[Annotated] 3G Capital, magicians of the consumer industry, need to learn a new act

The investment firm’s^[각주:1] main props^[각주:2]—cheap debt and stable demand for Big Food’s products—are wearing out^[각주:3]

Occasionally a business idea emerges that is so simple you cannot believe it works. Consider the five founders of 3G Capital, an investment firm. Warren Buffett co-invests with^[각주:4] them and calls them “among the best businessmen in the world”. They use debt to buy consumer-product firms^[각주:5], then they revamp their brands^[각주:6] and slash costs^[각주:7]. In total, since 1997, they have launched $470bn of deals^[각주:8], through 3G Capital or earlier entities (for simplicity this article lumps these all together^[각주:9] and calls them “3G”). That makes 3G the second most acquisitive organisation^[각주:10] in modern history^[각주:11]. It sells every Budweiser slurped^[각주:12], Whopper burger munched^[각주:13] and bottle of Heinz ketchup squirted^[각주:14] on the planet.

Yet despite its superb^[각주:15] long-term record, 3G is losing steam^[각주:16]. In the past two years its total portfolio^[각주:17] has lagged slightly behind the S&P 500 index, Schumpeter estimates^[각주:18]. Its two biggest firms, AB InBev, a beer giant, and Kraft Heinz, a food company, have returned 6%^[각주:19] and 16% respectively^[각주:20], well behind the S&P 500 (29%) and a basket of 20 big rivals (24%). On November 1st shares in Kraft fell after poor results. Once, 3G seemed to be reinventing^[각주:21] the consumer industry^[각주:22]. Now a better description is that it brilliantly^[각주:23] took advantage of a window of opportunity^[각주:24] that is closing.

By their own description 3G’s founders started out^[각주:25], in Brazil, as mere “finance guys”. The first big deal was the acquisition of^[각주:26] Brahma, a local beer firm, in 1989. In the booze industry^[각주:27] they bought Interbrew in 2004, Anheuser-Busch, maker of^[각주:28] Budweiser, in 2008, and SAB Miller in 2016. The resulting^[각주:29] beer colossus^[각주:30], AB InBev, is Europe’s third most valuable^[각주:31] company. In the food business, 3G took control of^[각주:32] Heinz in 2013 in partnership with^[각주:33] Mr Buffett. Heinz then bought Kraft in 2015, and the combined firm^[각주:34] tried and failed to buy Unilever in February. 3G also controls Burger King, which it has merged with^[각주:35] Tim Hortons, a Canadian fast-food chain where hypothermic^[각주:36] Torontonians^[각주:37] huddle in winter^[각주:38].

3G is expert at “zero-based budgeting^[각주:39]”, a technique that involves scrutinizing^[각주:40] consumer firms’ bloated costs^[각주:41]. But its magic rests on^[각주:42] two simple insights formed decades ago. First, it noted that although the cost of debt financing^[각주:43] was low, the yield on consumer firms’ shares was quite high, meaning a juicy spread^[각주:44]. Second, conventional managers underestimated^[각주:45] how resilient^[각주:46] consumer-product firms’ sales are thanks to^[각주:47] strong brands and oligopolistic^[각주:48] market shares. So costs could be cut (including marketing) without prompting a fall^[각주:49] in the top line^[각주:50].

The takeover of^[각주:51] Anheuser-Busch, worth $62bn, shows these principles in action^[각주:52]. The deal was mostly financed by debt^[각주:53] with an annual post-tax cost of^[각주:54] 3%. The firm being bought yielded 6% (its annual cashflow^[각주:55] after capital spending^[각주:56], as a share of its market capitalization^[각주:57] plus^[각주:58] net borrowings^[각주:59]). Cost cuts eventually lifted that return to 8%^[각주:60]. Normally such high leverage^[각주:61] is reckless^[각주:62], because profits are volatile^[각주:63]. But Anheuser was different. It had a 48% market share in America, with famous brands that people would keep chugging^[각주:64] come hell or high water^[각주:65]. After the 2007-08 financial crisis^[각주:66], share prices^[각주:67] and interest rates fell^[각주:68], pushing the gap between the cost of debt and consumer firms’ yields wider still^[각주:69]. 3G pursued big deals around the world, eventually paying $123bn in 2016 for London-listed^[각주:70] SAB Miller.

