Bitter Brew: The Rise and Fall of Anheuser-Busch and America's Kings of Beer (40 page)

Back home in Missouri, the Fourth and his new bride settled into the Huntleigh Village mansion, which he was remodeling to accommodate his growing collections of guns and cars. They spent most warm weekends at the Lake of the Ozarks, where they were celebrated as the Royal Couple, smiling from the cover of a slick new local magazine,
L.O. Profile
. The accompanying article—“Mr. and Mrs. August Busch IV: Newlyweds at Home”—was a fawning promo for Anheuser-Busch, but in what may have been an unintended moment of candor, Kate let slip a sad fact of their life together.

“When August first told me about the Lake, I had visions of long romantic and quiet weekends,” she said. “Little did I know that it would be the two of us and several Anheuser-Busch executives.” Then, brightening, she added, “After the initial surprise, though, it didn't take long to get used to spending our weekends with everyone. We always have a great group of people with us.”

“He really wanted to be true to Kate,” said one of the Fourth's male friends. “I think that lasted three months.”

By then, of course, he'd been promoted to CEO.

The long-awaited coronation of August IV as chief executive officer of Anheuser-Busch came on September 29, 2006, beginning with a statement from the board of directors.

“After careful consideration, we selected August Busch IV as the individual most qualified to assume that role. We believe that the company, its employees and its shareholders will be well served by his leadership.”

August III, who was resigning from all executive responsibilities at age sixty-eight, said of his son, “August IV has successfully prepared himself by leading the U.S. beer company through a period of great change and challenge. He brings with him the new thinking of his generation yet appreciation for the great traditions and values of the company.”

For sheer disingenuousness, the two statements would be hard to top. The board members knew better than anyone that the Fourth's record of leadership was questionable. His five years as president had been marked by flat sales, an underperforming stock, and a series of expensive TV commercials that won rave reviews but relatively few new customers. At least two key longtime sales executives had resigned during his presidency, each stating in their official exit interview—one directly to August III—that they were leaving because they had no faith in the Fourth's ability to lead the brewing division. The board's decision to elect Pat Stokes as chairman of the board and to allow August III to stay on as a member even after he retired was a clear sign that they didn't trust the Fourth's ability or his judgment. To say that he was “the individual most qualified” for the job fell somewhere between dishonest and delusional.

The statements were boilerplate corporate blather, of course, fashioned by public relations consultants intent on assuring the investing world that all things were as they should be. But August III's statement contained a paragraph that no one would have dared to write for him. It stands out as perhaps the most emotional published remark of his forty-five-year career.

“This company is like no other,” he said. “For me, this has never been just a job, it has been my passion. I've taken great pleasure in working with people of character, creativity and commitment who have become my second family. Above all, it is the men and women with whom I have worked that I will miss most.”

August IV's official statement contained the requisite expressions of gratitude and respect for his predecessors—“I am proud to accept this challenge that carries a great deal of personal meaning for me … my father and Pat [Stokes] leave behind a legacy of unparalleled excellence”—but privately he was deeply disappointed at the way things worked out. When he walked into his first board of directors meeting in December, the two men he'd reported to for the past twenty years would be sitting there, still judging his performance. Both had taken big retirement packages—$34.6 million for Stokes and $64 million for August III—but August III was going to serve as a consultant for another six years, during which time the company would continue to cover the cost of his security and travel, including his jet and helicopter, and maintain his executive office at 1 Busch Place. So his father wasn't even leaving the building. Supposedly, August III was going to serve as just another member of the board. The notion was ridiculous. If August III were in the boardroom, by dint of history and force of personality, he would be the man in charge. The nuclear particles would align.

So the promotion to CEO didn't change much for the Fourth, except that, as he ruefully noted to
Forbes
magazine, “I'm the one who is going to be accountable.”

He faced some formidable problems. All the major U.S. brewers were losing young consumers to import brands, microbrews, wine, and distilled spirits. Budweiser had lost 16 percent of its market share since 1996. As president, the Fourth's strategy had been to fight the competition by joining them. In addition to Jekyll & Hyde, Spykes, and Bacardi Silver, he added fourteen microbrew-style beers to a product roster that now numbered more than forty brands, including such seemingly whimsical concoctions as Chelada Bud, Michelob Ultra Lime Cactus, and Michelob Ultra Tuscan Orange Grapefruit. It definitely wasn't his grandfather's beer company anymore.

In his first major move as CEO, the Fourth entered into a deal with Belgium-based InBev that made A-B the exclusive U.S. distributor of InBev's best-known European brands—Beck's, Bass Ale, and Stella Artois. His father objected to the idea when it was first proposed in 2006. He'd dealt directly with InBev's key Brazilian backers and didn't trust them. InBev was now A-B's biggest competitor on the world stage and was widely rumored to be eyeing A-B as a possible takeover target. August III thought it was a bad idea to get into a partnership that would give InBev a window onto A-B's operations. But the Fourth kept pushing for it, and in an uncharacteristic display of restraint, his father didn't try to marshal support on the board to block the deal; he let it happen, and InBev moved into a small office just across Pestalozzi Street from the A-B executive offices at 1 Busch Place.

The takeover rumors were well founded. For years, A-B had been protected by its size and stock price: it was simply too big and too expensive to be swallowed by a competitor. But things had changed. A-B wasn't the biggest brewer anymore. Its stock was undervalued. Its record of 150 years in operation wasn't so intimidating in an industry whose world leader had not even existed four years before. InBev was not so much a brewer as it was an investment portfolio of beer brands—more than two hundred of them—that its owners had amassed by gulping down six-hundred-year-old European breweries for breakfast. So as August IV took over the job he had coveted so for long, he was buffeted from all sides by warnings that, sooner or later, InBev would make a move.

