BUD Anheuser Busch Inbev SA NV

By Nat Ives 

The lagers that long symbolized beer in the U.S. -- easy-drinking brews whose ad campaigns entered pop culture with catchphrases like "Whassup?" -- are losing market share.

Traditional domestic beer remains the largest category of alcohol in the U.S., but it fell to 17.7% of in-store sales in the 52 weeks through Sept. 7 from 22.3% four years earlier, according to market-research firm Nielsen.

Drinkers are gravitating instead to craft brews, liquor and, most recently, seltzer with alcohol in it. Some are even testing the market for hard kombucha, a version of the fermented tea drink that has higher alcohol content than the trace amount in traditional kombucha.

And mass-media advertising, which once would have been Big Beer's most powerful defense against the competition, is steadily fading.

So what is the company behind the "King of Beers" doing to keep up with all these changes?

Although Anheuser-Busch InBev SA is known for its flagship Budweiser brand, its portfolio includes brews made around the world, and has expanded to include both craft beers and hard seltzer. It devoted one of its Super Bowl ad slots this year to a pair of mermaids who pitched Bon & Viv Spiked Seltzer by talking up "fruit botanicals" and zero sugar. And yes, it now sells Kombrewcha, a carbonated tea with 4.4% alcohol by volume.

At the same time, Anheuser-Busch InBev is battling traditional beer rivals with a U.S. ad campaign pointing out that Coors Light and Miller Lite use corn syrup in their brewing processes while Bud Light does not. (Never mind that corn syrup is only used in the fermentation stage of brewing and never makes it into the competitors' products, a point that MillerCoors LLC stressed in a false-advertising lawsuit. A judge temporarily barred Bud Light from running some of the campaign's ads or using the words "no corn syrup" on its packaging, but the court fight continues.)

Last week Anheuser-Busch InBev announced plans for a Bud Light-branded hard seltzer, but cut its full-year guidance after a disappointing quarterly performance in the U.S. and China.

In an interview with The Wall Street Journal, Anheuser-Busch InBev's chief marketing officer, Pedro Earp, discussed how the brewer is trying to navigate these challenging conditions.

Here's one hint: When the company tapped him last year to take over the top marketing job, it let him continue as the head of the company's innovation unit, ZX Ventures, which aims to meet and anticipate consumers' needs with new products and services.

Here are edited excerpts of the conversation.

Marketing as entertainment

WSJ: Traditional beer has been losing ground for years. What's going wrong?

MR. EARP: We are a global company, and there are a lot of tailwinds in emerging markets, such as Colombia and China -- but more-mature markets are under pressure. The choices that consumers can make are diversifying. So we really have to diversify and offer what consumers are looking for. That's going to be a tool to reignite growth in the U.S. market.

WSJ: Are beer drinkers changing?

MR. EARP: We see consumers trading up and going for more-expensive products. We've been focusing on super-premium brands and craft. That's one angle.

The second one is health and wellness. Beer can play very well in that space because it's made of wholesome ingredients. It's relatively low in carbs and calories despite the perception that some people have.

WSJ: What's your plan for improving your marketing in particular, if that can be separated from diversifying your products?

MR. EARP: Portfolio is key. If you think about 10, 20 years ago, you could create an average product or a product that didn't have a lot of functional difference and you could really use mass advertising to drive emotional differentiation. The world has completely changed. Consumers are much more savvy about what's a great product or not. So true product differentiation became a much more important factor than emotional differentiation.

Once you have the right products, the big shift in marketing is from interruption to entertaining. If you look at Netflix or WhatsApp, a lot of platforms are ad-free. The future of marketing is one where brands will need to earn their space and entertain consumers.

And then you need to understand your consumers much better, their passion points and needs. Data makes a massive difference. So we have a massive area here to do that.

WSJ: How have you tried to entertain consumers?

MR. EARP: We have many examples. Country music is a massive passion point in Brazil.We sponsored a whole show about up-and-coming talent, and our Brahma beer is integrated on screen. In Mexico, we created a brand integration for Corona in three Netflix original programs about football teams.

WSJ: Is legal cannabis a threat to alcohol sales?

MR. EARP: In today's world we have to be to be paranoid. Our mission as a company is to bring people together, and over time there will be other products that try to fulfill that role. In the U.S. cannabis is still federally illegal, so we don't anticipate doing anything in the space. In Canada, where it's legal, we decided to go there and do our research, because we have to understand the competitive landscape and what could be the impact.

It's very early days to come to a conclusion. Edibles and drinkables are still not even in the market in Canada, and that's the space we're most interested in, especially beverages.

