Before introducing today's story, let's introduce two old men. On the left is the founder of 3G Capital and Buffett's close friend: Brazil's richest man, Lehman On the right is Buffett, whom everyone knows, so I won't introduce him much. Lehman is the founder of the famous 3G Capital and currently Brazil's richest man. Buffett and Lehman are old acquaintances, having met at a Gillette board meeting and become friends. Buffett once called Lehman "the best businessman in the world." Last year, after Buffett and Lehman jointly acquired Heinz, management control was given to 3G Capital. What I want to say here is that these two old men, whose combined age exceeds 161, are about to dominate the world's major food industries... The Oreo cookies, Budweiser beer, Coca-Cola, Burger King, Maxwell House coffee, DQ ice cream, Wrigley's gum, Extra gum, Eclairs, Guozhen, Pacific biscuits, Prince biscuits, Chips Ahoy, Heinz baby rice cereal, and other foods you eat are all products of companies owned by these two old men. I believe that if these two old men are given another 30 years, they might unify the global food industry... ▌1. SABMiller shareholders approve AB InBev's $100 billion acquisition Just the day before yesterday, on September 28 Beijing time, Lehman's 3G Capital completed a major acquisition in the global beer industry. SABMiller shareholders approved AB InBev's acquisition plan totaling over $100 billion (£79 billion), and the beer industry's number one, AB InBev, basically completed the acquisition of the industry's number two, SABMiller. With global market regulators having approved this "marriage," a beer industry behemoth was born. According to official AB InBev data, the merged company is still called AB InBev, but the original eagle logo has disappeared from the materials. The new company's name shows no trace of SABMiller. After the merger, AB InBev will be the world's largest beer producer. In terms of revenue, it ranks fifth globally with $55 billion, behind Nestlé, Procter & Gamble, PepsiCo, and Unilever. In terms of EBITDA, the new company ranks first globally with $21 billion. After completing the acquisition, the new AB InBev will hold a 30.5% share of the global beer market. To understand how powerful this behemoth is, take a close look at the chart below. The dark purple parts in the chart represent AB InBev's sales volume in local markets, and the light purple parts represent SABMiller's sales volume. That is, light purple plus dark purple will be the new AB InBev's sales volume in those markets. From a segment market share perspective, the new AB InBev's market share will be 46% in the US, 57% in Mexico, 33% in Africa, 63% in Brazil, 62% in Latin America, and 13% in Asia. Synergies after the acquisition: a. Expand sales channels For the beer industry, which is already extremely mature, increasing sales volume is becoming increasingly difficult. AB InBev's average revenue growth over the past five years was only 3%, and raising prices is unrealistic. That's why after 3G Capital acquired Budweiser, it provided AB InBev with cost-reduction solutions. However, cost reduction cannot go on indefinitely; there will always be a ceiling. So 3G Capital's new plan to increase net profit for Budweiser was to acquire the industry's number two, SABMiller. For AB InBev, the biggest significance of this acquisition is not to increase economies of scale, but to gain SABMiller's sales channels. AB InBev has formed the fastest distribution network in the beer industry, and SABMiller's ranks second. But these two networks do not overlap much: AB InBev focuses on Western, Asian, and northern Latin American markets; SABMiller's main markets are in South America and Africa. After the merger, the combined company can introduce each company's brands into their respective distribution networks. Additionally, after the acquisition, AB InBev can cut SABMiller's operating costs, improve production efficiency, and thereby increase SABMiller's value. b. Gain product pricing power in monopolized regions Beer is a typical fast-moving consumer good. When industry concentration is low and brand recognition is not high, no company can raise prices because once you raise prices, competitors will take away your market share. After the acquisition, the new AB InBev's market share will be 46% in the US, 57% in Mexico, 63% in Brazil, and 62% in Latin America. Basically, the new AB InBev has monopolized the US, Mexico, Brazil, and Latin American markets. This also means it has gained product pricing power in these markets, thus making it possible to raise unit prices. c. Enter the Chinese market After completing this acquisition, AB InBev has basically cleared the European, American, and African markets. Looking around, only the Asian market remains. And the next five years are a good time for AB InBev to enter China because the "east wind" has risen. The "east wind" is that China's food and beverage industry has shown two trends:
A trend toward healthy eating
A trend toward premiumization Since consumption frequency is hard to increase, premiumization is a good way to hedge against declining penetration. Premiumization can leverage the health concept but is not limited to it, such as adding images that fit current trends, emphasizing better ingredients and taste, etc. There are three main ways to achieve premiumization:
a. Upgrade existing categories with new images (e.g., Telunsu, Xiaoming Classmate, Hai Zhi Yan, Tang Daren, etc.).
b. Create new products and new processes (e.g., Ambrosial yogurt, organic milk, pure draft beer, NFC juice, etc.).
