Dealing with Changing Consumer Preferences in Traditional “Big-Beer”: Anheuser-Busch InBev’s Foray into Innovation and Disruption
Over the past decade, consumer preferences around the world have steadily shifted away from traditional light beers towards liquor and stronger flavor, artisanal craft beers. Large scale beer brewers are forced to pursue radical innovation in regaining its consumer base. Anheuser-Busch Inbev ("AB-Inbev"), the world's largest brewer is using big-data, open innovation and acquisitions to better position itself against these headwinds.
Beer is the oldest recorded recipe in the world. Since its inception in 3900BC in ancient Egypt, many human civilizations have enjoyed this refreshing beverage created from a mix of grain, hops, yeast and water. Today, for billions of consumers around the world, beer represents community and an important part of a social universe. Interestingly however, the beer recipe itself has not changed much, and the predominance of large-scale brewers pursuing economies of scale has historically limited innovation in the industry. One of such brewers is Anheuser-Busch InBev (“AB-Inbev”), a company formed in 2008 by the merger between renown American beer business, Anheuser Busch and InBev to become the largest beer brewer in the world. However, as the company braced to expand its leading position in the global beverage industry, the need for radical innovation in its traditional beer business became urgent. Over the past decade, consumer preferences around the world have steadily shifted away from traditional light beers towards liquor and stronger flavor, artisanal craft beers. In 2016, the International Wine and Spirits Record (IWSR) revealed a decline in beer sales worldwide, even though global gross domestic product increased 3.5 percent in 2016. China saw its sales of beer fall 4.2 percent, Brazil’s declined 5.3 percent and Russia’s declined almost 8 percent. AB-Inbev hasn’t been spared from these shifting consumer preferences as sales of the company’s flagship beers have been slumping: between 2010 and 2016, the value of Budweiser sales fell 17 percent and Bud Light sales slipped 14 percent. Surprisingly, within this time, the craft beer industry which has notoriously shrouded itself with innovation in beer products has experienced double digit growth. Between 2007 and 2017, the number of craft beer brewers in the US had grown from 1,500 to over 6,000 with the volume of barrels produced quadrupling in the same period. Against the backdrop of these headwinds, AB-Inbev has embraced the need for product innovation through a variety of methods including acquisitions, crowd-sourced innovation for product line extensions, and internal incubation.
Innovation-through-acquisition was an initial strategy AB-Inbev pursued with the hopes of expanding its product portfolio to encompass the eccentricity of new-age craft beer brands. Between 2011 and 2017, the company acquired ten (10) breweries from coast to coast in the United States; ending with and acquisition of Wicked Weed Brewing of Asheville, N.C. in May 2017. However, despite evidence of sales growth in many of the company’s newly acquired brands, backlash from die-hard craft beer consumers has been severe. With the purchase of Wicked Weed by AB-Inbev, craft beer festivals dropped the brewer from their events while several brewpubs pulled the beer from their taps. Although the beer tastes and looks the same, consumer perception of the product deteriorates with association to AB-Inbev, thus presenting a challenge to AB-Inbev’s innovation-through-acquisition strategy. The company subsequently announced it would not be buying any more craft breweries but would instead grow the portfolio of brands it already owned.
To expand its existing product lines, AB-Inbev explored Open Innovation. In 2012, the company combined a competition between brew masters with consumer-tastings to help develop a new craft beer. The project had over 25,000 participants and resulted in the creation of the golden-amber lager “Black Crown”, an extension of its Bud Light portfolio. However, Black Crown was less of a success then AB-InBev hoped for. While the beer itself got positive reviews in blind taste tests, it still couldn’t compete with other craft beers, resulting in the company’s decision to discontinue the product line in 2016. The company was forced to reconsider its approach to innovation, leading to the inception of ZX Ventures. Launched in 2015 as an internal incubator by AB-Inbev, ZX Ventures was charged with “disrupting” the beverage industry by developing and investing in businesses that will provide value and improve user experiences. ZX has invested in e-commerce delivery systems, beer-rating applications and home-brew suppliers, all of which provide data points that can predict trends.
What does it take to address a consumer that increasingly does not want to be associated with your products? This is ultimately the challenge that “Big-Beer” companies such as AB-Inbev will need to address as more and more millennials switch light beers for wine, spirits and stronger flavored craft beers. For AB-Inbev, investing in ZX Ventures was to better anticipate trends and position the company to be proactive versus reactionary as it was in the case of craft beers. However, I believe more must be done by the company with respect to understanding root causes underlying shifts in consumer preferences including and not limited to health considerations and consumer experience. Without truly grasping this, the company may continue to struggle to keep its traditional business afloat.