Those two original insights are getting tired, though. First, the gap between the cost of debt and the yield of consumer firms has narrowed as^[각주:71] their market values have risen. The median yield for^[각주:72] a basket of 20 big consumer firms has fallen from 7% in 2010 to 4% now, making deals less profitable. Some firms are pricier than they would otherwise be because their share prices reflect speculation^[각주:73] that 3G might make a bid^[각주:74]. Mondelez and others have all been rumored targets in^[각주:75] a Wall Street game of “who’s next?”. The cost of debt may start to rise as monetary policy^[각주:76] normalizes^[각주:77].

The second intuition—that consumer firms’ sales are near-indestructible^[각주:78]—is no longer safe. Many customers are opting for^[각주:79] niche brands^[각주:80]; craft ales^[각주:81] instead of Bud Light, or organic^[각주:82] take-home meals^[각주:83] instead of Kraft’s classic Macaroni and Cheese. In the last quarter^[각주:84], both AB InBev and Kraft Heinz reported stagnants^[각주:85] volumes^[각주:86] globally and shrinking sales in^[각주:87] America. In the medium term^[각주:88] e-commerce could reduce the power of big brands. Instead of having a privileged spot on Walmart’s finite^[각주:89] shelf space^[각주:90], established consumer companies must now slug it out with^[각주:91] smaller brands on Amazon.

Such shifts will not threaten 3G’s current firms. Cost savings are^[각주:92] still going to help their bottom lines^[각주:93]. Profits at AB InBev and Kraft Heinz would have to fall by two-thirds or more before they struggled to make interest payments^[각주:94]. And their combined debt pile, though huge (equivalent to^[각주:95] the fourth-largest of any non-financial firm in^[각주:96] the world), is well-organised^[각주:97], with repayments^[각주:98] spread out over years^[각주:99]. Even so^[각주:100], a decade of mediocrity^[각주:101] beckons^[각주:102].

The number’s up

One option is a final flurry of deals^[각주:103]. The possibility cannot be ruled out^[각주:104]—which is why consumer-product firms must stay on their toes^[각주:105]. But as well as being expensive, cross-border deals^[각주:106] and job cuts^[각주:107] have become more politically sensitive^[각주:108] (Kraft Heinz has cut 10,000 jobs since 2013). 3G’s bid for^[각주:109] Unilever caused a stink in^[각주:110] Britain and the Netherlands. Trustbusters would block another big beer deal^[각주:111]. Perhaps reflecting this, 3G is trying a new approach, of expanding firms through investment and innovation. Here, AB InBev is in a reasonable position, given its exposure to^[각주:112] fast-growing^[각주:113] emerging economies^[각주:114] and its experience of turning niche beer brands into big sellers^[각주:115]. Energizing^[각주:116] Kraft is a taller order^[각주:117], since creativity is not in its DNA and 69% of its sales are in^[각주:118] America.

3G’s pivot^[각주:119] will be a struggle^[각주:120]. But what a run it has had. It took advantage of a time when rates were low, stockmarkets were cheap, protectionist instincts subdued^[각주:121], anger over job losses muted^[각주:122] and digital competition still nascent^[각주:123]. Its adventures have not necessarily made the world a fairer place, but as a piece of intelligent, opportunistic investing^[각주:124] they deserve three cheers.