c. Import foreign premium brands (e.g., imported beer, milk, and infant milk). Budweiser belongs to the third category. ▌2. The big boss behind the century acquisition: 3G Capital The leader and big boss behind AB InBev's acquisition of SABMiller is the famous 3G Capital. Currently, the entire management team of AB InBev is appointed by 3G Capital. 3G Capital was founded in 2004 by the "Brazilian Three Musketeers," with Lehman as the core figure. The so-called "Brazilian Three Musketeers" refer to: Telles, Lehman, and Sicupira. These three are currently among Brazil's top five richest people. In 2015, Forbes ranked Lehman 26th, Telles 89th, and Sicupira 110th. 3G Capital's founder Lehman is the son of Swiss immigrants to Brazil. He almost dropped out of Harvard but eventually earned his degree in just three years. He was a tennis player good enough to reach Wimbledon but felt he couldn't become a top player, so he turned to business and founded Brazil's largest investment bank: Garantia. It was at Garantia that Lehman met his two other partners, Telles and Sicupira. Co-founder Telles, when young, dreamed of making a fortune in finance. When he first joined Garantia, he started as a gofer. He had no industry experience but boldly took over the failing local brewery Brahma, and step by step, he acquired Budweiser across borders, winning the right to operate the world's largest beer brand. The other partner, Sicupira, was a young man with entrepreneurial dreams but couldn't make a name for himself. He joined Garantia, then voluntarily took a 90% pay cut to leave Garantia and enter the newly acquired, failing company Lojas Americanas (now Brazil's largest retailer). He ruthlessly fired 90% of the executives and tripled the company's value in six months. Currently, 3G Capital owns 52% of Budweiser, 51% of QSR (the parent company of Burger King and Tim Hortons), and 49% of Heinz Kraft. The annual revenue of companies controlled by 3G Capital exceeds $100 billion, with a market value exceeding $350 billion, surpassing Alibaba and Tencent, and approaching Amazon. As the soul of 3G Capital, the combined net worth of the "Brazilian Three Musketeers" exceeds $40 billion. ▌3. $52 billion leveraged buyout of Budweiser's parent company So how did 3G Capital get involved with Budweiser? The story of 3G Capital and Budweiser dates back to 2008. In fact, Budweiser's parent company was a company called Anheuser-Busch. This was a family business, and the CEO was always a member of the Busch family. In 2008, the Busch IV in power was a playboy who loved pomp and circumstance, cared about face, and didn't care about how the company was run. Every time the Busch family came to China for inspections, they flew in private jets, and the whole family was driven in luxury cars to the Shanghai headquarters. Their extravagance and airs were textbook-level. Busch IV's mind was not on expanding the company or generating revenue, but on chasing women after an unsuccessful marriage, frequently getting involved in scandals, damaging the company's reputation, and causing widespread employee resentment. At this time, Brazil's richest man, Lehman (CEO of 3G Capital), sharply targeted Anheuser-Busch, intending to bring it under his wing and expand his InBev beer group (a 3G Capital subsidiary) globally. So in 2008, InBev leveraged a syndicated loan and used leverage to acquire AB in a $52 billion cash deal. This was a highly controversial hostile takeover that shocked the world, but it was of great value to InBev. After the acquisition, 3G Capital purged the old management team and squeezed out unnecessary costs—the CEOs brought in by 3G Capital booked their own economy-class tickets, flew directly from New York to Shanghai, and took taxis to the office. The new management also sold off vanity assets, including parks and stadiums named after the Busch family. At this point, the century-old AB officially became AB InBev, which is what we call Budweiser InBev in Chinese. So after the acquisition, how did AB InBev perform? It was truly a fresh start. The chart below shows AB InBev's sales over the past five years. Macroscopically, although sales declined in 2015 due to the global economic slowdown, from the perspective of market share and stock price, AB InBev has been developing steadily overall. Although sales didn't increase much, Budweiser's net profit grew from $1.9 billion in 2008 to $8.3 billion today! So how did Budweiser do it? This is mainly due to the decline in Budweiser's cost of revenue and interest expenses. The decline in cost of revenue is mainly due to the new Budweiser management team implementing major reforms to improve efficiency and reduce operating and sales costs, such as reducing packaging costs, zero-based budgeting, selling non-operating assets, and cutting employee benefits. Due to excellent cost control, Budweiser's return on equity (ROE) has remained at 20.4% over the past five years, ranking among the top in the beverage industry. That's why its stock price has been so strong. ▌4. 3G Capital's success is not due to capital operations There are many private equity funds in the world, but there is only one 3G Capital. 3G Capital is not simply playing with capital; it truly wants to operate a business sustainably. 3G's investment philosophy is simple: 3G Capital excels at large-scale investment, long-cycle value investing, controlling equity, introducing strong proactive post-investment management, accumulating cash, and continuously expanding. The specific play is: Concentrate funds to acquire a company whose management has lost momentum and is inefficient. Then the board (composed of 3G Capital's senior partners) makes overall decisions, and a partner leads a team as the core management team to enter the company, input high-performance management systems, cut costs, recruit new people, gradually reshape corporate culture, fire inefficient employees, and rejuvenate corporate efficiency. Typical private equity funds might consider exit strategies after restructuring a company, but 3G Capital is different; they aim for sustainable operation. Once the company is restructured, 3G Capital can obtain most of the company's free cash flow, then use it to acquire another company. After repeating this several times, free cash flow will grow more and more. Because of this approach, whenever 3G Capital completes an acquisition, it will definitely lay off a large number of employees and replace management. What is the difficulty in this approach? The difficulty is: how do you ensure that when you purge the inefficient management and bring in efficient management? This involves 3G Capital's unique model for attracting and cultivating talent. 