How AB Inbev's CEO plans to keep the world's largest beermaker on top.
Carlos Brito is walking the aisles of a vast São Paulo supermarket, continually stopping to pick up pieces of trash — a paper cup, a plastic fork — or to pull certain cartons of beer to the front of the shelves for better visibility. These are the kinds of menial tasks most executives wouldn’t touch. But Brito, CEO of the world’s biggest beer company, isn’t like most executives.
Attention to detail has become a hallmark of Brito’s leadership of Anheuser-Busch InBev BUD , a sprawling beer behemoth forged from six mega-mergers in 25 years. Despite the size of Brito’s enterprise, he handpicks promising young employees to promote early in their careers and greets each new class of global management trainees. When he visits diners and lunch counters all over the world that serve AB InBev beers, he walks behind the bar to personally inspect the boxes of empties.
That hands-on approach has been key to Brito’s track record of smoothly integrating some 200 beer brands from around the globe into the AB InBev portfolio. The 2008 combination of InBev, with $23.5 billion in sales, and Anheuser-Busch, the St. Louis-based maker of Budweiser, transformed the industry and created the world’s largest beermaker, with $40 billion in revenue last year and about $160 billion in market value. More impressive is its profitability. When Brito bought Anheuser-Busch, analysts knew there would be obvious targets for initial cost cutting. In fact, he’s continued to expand margins: Last year’s income of $11.2 billion before interest, taxes, depreciation, and amortization represented a 39% margin, up from 31% in 2008. (Rival SABMiller last year reported an Ebitda margin of 23%.) “They are a profit- and margin-generating machine,” says Harry Schuhmacher, editor of trade publication Beer Business Daily. “Nobody can touch them.”
The beermaker’s financial performance has earned Brito high marks from Wall Street — the stock is up more than 150% over the past four years, compared with the S&P’s 68% gain — but it is Brito’s management style that has earned him a place on Fortune’s 2013 Executive Dream Team. He’s a truly global leader — a Brazilian native running a Belgian-headquartered company out of New York — who has sought to bring a unified culture to the 150,000 employees in 24 countries who now work at AB InBev. Not surprisingly, management expects employees to keep down costs, but there’s also an emphasis on excellence, speed, and transparency: In many facilities employees’ metrics are posted publicly, for all to see. Brito and other top managers try to be accessible. They sit at open desks instead of in offices. Top performers are promoted; laggards don’t last long.
No one embodies the cutthroat spirit more than Brito. Standing in the beer aisle in São Paulo, he points out that AB InBev’s beer Brahma is priced at R$1.79 per can, while Itaipava, a main competitor here in Brazil, is at R$1.49. “That’s a new price in the last three days, and that will hurt us,” he says. He looks genuinely upset. Then he adds, “We love that competition. Which is not to say it’s friendly, though.” Brito’s warm personality belies this pugnacious spirit. Even as he talks about carving up rivals he punctuates his comments with smiles and laughs.
Of course, there’s nothing funny about AB InBev’s tactics: The company will abandon longtime suppliers for cheaper ones, raise prices, and brew foreign beers in the U.S. to save money. While Brito’s prowess at cost cutting is unrivaled, his turnaround skills are being tested. He has thus far failed to revive the Budweiser brand, which was unseated as America’s top beer in 2001 by sibling Bud Light and continues to struggle. And in his $20 billion bid to buy Mexico’s Grupo Modelo this year, Brito had to make big concessions to antitrust agencies to get his prize.
Because of its market-leading position, AB InBev’s future deals are sure to be the subject of intense regulatory scrutiny, and that puts pressure on the company to find new sources of growth. Still, analysts don’t expect this consummate dealmaker to shy away from more transactions, especially equity stakes in smaller brewers. Nor do they expect Brito to ease up on his frugality, even as extracting fat from AB InBev gets harder with each passing year. They certainly don’t expect Brito and his executives to apologize for it. “There’s no fluff, no bull, no charm offensive with this company,” Schuhmacher says. “They don’t see the point.”
In 1987 Rio de Janeiro-born Carlos Alves de Brito met Jorge Paulo Lemann through a friend of a friend. Brito (that’s “BREE-toe”) was working for Shell Oil and had been accepted to Stanford Business School but couldn’t afford it. Lemann and his partners at Brazilian investment bank Banco Garantia ran a scholarship program that backed promising young people in their early careers. Lemann, who would later co-found investment firm 3G Capital (which just bought Heinz), had only a few conditions: that Brito keep them abreast of what he was seeing and doing, that he one day help other people if possible, and that he consider coming to work for them. After finishing at Stanford, Brito went to work at Brahma, a Rio-based brewer Lemann and his pals had just bought.
