A cut too deep? Comment
Just as well the management guru, the late Peter Drucker, never publicly cast a verdict on the brewing industry’s managers. He would have found compelling grounds for a less than flattering assessment. Spurred by InBev’s Brazilian managers and their cost-cutting mantra, brewers the world over have re-written their management books. Their First Commandments now read unisono: “cut cost”.
Admittedly, this emphasis on costs has awarded some – not all – with outsized profits. But at what risk?
Recently, shareholders chided SABMiller for spending too much money on consultants. Sorry folks, an increased dependence on outside know-how is what you end up with if you ax too many jobs. Being slim is alright. Being anorexic isn’t.
I found it interesting to note that some investors have begun to question the cult of cost-cutting that InBev’s Brazilian managers have introduced at former Anheuser-Busch. Ok, some of the costs they have cut were low-hanging fruit: they fall into the category of perks enjoyed by Anheuser-Busch’s former executives. The goodies taken away from managers were corner offices, executive prerequisites and corporate jets. Instead, Anheuser-Busch’s top brass now has to make do with shared desks, plastic cutlery and coach class plane tickets.
But people familiar with the situation have aimed even more serious charges at AB-InBev’s management: that maintenance budgets have been slashed, investments in plant and equipment scaled back and quality standards driven down.
When it comes to product quality, there comes a point when excessive cost-cutting begins to show – and your product becomes unpalatable.
Nevertheless, AB-InBev have few options. Their debt stands at more than 70 percent of total capital.
Some investors have already issued caution: the U.S. beer market is complex and does not compare with an emerging market like Brazil. Whatever AB-InBev’s managers do in the U.S., they have been warned that it might lead to a deterioration in sales.
Anheuser-Busch’s managers were definitely full of themselves. But they were no fools. Otherwise they would not have been able to nudge up A-B’s market share to 50 percent on organic growth alone.
Most of these guys have left the brewer or were made offers they could not refuse.
Now the new masters can prove to the world that they have got the wherewithal to steer a world-class company through a complex integration process and an economic crisis thrown in for good measure.