3G Capital places great emphasis on talent development Lehman believes that the core factor in business success is talent. Therefore, throughout its growth, 3G Capital has cultivated a large number of business talents, such as the president of Brazil's central bank and many company presidents in Brazil, all from the 3G Capital system. From the very beginning, Lehman, the core figure of the Brazilian trio, paid special attention to talent, selection, and development. Their core criteria for selecting talent are Poor, Smart, Desire. After joining, performance is based solely on ability and contribution, not on tenure, education, or background. They established a capability evaluation system where the top 20% of talent can receive 70% of the bonuses and can eventually become shareholders of the company. To maintain the momentum of talent, they continuously set new dreams and goals to retain the best talent. The other two of the Brazilian trio were young men recruited during Lehman's early entrepreneurial days. They started from the bottom, climbed to become Lehman's partners, became shareholders, and later co-founded the great cause of 3G Capital with Lehman. As a private equity fund, 3G Capital's core competitiveness lies in its excellent talent. Because 3G Capital's core business model is to acquire excellent companies with inefficient management, then restructure them. During restructuring, excellent talent becomes crucial. Excellent talent needs great goals Any company CEO knows talent is important, and any company wants to retain talent. 3G Capital believes that to retain talent, a comprehensive incentive mechanism and great goals are necessary. Lehman once said, "Maintaining long-term partnerships is a major secret to 3G Capital's success." Lehman believes: excellent talent needs ambitious goals, otherwise they will invest their creative energy in other companies or start their own businesses. In the early days of 3G Capital, many excellent people left the company, and some went on to create remarkable businesses. Later, Lehman realized that to retain true talent, it is important to set ambitious, difficult, and bold goals. They believe: "Pursuing ambitious goals to maintain forward momentum and retain outstanding talent is a risk worth taking for the enterprise." Unlike many private equity firms, 3G Capital makes long-term money In the private equity field, 3G Capital is Brazil's largest PE firm, holding stakes in over 50 companies at its peak. But they later found that this model had serious flaws. Because not all the companies they invested in developed well, and some investments even incurred significant losses. They believed this model had several fatal shortcomings:
The investment period is too short, and funds have a forced exit time, which may affect investment returns;
Due to diversified investment, the equity stake is too small to fully influence the decisions of the invested companies, thus unable to send the excellent talent they cultivated into the company.
Because the investment targets involve too many industries and too many targets, energy is dispersed and not focused, so mistakes are often made. Later, Lehman reflected: "Our most precious asset is time, but our time efficiency is not obvious. We should concentrate our time and energy on the few investments with the greatest development potential." Since then, 3G Capital has focused on a few industries and companies, using its own funds to gain control of these companies, injecting its management model and talent team into them, and after improving efficiency, using that company as a starting point to continuously merge and acquire other companies in the same industry until it becomes the global number one. This is the process of how they developed from controlling a small Brazilian brewery to today's largest beer company in the world. ▌5. Conclusion 3G Capital was founded in 2004, but in just 12 years, the annual revenue of companies it controls has exceeded $100 billion, with a market value exceeding $350 billion. Today, AB InBev, controlled by 3G Capital, acquired the beer industry's number two, SABMiller, for $100 billion. A super behemoth was born in the global beer industry: the new AB InBev. It is conceivable that after the acquisition, 3G Capital will vigorously cut costs, lay off employees, and change management. After completing the acquisition, the new AB InBev's market share will be 46% in the US, 57% in Mexico, 63% in Brazil, and 62% in Latin America, basically unifying the major battlefields except Asia. After improving corporate efficiency and integrating product sales channels, what else can AB InBev do? I think it will definitely attack the Chinese beer market in a big way. Tsingtao Beer, Snow Beer, Yanjing Beer, are you ready for a Budweiser that has cleaned up the European, American, and African battlefields? -END- The best FMCG distributor learning platform in China Focusing on providing professional, practical, and actionable tutorials for distributors and enterprises Committed to helping Chinese FMCG distributors grow rapidly The most professional and practical knowledge base in the FMCG industry Reply with the red number below to get the corresponding content Reply with number 1 to view the complete knowledge base | 001 Excellent article selection | 002 Distributor market operations | 003 Terminal visit management | 004 Sales supervisor skills | 005 Sales volume improvement techniques | 006 Channel expansion | 007 Managing distributors | 008 Distributor development | 009 Distributor internal operations management | 010 Team management | 011 Efficient distribution techniques | 012 Sales manager's eighteen skills | 013 KA operation methods and strategies | 014 First lesson for new salespeople | 015 Internet, brands | 016 Distributor B2B transformation | [Long press QR code to follow]