Bud Light Lime: Sweet or Sour?

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Brew Blog

Analyst report raises questions about brand.

Will Bud Light Lime be the next Michelob Ultra or the next Bud Select?

That’s one of a number of intriguing questions raised in a recent report from Credit Suisse that looks at the brand’s prospects and potential impact for Anheuser-Busch.

The report says that “assuming typical A-B execution, the distributor push machinery can likely reach a 1% share of off-trade channels within a short period, regardless of the brand’s merits.” If consumers like the brand, 1 million barrels in the second year “is a real possibility.”

While incremental volume and higher pricing can help A-B’s volumes and price mix, big questions loom.

One concerns the brand’s long-term potential. “The last time A-B had a bona fide hit on its hands was Michelob Ultra, the low-carb spin-off of Michelob Light,” the report says. It goes on to say: “We think Bud Light Lime is an interesting concept, but in comparison to Ultra, the brand looks like a ‘me-too’ that imitates the taste (Miller Chill), look (Corona) and positioning of other established products.”

The risk:

Although Bud Light Lime may hold up BUD results for 2008 in a similar fashion to Michelob Ultra, the two-year risk is that BLL does not catch on and the company walks away from the brand as it has done in the past with other me-too products with little reason-for-being (World Select, Killarney’s, Bud Select, Tequiza, et al).

Another big question is whether Bud Light Lime will cut into Corona. That affects A-B, because the No. 1 brewer has an equity interest in Grupo Modelo. And that equity income has been a driver of A-B’s earnings for years.

From the report:

Looking ahead to the summer, we think Bud Light Lime will hold up volumes and mix in the U.S., but perhaps at a price to Grupo Modelo. If Corona remains in a weakened state and this is exacerbated by the BLL launch, we think equity income would slump in the short-term with negative impact for BUD shares.

The report also suggests potential longer-term brand implications:

Our broader fear is that Bud Light with Lime may prove instrumental at further slowing Modelo’s weakening business in the U.S. If A-B walks away from Bud Light Lime at some point down the line and Modelo remains weakened by it, competing products may fill that void. This may ultimately serve to reduce A-B’s overall U.S. profit pool exposure from current levels, unless A-B can figure out a way to get closer to Grupo Modelo. We can not rule this out.

The report can be seen here.

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