WSJ: You're one of the big players in the growing hard-seltzer market, but competitors like Mark Anthony Brands' White Claw are outselling your Bon & Viv, and doing well among both men and women.

MR. EARP: It's something that we have to do a better job with. The challenge with the need to have a much broader portfolio is, how do you focus on the things that are really going to grow? How do you give what consumers want, but at the same time you don't spread yourself too thin?

We are not 100% happy with where we are in the seltzer category given the performance. But so far we have two products: Bon & Viv, which is more of a premium product targeting more nonbeer drinkers, and we just launched Natty Light seltzer, targeting more beer drinkers at a lower price, and we are very happy and surprised with the results.

WSJ: Natty Light seltzer has higher alcohol than the leaders.

MR. EARP: Six percent, yeah. But we talked about health and wellness; hard seltzers are relatively low in alcohol, they have low calories, they are low in carbs -- so we believe in the underlying trends.

Everything that breeds excitement and addresses a consumer need is good for the industry. In the U.S., hard seltzer is categorized as beer because of the malt-beverage base. And hard seltzer actually brought growth back to the beer category.

Focus on innovation

WSJ: How does ZX Ventures work?

MR. EARP: We've been accelerating a lot of innovation since 2010, 2011. But it was more incremental than exponential, and the world is evolving at an exponential speed. So in 2015, we decided to try something a little bit different. Instead of having 100% of our innovation run from within the core business, and in a way competing for financial resources and attention with the big businesses, we decided to set up ZX, which is almost an independent organization with dedicated resources and dedicated people to drive innovation at an exponential rate without distracting from the focus on the big business.

WSJ: What's something that's come out of ZX?

MR. EARP: We've been accelerating a lot of innovation since 2010, 2011. But it was more incremental than exponential, and the world is evolving at an exponential speed. So in 2015, we decided to try something a little bit different. Craft beer has been growing in the U.S. since the '80s. It was very hard for us to put focus on craft and put focus on scaling some brands that we had at the same time, and we lagged the evolution of the industry.

When we set up ZX we had two opportunities: First, we could catch up in terms of our portfolio. And second, craft was actually still very underdeveloped in a lot of the emerging world. We said, we know that the trends are very similar to the developed markets -- why don't we go there and drive the craft revolution in a lot of these emerging markets instead of lagging behind? And that's what we did.

Then we created an area here called brand experience. We're in the mission of bringing people together, and probably there's nothing that brings people more together than a bar, a retail location. In the past two years, we have opened more than 500 beer bars with our craft brands all over the world. These bars became a marketing channel that makes money.

And we have something called our Explore Fund, which is an investment fund taking a look at what's next in beverages. We ended up acquiring Kombrewcha. We have Hiball, which is good-for-you energy drinks.

WSJ: Did you ever anticipate something like hard kombucha coming along?

MR. EARP: Hard kombucha was one of the first investments that we made here at ZX.

The trick to stay ahead of the curve is to identify consumer trends very early. And it's going to be more of an open innovation system, I think, than in the past.

In the past, a lot of companies tried to innovate all by themselves. It's much better for you to work as a platform. There are thousands of craft brewers out there thinking 24/7 about beer and about what's next. We believe a great model for future innovations is a model of partnership. Kombrewcha was one of them.

WSJ: Did anything from ZX fail to take off?

MR. EARP: We had a home-brewing business. One of the big hurdles in home brewing is to wait for six or seven days for the fermentation of the beer. We created a system so you could have your customized beer in hours or minutes instead of days.

We were all excited about it. And at the end it was a complete, complete flop, because there were kind of two types of consumers -- the ones that love the crafting of the beer and the hobby, and the ones that like convenience...

WSJ:...And just wanted to drink out of the bottle.

MR. EARP: Exactly. Nobody wanted the in-between solution. This is just one example. But in ZX, like in every innovation organization, you have many more failures than successes. Usually our failures are cheap and fast, and I think that's the trick.

WSJ: How do you find out what consumers want, or what they're going to want next?

MR. EARP: We have a huge amount of trends research. There is this phrase that the future is already here, but it's not evenly distributed. To give you an example, our innovation team just came back from two weeks in Japan. Japan is very forward in terms of innovation. They have beer with collagen there.

WSJ: Why?

MR. EARP: Because it's good for the bones, it's good for your skin. Aging is happening all over the globe, but in Japan it's phenomenal.

You try to take a look at the signals that are popping up here and there that are a predictor of what is going to be big in the future.

Mr. Ives is the editor of CMO Today at The Wall Street Journal. Email nat.ives@wsj.com.

(END) Dow Jones Newswires

October 27, 2019 22:19 ET (02:19 GMT)

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