Anheuser-Busch Looks Beyond Beer to Secure Its Future

Budweiser and Bud Light have sold so well for so long that Anheuser-Busch has had little reason to veer from beer. But while business was good, it could always be better. “In 2017, we were the industry leaders, but we were not driving growth,” said Jake Kirsch, vp of innovation at Anheuser-Busch, who’s been in his current role for three years and with the company for a decade. “We were missing opportunities.” Then came the summer of White Claw in 2019. Missing the occasional opportunity was now of little consequence compared to the threat of hard seltzer. Amid the larger pursuit of health and wellness, young people gravitated toward the low-calorie drinks that came in a variety of flavors. Today, U.S. Millennials are more likely than baby boomers to consider hard seltzer their favorite alcoholic beverage, while baby boomers show more fondness than Millennials for domestic beer, according to data analytics firm YouGov. What might have once seemed unimaginable was happening: Anheuser-Busch's future fortunes would likely depend on something other than beer. “The beer business has never been disrupted as much as it has over the past two or three years,” said Laurent Grandet, a food and beverage analyst at Guggenheim Securities, an investment firm. Last year, restrictions on bars, restaurants and sports stadiums due to the pandemic lifted retail sales of alcohol across the board, according to NielsenIQ. But the increase wasn’t evenly distributed. Year-over-year demand for hard seltzer spiked 160%. Ready-to-drink cocktails rose 79%. Beer, meanwhile, saw a 9% bump. Although the hard seltzer category ($4.1 billion), led by White Claw and Truly, is about 10% the size of the beer category ($40 billion), Grandet estimates it will climb to 20% by the end of next year. Welcome to I-Semester Sensing change on the horizon and a need to adapt, Anheuser-Busch debuted I-Week, a one-week internal event dedicated to innovation, in 2018. Groups of employees in various roles—from brand management to consumer insights to research and development—came together to think up new product ideas based on trends and data they encountered from their unique positions within the company. On the final day, the teams with the best concepts pitched them to a panel of judges who provided critiques, much like an episode of Shark Tank. The following year, I-Week ballooned into I-Semester, giving teams several months to conduct research, run tests, receive feedback and fine-tune their proposals. To evaluate the quality of each idea, Anheuser-Busch uses a checklist it calls C.P.R. The beverage company explained “C” stands for consumer need. Do people really want this? Is there a problem that requires solving? “P” stands for point of difference. Can Anheuser-Busch invent a drink that’s better than a similar product already available in stores? Can it market the beverage in a way that makes it more appealing to a certain demographic? “R” stands for right to win. Can Anheuser-Busch pull it off? Does it make sense to even try? “If the product solution for that consumer need is a candle, we’re not going to make a candle,” said Lana Buchanan, vp of marketing for Anheuser-Busch’s Beyond Beer portfolio, which includes its hard seltzer, canned wine and ready-to-drink cocktail offerings. Unless a proposal delivers across all three elements, they won’t pursue it, she explained. The C.P.R. framework was present throughout the final day of product pitching during Anheuser-Busch's latest I-Semester, which concluded in late February. Apart from having a direct influence on specific product launches, the aim of I-Semester is to get employees with diverse perspectives and expertise to contemplate what might be coming next. “If we weren't looking at where the puck was going, things were going to continue to play out like they had,” Kirsch said. “We knew we had to bring innovation and consumers back to the forefront and this was a way to catalyze that—not just for the innovation team, because we've always been focused on that, but for the broader organization.” As for gauging Anheuser-Busch's commitment to innovation, the numbers can’t be ignored. Last year, the company released 111 new products, up from 22 in 2016. The increase in quantity doesn't mean a decrease in quality, either. Walmart named parent company Anheuser-Busch InBev its Innovation Supplier of the Year in the snacks and beverages category for 2019. Analysis from market-research firm IRI shows five new Anheuser-Busch offerings, including Bud Light Seltzer, are among the best-performing product innovations of 2020. Income from innovation All this activity has led to sales growth, too. Thanks to I-Semester, products such as Bud Light Platinum Seltzer and Michelob Ultra Infusions, beer laced with fruit flavors, have come to market. The same goes for Cacti, an agave-spiked seltzer released in partnership with musician Travis Scott last month. Prior to launch, Cacti’s Instagram account accumulated more than half a million followers. In a statement, Anheuser-Busch said the beverage, which comes in lime, pineapple and strawberry flavors, has "already sold out in thousands of locations across the country." In February, Anheuser-Busch InBev reported its Beyond Beer portfolio climbed double digits to surpass $1 billion in revenue last year. Some brands in the division, such as Babe, Cutwater Spirits and Bon Viv Spiked Seltzer, have come from acquisitions, as opposed to internal innovation. “2020 was a big change in terms of the fully focused expansion and priority of Beyond Beer,” Buchanan said, adding that the initial goal of reaching a billion in sales was set for some time in the future. When it comes to hard seltzer market share, Grandet of Guggenheim Securities noted Anheuser-Busch was “doing better than every other” major brewer. Sales figures from IRI show Anheuser-Busch's hard seltzer brands outpaced the category by double last year. As people's tastes and preferences for what to drink continue to change, Kirsch is confident Anheuser-Busch is more prepared to keep pace than it was in the past. "Our work is not done," he said.