At Brahma, working under Lemann’s partner Marcel Telles, Brito learned the art of cost cutting. “I wouldn’t call it a Brazilian management style,” Lemann tells Fortune in a rare interview. “It has been amalgamated by a bunch of Brazilians, but we have copied most of the things we know from the U.S., quite frankly.” He says Goldman Sachs GS and GE GE (during the Jack Welch years) are two of the U.S. companies that have influenced his thinking. The training program he and his partners ran would become significant to Brito’s future — and AB InBev’s. João Castro Neves, head of Latin America for the brewer, and Ricardo Tadeu, who runs Mexico for the company, are also products of Lemann’s Fundação Estudar scholarship program. (Ten of the 15 top executives at AB InBev were born in Brazil.) Lemann describes the culture as, “You’re always running, always close to a limit. You’re working very hard and being evaluated all the time. People either like it or don’t like it.”
Brito thrived and quickly rose through the ranks at Brahma. In 1999 the company (its big brands were Brahma and Skol) announced plans to merge with São Paulo-based competitor Antarctica to form Cia de Bebidas das Americas, or Ambev. Reviewed by local regulators for almost a year, that local marriage was only step one for the Brahma boys, who saw an industry ripe for consolidation and initiated a strategy to improve margins by buying up brewers, eliminating duplicative operations, cutting excess suppliers, and other steps that formed today’s beer market, which is fragmented by brand but consolidated in terms of ownership.
Brito ran a tight ship, but he also showed a knack for creative problem solving (albeit in service of financial performance). In 2001, Brazil had an energy crisis; the country relies on hydro and had consecutive years of low rainfall. The government told businesses to use 20% to 30% less energy or face heavy fines. Not wanting bar owners and grocers to unplug their beer coolers, Ambev hired a consultancy to urgently gather data that would show vendors other ways to hit their savings. Then Brito and team visited scores in person to persuade them to implement the suggestions. “The ice cream guys, they didn’t do that, so they got screwed bigtime,” he recalls.
In 2004, Brito became Ambev’s CEO and quickly showed his global ambitions: Only three months later Ambev announced a merger with Belgian beer giant Interbrew, which boasted Stella Artois and Beck’s, to form InBev. (Interbrew, the third-largest brewer, bought Ambev, the fifth-largest, for $11.5 billion.) InBev instantly became the No. 1 beermaker in the world by volume. Brito was not made CEO right away but zone president of North America, which meant a move to Toronto. At the end of 2005, when he did become CEO at only 45, management publicly referenced his skill at cost cutting.
For almost a century Budweiser was the quintessential American beer brand. The red and white bow-tie logo hung in dorm rooms all over the States, and the Clydesdales were a majestic symbol of the beloved St. Louis brewery. The Busch family ran the company for nearly 130 years, even after it went public, but the stock stagnated in the early 2000s when Michelob and Budweiser fell into a sharp decline as Americans gravitated to wine and spirits.
U.S. rivals Miller and Coors had been acquired by South Africa’s SAB and Canada’s Molson, respectively, and when those two giants then created the joint venture MillerCoors in 2007, the industry realized that Anheuser-Busch’s days as an independent brewer were numbered. “We knew AB had to fall to Brito,” says BevMark’s Tom Pirko, who has consulted with beverage CEOs for 30 years. The board initially rejected Brito’s unsolicited bid, but eventually agreed to sell for a sweetened $70 per share. Local newspapers were filled with paranoid cries over the prospect of the Belgian-based bière maker taking over a piece of Americana. Two days after signing the deal, Brito was in St. Louis, telling the staff about the new company’s principles, summed up in three buzzwords he and other executives cite ad nauseam: “Dream, people, culture.”
Fourteen hundred of the AB folks who listened to that speech were later fired. Brito also promoted bright stars from lower in AB’s ranks. That was just one way he cut $2.25 billion in expenses. He implemented InBev rules — for example, no one could fly business class on flights under six hours. And his lieutenants made it clear that advancement would be based on merit. “The thing I most respect about Brito is he does what he says he’s going to do,” says Dave Peacock, who was president of AB at the time and stayed on for three years. “He’s Abe Lincoln, only shorter, bald, and Brazilian.”
Pete Kraemer, a quintessential Budweiser company man (his brother is the global Budweiser brewmaster, his father was chief brewmaster for 22 years, and now Pete is chief brewmaster in St. Louis), embraced the shift. “I was in an office, never talked to anyone,” he recalls. “Under the new company they tore the walls down, and it’s amazing how much better you get to know people.” The brewery switched to using Voyager Plant Optimization, an InBev system that has cut brewing process waste in half in four years. On a wall outside the brewery’s control room, a board tracks every worker’s performance on a specific indicator he has chosen to improve. “There will always be people who don’t like it, especially the ones who were just entitled to be there for historical reasons, the ones who were not performing,” says Luiz Edmond, chief of AB. “Our processes, our systems, do not allow that. They do not allow you to hide in a nice room, stay for the whole day. No.”
Alas, there’s no optimization system for getting consumers to like your beer again. After ceding No. 1 to Bud Light in 2001, Bud slipped again in 2011, yielding No. 2 to Coors Light. From 2010 to 2011 sales rose barely, but from price hikes, not volume. Brito likes to say they have at least “stopped the bleeding,” since sales are no longer declining, but they remain flat. To be sure, the entire U.S. beer market has been falling since 2008; it rebounded slightly in 2012, with shipments up just over 1%, mostly from craft beers.