1. investment firm ; [명사] 투자회사 [본문으로]
2. prop ; 2. 지주(가 되는 사람・것) [본문으로]
3. wear (sth) out ; 못쓰게 되다, 지치다 [본문으로]
4. co-invest ; 공동 투자, 출자 하다 ;; to join another or others in investing in something [본문으로]
5. consumer-product ; [명사] 소비재 (cf. consumer 소비자) [본문으로]
6. revamp ; [타동사][VN] (보통 더 보기 좋도록) 개조[수리]하다 [본문으로]
7. slash ; 2. [흔히 수동태로,흔히 신문에서] 대폭 줄이다[낮추다] [본문으로]
8. launch ; [vn] 1. (특히 조직적인 일을[에]) 시작[개시/착수]하다 [본문으로]
9. lump ; [타동사][VN] ~ A and B together | ~ A (in) with B A와 B를[A를 B와] 함께 묶다 [본문으로]
10. acquisitive organization ; An acquisitive company often buys other companies or parts of other companies [본문으로]
11. modern history ; 근, 현대사 [본문으로]
12. slurp ; (비격식) 1. (무엇을 마시면서) 후루룩 소리를 내다, 후루룩 마시다 ;; 미국식 [slɜ:rp] 영국식 [slɜ:p] [본문으로]
13. munch ; [동사] ~ (on/at) sth 아삭아삭[우적우적] 먹다 ; 미국·영국 [mʌntʃ] [본문으로]
14. squirt ; 1. (액체・가스 등을 가늘게) 찍 짜다[내뿜다/뿌리다]; 찍 나오다[뿌려지다] ;; 미국식 [skwɜ:rt] 영국식 [skwɜ:t] [본문으로]
15. superb ; [형용사] 최고의, 최상의, 대단히 훌륭한 ;; 미국식 [su:|pɜ:rb] 영국식 [su:|pɜ:b;sju:-] [본문으로]
16. lose steam ; 열기가 식다, 활기가 없어지다, 힘을 잃다, 성능이 떨어지다, 활력을 잃다 [본문으로]
17. portfolio ; 3. (금융) (개인・기관의) 유가 증권 보유 일람표 ;; A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, as well as their funds counterparts, including mutual, exchange-traded and closed funds. Portfolios are held directly by investors and/or managed by financial professionals. Prudence suggests that investors should construct an investment portfolio in accordance with risk tolerance and investing objectives. [본문으로]
18. estimate ; [흔히 수동태로] ~ sth (at sth) 추산[추정]하다 [본문으로]
19. return ; 10. PROFIT/LOSS | [타동사][VN] (상업) (수익・손실을) 내다[가져오다] [본문으로]
20. respectively ; [부사] 각자, 각각, 제각기 [본문으로]
21. reinvent ; [타동사][VN] ~ sth/yourself (as sth) 다른 모습[이미지]을 보여주다 [본문으로]
22. consumer industry ; 소비재 공업 [본문으로]
23. brilliantly ; [부사] 찬란히, 번쩍번쩍하게, 찬연히; 뛰어나게, 훌륭히 [본문으로]
24. window of opportunity ; [명사] 호기, 절호의 기회(국제 관계에서 흔히 쓰이는 말로 어떤 일을 성사시킬 수 있는 기간). [본문으로]
25. start out ; 1. (특히 사업·일을) 시작하다 [본문으로]
26. acquisition ; 3. [C , U] (상업) (기업) 인수, 매입(한 물건) [본문으로]
27. booze ; [U] (비격식) 술 [본문으로]
28. maker ; 1. [C] [흔히 합성어에서] ~ (of sth) …을 만드는[생산하는] 사람[회사/기계] ;; 참고 ; holidaymaker, peacemaker, troublemaker [본문으로]
29. resulting ; 결과로 초래된 [본문으로]
30. colossus ; 1. [sing.] (격식) 대단히 중요한 사람[것]; 거인, 거대한 것 ;; 미국식 [kə|lɑ:səs] 영국식 [kə|lɒsəs] [본문으로]
31. valuable ; 흐름상 "주식의 가치"를 염두한 표현 [본문으로]
32. take control of ; ~을 장악, 지배하다 [본문으로]
33. in partnership with ; 2. …와 합자[공동 경영]로 [본문으로]
34. combined ; 흐름상 "합병된" 정도의 의미 [본문으로]
35. merge with ; ~와 통합, 합병되다 [본문으로]
36. hypothermic ; [형용사] 저체온(증)의 [본문으로]
37. Torontonian ; [명사] 토론토 사람. [본문으로]
38. huddle ; [~ (up)] 1. (사람・동물들이) (보통 춥거나 무서워서) 옹송그리며 모이다 [본문으로]
39. zero-based budgeting ; [명사] 제로베이스 예산 편성(관례나 전년 기준을 무시하고 백지 상태에서 하는 예산 편성. 약어: ZBB). ;; (모든 것을 영에서부터 생각한) 제로 베이스 예산 편성 ((略 ZBB)) [본문으로]
