI’s largest market — critical. It’s not going to be easy.