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Anheuser-Busch InBev Is Investing $2 Billion In American Breweries

May 15, 2017

Anheuser-Busch InBev has vowed to spend $2 billion over the next four years to boost American brewing capabilities, spending that will be allocated to product packaging, newly acquired craft brands, and beverage bets beyond brewing beer.

On Monday, the world's largest brewer announced it will invest close to $500 million this year—and an equal amount every year for the next three years—touting it as among the largest-ever capital investment programs in U.S. brewing history. The spending plan is an extension from a 2015 promise to invest more than $1.5 billion over several years (which was preceded by an earlier $1 billion investment plan back in 2011). For the newest allocation, AB InBev is planning to spend over $200 million on brewery and distribution projects, $180 million on product packaging and innovation, and $58 million to improve sustainability.

"It is a vote of confidence in wholesalers and the American economy and brewing industry," said Joao Castro Neves , president and CEO of the U.S. arm of Anheuser-Busch, in an interview with Fortune. "Guys, we are here for the long run."

What Castro Neves and his team are trying to telegraph to the market is Anheuser-Busch—the behemoth that makes Budweiser, Stella Artois, and Hoegaarden—is proving through this investment that it is committed to competing in the $107.6 billion beer market. Growth for many of the biggest brewers has stalled in recent years as spirits, wine producers, and smaller craft brands have nimbly stolen market share. (Though the craft sub-segment has faced its own growth challenges of late.)

Joao Castro Neves Courtesy of ABInBev 

The market concerns that Anheuser-Busch is trying to assuage with this capital expenditure program is related to the backing of Brazilian private equity firm 3G Capital, which is known to be an aggressive cost-cutter at both the merged Kraft Heinz (khc) and already at AB InBev, which last year completed the roughly $100 billion takeover of rival SABMiller. In the wake of that deal, AB InBev has already upped the company's cost savings expectations target—now seeing $2.8 billion in synergies. Another potential anxiety for American wholesalers: SABMiller's assets were international and the parent company's focus could turn toward newer markets it hasn't aggressively tapped before the deal, like Africa.

Castro Neves says AB InBev heard similar worries about decreased investments in the U.S. market in the wake of the 2008 merger between Anheuser-Busch and Belgian brewer InBev. But Castro Neves says the U.S. is the most important market from both a sales and profit perspective. "The best way to show your commitment is reaffirm your investment in the marketplace," he said.

Some of the more interesting investments Anheuser-Busch announced point to changes the beer industry has seen in recent years as a result of the craft beer boom, which the big brewer has itself participated in by acquiring 10 of those smaller upstarts since 2011. As the types of beers Americans drink has become more diverse, Anheuser-Busch needs to respond by investing in beer production and packaging innovation. That way, it can make more frequent changes to the beer lines throughout the day with little interruption.

Washington-based Elysian Brewing Co., which Anheuser-Busch acquired in early 2015, also got a call out in the capital expenditure program. The brewer is planning to invest $15 million into a California brewery to boost infrastructure to support Elysian's popular Space Dust IPA. The big goal this year is to take that make that style available nationally, similar to how the brewer made Goose Island a national brand several years ago after a 2011 acquisition.

There are also some investments that go beyond beer, most notably to fund recent pacts with Starbucks (sbux) and Keurig Green Mountain. With the former, Anheuser-Busch inked a deal last year to produce and distribute the first ready-to-drink teas under the Teavana line. And earlier this year, coffee purveyor Keurig and Anheuser-Busch InBev formed a joint venture to develop an in-home system that would focus on beer and other alcoholic beverages.

"I love the beverage business overall, not just beer," said Castro Neves.

Of the two, the Starbucks pact is further along. Anheuser-Busch is already brewing some Teavana under a pilot program that should go national next year. The potential Keurig device is in the research and development phase with a pilot likely planned for next year—the soonest an appliance would hit national shelves would be in 2019. In both cases, they nod toward the strategic thinking at Anheuser-Busch InBev that envisions a broader beverage portfolio than just beer. That explains why some on Wall Street have speculated that AB InBev could make a deal for a big soda giant like PepsiCo (pep) or Coca-Cola (ko).

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