Interbrew S.A. - Company Profile, Information, Business Description, History, Background Information on Interbrew S.A.



Vaartstraat 94
3000 Leuven
Belgium

History of Interbrew S.A.

With operations on every continent on the globe, Belgium's Interbrew S.A. ranks fourth among the world's brewing companies and first in its home country. The company emerged as a top European brewer in the late 1980s, when two Belgian brewing families merged their closely-held, centuries-old interests to form Interbrew. Under the direction of a succession of chief executive officers, the firm advanced from the middle ranks of the global beer hierarchy to the upper echelon via the US$2.7 billion acquisition of Canada's John Labatt Ltd. in 1995. Interbrew continued to be privately held into the mid-1990s.

Interbrew's strategy for growth has contrasted sharply with that of the beer industry's "Big Three." Anheuser-Busch, Heineken NV, and Miller Brewing Co. all focus on pushing their flagship brands throughout the world, while Interbrew has grown by acquiring leading national and regional brands, then investing in production and promotion to increase those beers' sales. By 1995, the company's stable of brands included Hungary's Borsodi Világos, Mexico's Dos Equis, America's Rolling Rock, and Canada's Labatt Blue. Interbrew cashed in on this cadre of specialty beers by exporting select brews, including its own Stella Artois, from one region to another.

Origins and Development

Interbrew was formed through the 1987 union of the Artois Brewery, owned by the de Spoelberch clan, with the Van Damme family's Piedboeuf Brewery. Artois traced its history to the late 14th century, when the Den Horen brewery was established in Louvain, Belgium. This business was acquired and renamed by master brewer SĂ©bastien Artois in 1717. It is not clear when the de Spoelberchs assumed ownership of the company, which retained the Artois moniker throughout the remainder of the 20th century. The Piedboeuf family brewery, on the other hand, was established in 1853 and acquired by Albert Van Damme in 1920.

Both companies undertook programs of European expansion through acquisition in the late 1960s, and even joined forces in 1971 to effect the joint purchase of a third Belgian brewery. The multi-brand strategy developed over the course of three decades, as both companies bought competitors in the Netherlands, France, Italy, and Belgium, yet retained these new affiliates' disparate brewing heritages and brands. This policy fostered the development of two families of truly distinctive beers. Stella Artois enjoyed a legacy that extended back to 1366, Leffe Blond was brewed in a tradition that could be traced to a mid-13th century Belgian monastery, and Hoegaarden was a white beer with more than five hundred years of history behind it.

When Artois and Piedboeuf merged in 1987, the joint owners hired José Dedeurwaerder to rationalize operations. A citizen of both Belgium and the United States, the new CEO shed inefficient plants, won concessions from organized labor, and invested heavily in the newest brewing technology. His efforts nearly tripled overall productivity, from 2.5 hectoliters (66 gallons) per man-hour in 1990 to 6.5 hectoliters (429 gallons) in 1995. In spite of these apparent successes, Dedeurwaerder abruptly resigned in early 1993. He was succeeded by Hans Meerloo.

Interbrew continued to pursue its strategy of growth through acquisition in the early 1990s. The company achieved full ownership of Belgium's Belle-Vue brewery and Hungary's Borsodi Világos brand beer in 1991. These acquisitions provide insight in to Interbrew's multibrand strategy. The firm groomed Belle-Vue for export to the French market, targeting this cherry-flavored wheat beer at women. A reinvigorated advertising campaign helped sell eight percent more Borsodi Világos in its first year under new management. Interbrew continued to penetrate Eastern Europe with the 1994 acquisitions of Rumania's Bergenbier and Croatia's Ozujsko. Although some analysts viewed Interbrew's burgeoning cadre of international beers as a liability, others noted that the company's "connoisseur" brands accounted for over one-fourth of its net income and only 13 percent of sales. While vital to Interbrew's overall strategy, all the company's late 1980s and early 1990s acquisitions paled in comparison to the events to come.

Interbrew Emerges as a Global Brewing Powerhouse in the 1990s

By the early 1990s, Interbrew was Europe's fourth-largest brewer, with $2 million in sales and distribution throughout 80 countries. While impressive, the company's owners and executives realized that its status as a middling brewer on the global stage threatened its profitability and competitiveness. Furthermore, the company's core European market was showing signs of decline. Specifically, per capita beer consumption on the continent slid six percent in the early 1990s as the result of health concerns and more stringent drunk driving legislation. Interbrew's erratic fiscal results reflected this troublesome trend, as annual sales vacillated from a high of BEF 59.1 million in 1991-1992 to a low of BEF 48.7 million in 1993-1994. As a result, Interbrew started seeking a way to penetrate the all-important North American beer market. This was no easy task: Anheuser-Busch and Miller commanded a combined total of two-thirds of the U.S. market, leaving the rest of the industry's competitors to fight over the dregs.



But Interbrew got a couple of very important breaks in the mid-1990s. First was a market trend that saw craft beers and imports chalking up double-digit sales increases as consumers sought out unique tastes. But even more importantly for Interbrew, an overall consolidation of the global beer industry saw Canada's John Labatt Ltd. put into play in 1995. Gerald Schwartz's Onex Corp. soon launched an uninvited attempt to take over Toronto's John Labatt Ltd. for US $2.3 billion. Labatt CEO George Taylor put out a summons for a "white knight" that was answered with a personal response from Interbrew CEO Hans Meerloo. By mid-year, Interbrew was able to bring a successful US $2.7 billion offer for Labatt.