Super Bowl XLI offered him some respite from the doom-and-gloom-sayers. As usual, A-B had gone all out, mounting a total of nine commercials for the broadcast. At a rate of $2.6 million per thirty-second spot, that represented an investment of more than $24 million in commercial time alone. Production costs and a week's worth of festivities in Miami leading up to the game probably added at least another few million to the tab. A-B's exclusive deal with the NFL precluded commercials by any other brewer, so the company was easily the dominant advertiser on America's most-watched TV broadcast. By way of comparison, Coca-Cola had four commercials during the game, General Motors had three, and Doritos and Honda each had two.

In the first Super Bowl marred by rain, the Indiana Colts beat the Chicago Bears 29–17, but the score that mattered to A-B came out a few days later when
USA Today
published its weekly Ad Meter chart. Based on the second-by-second reactions of 238 electronically monitored adult volunteers, A-B logged an unprecedented seven of the ten most liked ads aired during the broadcast, including the top two, both for Budweiser. The top-rated spot was the now famous Budweiser “King Crab” commercial, which featured scores of animatronic red crustaceans crawling out of the ocean on a tropical island to worship around a bright red cooler filled with Budweiser.

The Fourth and his management team were ecstatic. Never mind that Ad Meter measured the opinion of only a few hundred people in Houston and McLean, Virginia; the A-B executives knew that online viewing of the Top Ten commercials exploded in the week after the broadcast. The company estimated that its 2006 ads were viewed on YouTube more than 21 million times in the three days following the game. And that audience skewed a lot younger than the TV audience.

A few days after the Super Bowl broadcast, A-B unveiled a new product that had been in development for nearly a year—an online entertainment network called Bud.TV. Aimed at twenty-one- to twenty-seven-year-old consumers who were hard to reach with traditional broadcast television ads, Bud.TV promised a lineup of one- to three-minute programs that featured the kind of hip, mocking humor that A-B commercials had become famous for, ranging from comedy sketches created by writers from
Saturday Night Live
and
The Howard Stern Show
to short films produced by actor Kevin Spacey's company, Trigger Street Films, to a making-of-a-documentary reality series called
Finish My Film
, which was to be produced by Matt Damon and Ben Affleck's production company, LivePlanet. The premise of
Finish My Film
was that LivePlanet would shoot the first and last minutes of a short film and invite viewers to submit proposals for filling in the middle. Whoever came up with the best proposal would be invited to Los Angeles, where they would be filmed making their film.

For a St. Louis–based beer company, Bud.TV was an undertaking of breathtaking ambition, one that bordered on “creative hubris,” said the
New York Times
. But it seemed like the kind of new-generation, outside-the-barrel thinking that August III and the board were hoping for when they promoted the Fourth to CEO. A-B launched Bud.TV with a first-year budget of $30 million—a pittance, considering the company's annual marketing budget of more than $1 billion—and high hopes that within a year or two it would grow into a Top 100 Web site with 2 to 3 million unique visitors per month.

It didn't come close. Plagued by a clumsy age verification system that cross-checked would-be visitors' names against a database of state-issued identification and caused even the Fourth to complain that he couldn't get on, Bud.TV drew 253,000 visitors its first month and only 152,000 its second. One episode of a series called “Replaced by a Chimp” drew only 384 views on YouTube. In April 2007,
Advertising Age
reported that Bud.TV ranked as “the 49,303rd busiest site on the Web, just ahead of pornography site www.jstfu.com, and just behind www.rubber-cal.com, which bills itself as a ‘comprehensive source for sheet rubber.'”

The following month, it got worse—traffic to the site was so light that the Web measurement service Comscore could not measure it, according to
Ad Age
. When A-B finally pulled the plug on Bud.TV, the vice president of marketing was quoted as saying, belatedly, “If the [TV] networks can't continuously produce that [volume of content], how can a beer company?”

Coming on the heels of the Spykes debacle, the failure of Bud.TV was especially embarrassing. But August IV had more pressing issues to worry about. His father was chairman of the board's executive committee, which gave him oversight of executive hiring. Even though August III didn't come to the office on a daily basis, he was in the Fourth's ear constantly, calling him several times a day. He objected to two key members of the Fourth's management team and ordered him to get rid of them. The Fourth protested and got him to relent on one executive by moving him to a less prominent job. The other man, who was rumored to have played a role in the Fourth's faked drug test, was allowed to resign with a generous separation package.

As recounted in the book
Dethroning the King
, August III was infuriated when he learned that the Fourth had invited a group of Wall Street investment bankers to attend what was supposed to be an internal meeting of A-B executives at the Ritz-Carlton Hotel in Cancun, Mexico, and asked them to present their ideas about how A-B might remain competitive in the new global beer economy. August III thought it was a terrible tactical error.

“All you did by bringing those bankers in there was send a telegraph wire out to InBev that you're ready to be taken over,” he supposedly hollered at the Fourth in front of a group of other executives during a weekend quail-hunting trip in Florida. “You're putting up a For Sale sign. You're giving away too much information. All you did was get everyone in the world to sharpen their knives.”

Sure enough, within weeks, the financial press and beverage industry trade publications picked up on the Fourth's meeting with the investment bankers and interpreted it as a sign that A-B was actively seeking a merger partner.
Beverage World
reported that “industry analysts are predicting a 70 percent chance” that A-B would merge with InBev. “They have no choice,” one analyst was quoted as saying. “They can introduce new products and they have a number of [cost cutting] initiatives, but they still face execution risk and, at the end of the day, it's a global beer industry.” A Brazilian business newspaper reported incorrectly that InBev had already had preliminary merger talks with A-B. In nearly all the early speculative reports, A-B was depicted as on the defensive, vulnerable, running out of room to maneuver.