40. scrutinize ; [타동사][VN] 세심히 살피다, 면밀히 조사[검토]하다 [본문으로]
41. bloated ; 1. 부은, 부푼 ;; 흐름상 "과장된" 정도의 의미 [본문으로]
42. rest on ; ~에 기초하다 [본문으로]
43. debt financing ; 채권 금융 ((공채·사채 등 채권 발행에 의한 자금 조달)) [본문으로]
44. spread ; 9. FINANCE | [U] 차액, 마진 [본문으로]
45. underestimate ; (참고: underrate) 1. (비용・규모 등을) 너무 적게 잡다[추산하다] ;; 2. [타동사][VN] (사람을) 과소평가하다 [본문으로]
46. resilient ; 1. (충격・부상 등에 대해) 회복력 있는 [본문으로]
47. thanks to ; [부사] …의 덕분에, 때문에. ;; 동의어 ; because of, owing to. [본문으로]
48. oligopolistic ; [형용사] (경제) 소수에 의해 시장이 독점되는, 과점의. [본문으로]
49. prompt ; 1. (사람에게 어떤 결정을 내리도록・어떤 일이 일어나도록) 하다[촉발하다] [본문으로]
50. top line ; The top line is a reference to the gross sales or revenue of a company. It is called the top line because it the first line, located at the top of a company's income statement, and is most often reserved for the reporting of gross sales or revenue. A company that increases its revenue is said to be growing its top line or generating top-line growth.;; 참고 ; bottom line ; 2. (상업) 최종 결산 결과 ;; 순이익 [본문으로]
51. takeover ; [C , U] 1. 기업[경영권] 인수 [본문으로]
52. in action ; (제 고유의) 활동[작동]을 하는 [본문으로]
53. finance ; [타동사][VN] 자금[재원]을 대다 [본문으로]
54. post tax ; 세금 공제 후의 [본문으로]
55. cash flow ; [C , U] 현금 유동성(한 사업체의 수입과 지출의 흐름) [본문으로]
56. capital spending ; [명사] 자본지출, 설비투자 ;; 동의어 ; capital expenditure [본문으로]
57. market capitalization ; (증권) 시가총액 = market cap [본문으로]
58. plus ; [전치사] 2. …뿐만 아니라, …도 또한 [본문으로]
59. net borrowings ; Net borrowings or net debt is interest-bearing liabilities less cash and cash equivalents.It is equal to bonds, loans, overdrafts, commercial paper and financial leases minus cash, cash equivalents and the fair value of any derivative instruments owned. [본문으로]
60. lift ; 10. INCREASE | (양・수준을) 올리다, 인상하다; 올라가다, 인상되다 [본문으로]
61. leverage ; [U] 1. (美 le・ver・age) (英 금융) 레버리지, 기어링(타인 자본을 이용하여 자금 조달 효과를 가져오는 것) ;; 참고 ; gearing [본문으로]
62. reckless ; [형용사] 무모한, 신중하지 못한; 난폭한 [본문으로]
63. volatile ; 2. (상황이) (금방이라도 급변할 듯이) 불안한 ;; 미국식 [|vɑ:lətl] 영국식 [|vɒlətaɪl] [본문으로]
64. chug ; 2. [타동사][VN] (美 속어) (음료를) 단숨에 들이켜다 [본문으로]
65. come hell or high water ; 어떤 일이 있어도, 무슨 어려움이 닥쳐도 [본문으로]
66. financial crisis ; [명사] 재정, 금융위기 [본문으로]
67. share prices ; 주식가격, 증권가격 [본문으로]
68. interest rate ; 금리, 이율 [본문으로]
69. push ; 3. AFFECT STH | [타동사][VN + adv. / prep.] (특정 수준・상태가 되도록) 밀고 나가다[영향을 미치다] [본문으로]
70. listed ; [형용사] 표[명단]에 실린; 전화 번호부에 실려 있는; [증권] 상장(上場)된 [본문으로]
71. narrow ; 1. 좁히다, 좁게 하다; 가늘게 하다 [본문으로]
72. median ; [명사 앞에만 씀], (전문 용어) 1. 중간값[중앙치]의 ;; 미국∙영국 [|mi:diən] [본문으로]
73. speculation ; 1. [U , C] ~ (that…) | ~ (about/over sth) 추측, (어림)짐작 [본문으로]
74. make a bid (for) ; …에 입찰하다, 값을 부르다; …에 도전하다 ;; [입찰에서] ...값을 붙이다. ...를 얻고자 노력하다. [본문으로]
75. rumor ; [타동사] [보통 수동형으로] 소문내다 [본문으로]
76. monetary policy ; 금융 정책, 재정 정책 ;; 통화[화폐] 정책 [본문으로]