Although some industry observers thought the price, at 14 times cash flow, was steep, Interbrew CEO Meerloo perceived several valuable factors in the deal. Chief among these was Labatt's extensive North American distribution system, which could be used to peddle the parent company's trendy European brands throughout the United States and Canada. Labatt's patented process for making "ice beer" held out the potential for increased brand differentiation, global licensing revenues, and cost reductions. Not to mention the fact that Labatt's flagship brand ranked second among Canada's beer labels, with a 45 percent share. Significantly, Labatt was also Canada's most profitable brewer. Finally, the new subsidiary's multi-brand strategy ("50 beers exported to 40 countries") meshed well with Interbrew's own program. The acquisition brought with it a 22 percent stake in Mexico's Dos Equis brand, which boasted a 45 percent share of that country's market, as well as America's Rolling Rock brand. The merger nearly doubled Interbrew's annual revenues and advanced it from fifteenth among the world's brewers to fourth.

Interbrew maximized the purchase of Labatt by spinning off what it considered extraneous activities that were significantly less profitable than the core brewery operation. These included Labatt Communications Inc., which encompassed a Francophile sports network, the Discovery Channel, and BCL Entertainment (involved in concert promotion). The company also sold its 20 percent share of Canada Malting Co. to ConAgra Inc. and expected to divest the Toronto Argonauts football team, the Toronto Blue Jays Major League Baseball club, and its 42 percent stake in the Toronto SkyDome. Company spokesman Gerard Fauchey told Maclean's Andrew Willis that "It's very simple. We're brewers, not managers of hockey or baseball teams or television stations." These sales of these assets was expected to net US $1 billion and helped reduce the US $1.6 billion debt accumulated in the friendly takeover.

It seemed that CEO Meerloo's two-year term in office had been highly successful. Not only did he elevate Interbrew to the upper echelon of the brewing industry, but he was also credited with more than doubling the corporation's net margins via an early 1990s reorganization. The BEF 20 billion program cut costs and reinvigorated marketing across-the-board, thereby doubling profits from BEF 1.3 million in fiscal 1992 to BEF 2.7 million in fiscal 1994 despite a 17 percent reduction in annual revenues over the same period.

Notwithstanding these achievements, the Van Dammes and the de Spoelberchs were apparently unhappy with the Labatt pricetag. Represented by board members Viscount Philippe de Spoelberch and Alexandre Van Damme, the families apparently blamed Meerloo, who resigned in the fall of 1995. A 1995 Forbes article asserted that "Interbrew is now without a clear leader. Johnny Thijs in Europe and Hugo Powell in Canada are chief operating officers who report to Chairman Paul De Keersmaeker ... a crony of the owners." Some analysts have cited dissension among the de Spoelberch and Van Damme factions for the high turnover in the chief executive office.

Following the Labatt acquisition, Interbrew was reorganized into two primary divisions. One focused on Europe, Asia, and Africa, while the other concentrated on the Americas. Interbrew began importing its Stella Artois to the People's Republic of China via joint ventures formed in 1994 and 1996. The company hoped to establish a strong foothold in what was expected to be the world's fastest-growing consumer market of the 21st century. The continuing decline of European beer consumption and subsequent price wars not only encouraged Interbrew's expansion outside the Continent, but also fueled the divestment of some European interests. In 1995, for example, Interbrew sold its Italian affiliate to Heineken NV. The company also revealed its plan to divest its limited mineral water and soft drink interests and use the proceeds to reduce debt.

Dominated by Labatt, the Americas division focused on rationalizing the newest operations into Interbrew's global beer family. In his first annual report, division COO Hugo Powell emphasized globalization, cost-cutting, fortification of brands, and capital investment as keys to this business's future.

Interbrew shifted the end of its fiscal year from September 30 to December 31 in 1995, and therefore counted 15 months in its 1995. This new accounting made it difficult to compare that year's performance to either the previous year's or future years' results. Nevertheless, the company claimed BEF 81.4 million in 1995 sales, an 84 percent increase over fiscal 1994. Profits of BEF 3.5 million bested the preceding year's mark by 29 percent.

Principal Subsidiaries: Interbrew Belgium; Interbrew Netherlands; Interbrew France; Labatt Brewing U.K.; Labatt Retail U.K.; Birra Moretti SpA (Italy).

Principal Divisions: Interbrew Americas; Interbrew Europe-Asia-Africa.

Additional Details

Further Reference

"Belgians Take Off out West," Beverage World, June 1992, p. 10.Clarke, Hilary, "Belgium's Strong Drinks," International Management, June 1992, pp. 62-64.Khermuch, Gerry, "Labatt Shuffles U.S. as Interbrew Charges In," Brandweek, June 12, 1995, p. 3.Munk, Nina, "Make Mine Hoegaarden," Forbes, December 18, 1995, pp. 124-126.Parker-Pope, Tara, "Beer Consumption in Europe Wanes in Wake of a Widespread Recession," Wall Street Journal, February 21, 1995, p. A13.Symonds, William C., and Linda Bernier, "A Belgian Brewer's Plans Come to a Head," Business Week, June 19, 1995, p. 56.Willis, Andrew, "The Winning Brew," Maclean's, June 19, 1995, pp. 44-45.------, "A Bidding Battle: Labatt's Sale of Hot TV and Sports Assets Draws a Crowd," Maclean's, June 26, 1995, pp. 24-25.

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