Diworsify

Me running in slow motion.
With beer sales flat,
Waving my arms….
Busch ponders
“Noooo….”
taking shot at
“oooooooooo….”
liquor.
Why oh why do companies do this? Someone please tell me. Has this strategy ever worked? If people aren’t buying your crappy beer, what makes you think they’ll buy your crappy vodka? I really want to know who exactly is the target market for Budweiser Scotch? I don’t care if it’s just one guy, he needs to be severely beaten.
Let’s look at Anheuser-Busch’s (BUD) situation. Earnings are down and the stock hasn’t budged in a bull market. Even for a defensive stock, shares of BUD have been slackers.
The fact is that beer sales are flat. They’ve been flat for years. Brewers don’t sell more beer, they only steal market share. That’s why the advertising and branding is so intense (and moronic). In fact, a better way to think of Anheuser-Busch is not as a brew stock, but as a marketing and distributing company. That’s what they really do.
(On a side note, every year in Silicon Valley, some really smart engineers get together with some really smart ideas. They meet some other really smart people who give them really smart start-up capital. But being a really smart engineer doesn’t make you a really smart businessperson. The start-ups bomb and the troubles are often due to marketing and distribution. Engineers don’t think that way. It’s amazing how dumb really smart people can be.)
Selling the hard stuff won’t help any of Anheuser-Busch’s problems. It’ll probably make them worse. About 20 years ago, all the American car companies bought European luxury car companies. There was absolutely no reason for this. Within a few years, all three dumped them. Chrysler was eventually bought by a European car company.
I’ll give you a great example of a company knowing how to use its brand—Harley-Davidson (HDI). Harley only makes the big bikes. They have nothing to do with the rest of the motorcycle market. Every few years someone suggests that Harley should “LEVERAGE” its “BRAND NAME,” and move into the smaller-weight market. There are lots of smart folks at Harley, and this idea has crossed their mind, but still, they never do it. Why? Because it’s not their market. They could do it They’d probably even make some money at it. But Harley’s attitude is that they aren’t like everybody else. They don’t make bikes–they make Harley’s. Bear in mind that a surprisingly large percentage of their revenue comes from clothing. Harley isn’t about to start diluting that brand.
Harley knows exactly what business it’s in, and so do its customers. I have nothing against diversifying into good businesses. I’ll even look at other way at a brewer owning theme parks (that’s just marketing). But don’t fool anyone by thinking that you can brand your way out of troubles. Especially, don’t fool yourself.

Posted by on June 22nd, 2006 at 12:48 pm


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