77. normalize ; [동사] (격식) 정상화되다; 정상화하다 [본문으로]
78. indestructible ; [형용사] (쉽게) 파괴할 수 없는 [본문으로]
79. opt for ; ~을 선택하다 ;; to choose something; to make a decision about something [본문으로]
80. niche brand ; 틈새 브랜드 ;; niche ; 2. (상업) (시장의) 틈새 ;; 미국식 [nɪtʃ;ni:ʃ] 영국식 [ni:ʃ;nɪtʃ] [본문으로]
81. craft ales ; 수제 맥주 ;; ale ; (참고: brown ale , ginger ale , real ale) 1. [U , C] 에일(주로 병이나 캔으로 파는 맥주의 일종) [본문으로]
82. organic ; [주로 명사 앞에 씀] 1. (식품・농법 등이) 유기농의, 화학 비료를 쓰지 않는 [본문으로]
83. take-home meal ; 흐름상 "집으로 들고가서 먹는 음식" 정도의 의미 [본문으로]
84. in the last quarter ; 지난 분기 [본문으로]
85. stagnant ; 2. 활기 없는, 침체해 있는, 불경기의 ;; 3. 발달[진보, 성장] 없는 [본문으로]
86. volume ; 2. [U , C] (…의) 양 [본문으로]
87. shrinking ; [형용사] 움츠리는, 겁내는, 감소하는 [본문으로]
88. in the medium term ; 중기적으로 [본문으로]
89. finite ; 1. 한정된, 유한한 ;; 미국∙영국 [|faɪnaɪt] [본문으로]
90. shelf space ; [명사] (상업) 선반 스페이스(소매점에서 어떤 상품종류가 점하는 선반의 면적[길이]) [본문으로]
91. slug[slog] it out ; (싸움·시합에서) 결판이 날 때까지 싸우다 [본문으로]
92. cost saving ; [명사] 원가절약, 원가절감, 경비 절감, 비용 절감 [본문으로]
93. bottom line ; 2. (상업) 최종 결산 결과 ;; [the ~] 1. (결산서의) 맨 밑줄; (계상된) 순익[손실], 경비 ;; 2. 최종 결과, 결말, 총결산; 최종 결정, 결론 ;; 3. 가장 중요한 사항, 핵심; 결정적 계기[전기, 순간] [본문으로]
94. make interest payments (on) ; 이자를 갚다 [본문으로]
95. equivalent to ; ~와 같음, 상응함 [본문으로]
96. non-financial firm ; 서비스업체와 같은 비금융기관 [본문으로]
97. well-organized ; [형용사] 정리가 잘 된 [본문으로]
98. repayment ; 2. [C] [주로 복수로] 분할 상환금 [본문으로]
99. be spread out over years ; 흐름상 "~기간 동안 상환하도록 되어 있다" 정도의 의미 [본문으로]
100. even so ; 그렇기는 하지만 [본문으로]
101. mediocrity ; (pl. -ies), (못마땅함) 1. [U] (썩 뛰어나지는 않은) 보통[평범] [본문으로]
102. beckon ; [자동사] 부르다, 유혹하다; 신호하다[to]. [본문으로]
103. flurry ; 1. [주로 단수로] (잠시 한바탕 벌어지는) 소동[부산] [본문으로]
104. rule out ; [동사] 제외시키다, 배제하다; 불가능하게 하다. ;; 동의어 ;; exclude, eliminate. [본문으로]
105. stay on one's toes ; 만반의 준비를 하다, 긴장을 늦추지 않다, 경계심을 가지다 [본문으로]
106. cross-border ; [형용사] (명사 앞에만 씀) 국경을 넘는 [본문으로]
107. job cut ; [명사] 일자리 삭감, 감축 [본문으로]
108. politically sensitive issue ; 정치적으로 민감한 문제, 사안 [본문으로]
109. a bid for ; …을 위한 노력, 시도 [본문으로]
110. cause a stink (about) ; (…에 대해) 소동을 벌이다. [본문으로]
111. block ; 3. (진전・진행되지 못하게) 방해하다, 저지하다 [본문으로]
112. fast-growing ; …에의 노출. [본문으로]
113. fast-growing ; [형용사] 빨리 성장하는, 급성장하는 [본문으로]
114. emerging economies ; [명사] 개발 도상국 (syn. developing countries) [본문으로]
115. turn sb/sth[from sth] into sth ; ~을 (~에서) ~이 되게 하다[~으로 바꿔 놓다] [본문으로]
116. energize ; 1. 열기[열정]를 돋우다 ;; 2. 활기[기운]를 북돋우다 [본문으로]
117. tall order ; 어려운 주문, 무리한 요구 [본문으로]
118. sales ; 2. [pl.] sales 매출(량) [본문으로]
119. pivot ; 2. (가장 중요한) 중심[중심축] [본문으로]
120. be a struggle ; 힘들게 되다, 힘든 상황에 닥치다 [본문으로]
121. subdue ; [vn], (비교적 격식) 1. 진압하다 ;; 2. (감정을) 가라앉히다[억누르다] [본문으로]
122. mute ; 2. 약화[완화]하다 [본문으로]
123. nascent ; [형용사] (격식) 발생기의, 초기의 ;; 미국·영국 [|nӕsnt] [본문으로]
124. opportunistic ; 1. (못마땅함) 동의어 opportunist ;; (또한 op・por・tun・is・tic) [주로 명사 앞에 씀] (흔히 못마땅함) 기회주의적인; 우발적인 [본문으로]