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Student comments on Dealing with Changing Consumer Preferences in Traditional “Big-Beer”: Anheuser-Busch InBev’s Foray into Innovation and Disruption
I think the internal incubator of AB-InBev is a very interesting way to go about open innovation because of its proactive stance on getting ahead of trends. The one thing I question is whether the types of companies and ideas they’re chasing actually make sense for their industry. As described above, AB-InBev had created a beer in house called Black Crown that received high ratings in a blind test. However, this beer despite its high ratings, it was not a commercial success, which begs the question if beer rating applications are good companies to be purchasing to predict trends in the space. It might be worth investing more in areas to predict what drives these trends, such as companies that can provide or track POS data.
This is a super interesting article that gets at some of the underlying big-beer tensions we read about in Idle Hands. It seems like any new beer, regardless of the quality, suffers from an association with AB-InBev. As you mentioned in the article, the company needs to determine the root causes underlying this association and the main drivers causing consumer preferences to shift. How can open innovation help AB-InBev with these problems? Maybe it’s something as simple as letting consumers vote for the next line of AB-InBev beers. Promote a campaign of three options in the fall and reveal the winner at the Super Bowl? A contest like this drives interest, but also shows trends in preference if the beers are differentiated enough. Another idea is having ZX Ventures invest in something like the Untapped App, which allows you to find, rate, and track beers that you’ve consumed. It’s similar to Vivino for wine and could provide data on what beers consumers like and where they consume (retail, restaurants, concerts, etc).
As a participant in a few focus groups hosted by AB-Inbev, particularly interested in understanding the tastes of female drinkers I am in full agreement that they need to very quickly get a hold of consumer taste as more and more people look towards craft beer. I believe open innovation is very difficult with a consumer good, and in-fact if AB-Inbev wants to truly succeed they will need to do more than brewing competitions but instead rely on traditional closed mediums like special releases, brand endorsements, and being highly available at events and attractions.
Interesting! I wonder, is AB facing an immutable change in tastes, or are beer preferences cyclical?
AB’s approach to developing Black Crown seemed strong, especially considering the huge number of talented home brewers today. Perhaps it failed because the brand is not associated with innovation/bold flavor profiles. Maybe a “DeWalt” approach of selling under a new brand would have been met with more success. Outsourcing product development and innovation to “the crowd” is only as good as the marketing that follows.
Excerpt from the New York TOMs review:
Mr. Gunju rightly points out that AB InBev’s use of an open innovation craft beer contest, though productive in its own right, solves a different problem from the one that “ales” them: consumer unwillingness to be associated with Big Beer and its representatives. The extent to which this effect predominates among craft-brew diehards is underscored by the case of Wicked Weed, which was pulled from the shelves not because of a deterioration in quality or rise in price, but because the taint of the AB InBev brand repelled brewpubs and craft beer aficionados.
The article’s point that ZX Ventures makes AB InBev more proactive is well taken, but drifts away from the author’s previous argument that brand association is to blame. What will e-commerce delivery systems and beer-rating applications do for consumers who would not be caught dead drinking AB’s products? ZX’s current incarnation addresses the innovator’s dilemma but not the brand crisis, and questions remain whether an incubator such as ZX can solve a problem rooted not in product quality but in marketing. Would it be effective to crowdsource the company’s marketing efforts by, for instance, running a social contest to come up with a DeWalt-style campaign as proposed by Ms. Batt? The execution would be dicey, but since the problem was never the product, the potential for using open innovation in a brand context is the most valuable open question.
The topic of changing consumer taste and Open Innovation is very interesting. From one side, OI democratizes decision making, ensuring that multiple and diverse points of view are considered. From the other, I’m wondering whether OI in this case is not just a bridge / intermediate step to crowd-sourcing. Said differently, as brands need to be where consumers are, ideally the process of defining which products to develop and where to invest could be fully outsourced to consumers. In fact, there are today several tools for “social listening” (e.g. Crimson Exagon) which can help companies understand the “sentiment” of consumers towards certain products or brands or choices (including packaging, colors etc.). Net, it could be interesting to explore this approach as an alternative or complement to OI as well.