As Americans have become more fickle (who buys only one brand of beer anymore?) brewers increasingly need to double down on marketing and new product rollouts. AB InBev is spending more on marketing Bud, though analysts have mocked its latest effort, which repackages the beer in eight-packs of hourglass-shaped, 11-ounce cans meant to represent Bud’s bow-tie logo. The company has been more successful with line extensions. In the last two years AB InBev launched Budweiser Black Crown, Beck’s Sapphire, and Bud Light Lime spinoffs Lime-a-Rita and Straw-Ber- Rita, all from its test brewery in St. Louis. The “Ritas,” fruity beers marketed toward women, have sold astoundingly well in the one year they’ve existed — the equivalent of more than half the sales of Heineken lager.
And Budweiser is doing quite well outside the U.S. In China the King of Beers is marketed as a “superpremium” drink for celebrations, much like Stella Artois outside Belgium. Bud has less than a 2% share of the overall Chinese market but leads the premium sector by volume. AB InBev’s ultimate payoff in China, where the appetite for beer is exploding, won’t be visible for a decade. Miguel Patricio, who has worked for AB InBev since the Brahma days, last year became its global CMO after spending four years as a zone president in China. In March, Patricio told a crowd of marketers in Belgium that he believes it takes a minimum of five years for any brand to gain a foothold in China: “We’re betting bigtime on Bud and Harbin.” (The latter, also an AB InBev brand, is the No. 4 “core” beer there.) In 2007, the year before Patricio relocated to Shanghai, Brito flew there seven times, on one occasion staying 15 days. “Brito is the most focused person I’ve ever met in my life,” says Patricio. “He talks about problems. He doesn’t sugarcoat.”
Brito spends more than half the year away from his home in Connecticut. He keeps a house in Rio de Janeiro, where he was born and went to college, and on a recent trip to Brazil his wife and all but one of his four children joined him. Yet the company is his family too. Every day Brito wears jeans and a blue shirt, often with Budweiser stitching or the logo of another AB InBev brand. He sports a yellow wristband that says “I Believe,” from a 2008 AB InBev promotional campaign in Korea. At an 8 a.m. meeting in São Paulo, he cracks open a Pepsi and shakes hands with every sales rep. Examining a complicated printout that shows one rep’s sales goals for the week, Brito says, “This is very much our company, this sheet. We like metrics, tons of numbers.”
This year the AB InBev family got a little bigger, but not without some growing pains. To quell Justice Department concerns about AB InBev’s $20.1 billion acquisition of Grupo Modelo, Brito had to sell off the Piedras Negras brewery in Mexico, which produces 60% of Modelo’s U.S. volume, to Constellation Brands, along with all U.S. rights to Corona and Modelo beers, which Constellation will distribute through Crown Imports. In the end Brito got what he wanted: Modelo has a 58% share of the Mexican beer market. Consider that AB InBev beers dominate in Brazil (69% share) and Belgium (56%), and a pattern emerges: AB InBev aims to dominate the world’s beer supply, one country at a time.
Brito isn’t interested in only big deals like Grupo Modelo. In 2011, AB InBev acquired Chicago-based craft beer Goose Island and in 2012 spent $1.2 billion for a majority stake in the Dominican Republic’s Cervecería Nacional Dominica, which makes Presidente beer. Countless other small stakes aren’t even publicly disclosed.
What else could Brito buy? Few internationally respected beers are left. Guinness comes to mind, though it is owned by Diageo. In the U.S., AB InBev is basically at its limit, with 46% market share; it cannot exceed 50% without incurring the DOJ’s wrath. But two game-changing steps, if done right, are conceivable. AB InBev could buy SABMiller, its nearest competitor. That would raise obvious alarm with regulators in the U.S., but it could work if AB InBev divested most of the U.S. business right away, selling to MolsonCoors, the most likely buyer. That would add big brands like Fosters and Pilsner Urquell to its portfolio abroad. Or Brito could look beyond beer and buy the beverage unit of PepsiCo PEP , with which AB InBev already has distribution deals in other countries. Either move would come with harsher legal and financial headaches than the AB or Modelo deals did.
If anyone can pull one of those gambits off, it’s Brito. “He’s bright enough, and aggressive enough, that he’s kind of the right person at the right time,” says Pirko, the consultant. Making a complex, giant conglomerate even more giant is risky, but this beer man is bold. And while he insists he plans to focus now on the brands AB InBev already has, don’t believe it. Soon enough, Brito will be thirsty again.
This story is from the September 2, 2013 issue of Fortune.
The following corrections have been made to this story: An earlier version stated that Budweiser was unseated as America’s top beer by sibling Bud Light in 2008 — it was in 2001; When Carlos Brito was made zone president of North America, he first moved to Toronto, not New York; Pete Kraemer’s father was Budweiser’s chief brewmaster for 22 years, not 27 years. Fortune regrets the errors.