This story is part of a series of pieces looking at trends in the industry. Read more about the 6 trends that will shape the food and beverage industry in 2020.
When Greg Suellentrop, Anheuser-Busch's director of brewing and quality, joined the company in 1989 as an experimental brewer, the company's portfolio was composed predominately of seven beers.
Today, the beer giant, which depends on some of those same signature brews such as Bud Light and Budweiser for much of its brewing volume, has expanded its offerings — some of which were added to the portfolio through a series of mergers — to include hundreds of products each designed with a specific consumer preference or drinking occasion.
“If we were late to the game with some of our innovations I think we’re making up for it at a pace that is going to astound a lot of people," Suellentrop told Food Dive from the company's headquarters in St. Louis. "The pace of innovation at our company, from two years ago to today, is amazing. It’s hard to keep up, and I’m just being honest, keeping up with the pace of innovation is hard to do.”
Suellentrop, who has a degree in chemical engineering, has long gravitated toward Anheuser-Busch's signature brews like Bud Light. He said with so many new products being introduced at such a fast clip, it's been difficult for his palate to keep up with all the different profiles, some of which contrast with his own personal preference in alcohol.
"The core brands we’ve had for years, I don’t struggle with those, but (our strawberry margarita product) Straw-Ber-Rita, I’m not going to sit here and tell you that I’m the expert on what Straw-Ber-Rita should taste like. Learn as you go," Suellentrop said. "The pace of innovation has outpaced our ability to keep up with the profiles.”
Big Beer embraces agility
Americans — most notably younger consumers such as millennials and Gen Zers — are increasingly drinking less alcohol or skipping it altogether, and when they do, they're more likely to turn to spirits, craft beers or ready-to-drink products like hard seltzer. These products helped push total alcohol consumption higher by 0.3% in 2019, reversing a 1.6% drop from the year prior, according to data from IWSR.
Overall, beer volume slipped 2.3% in 2019, its fourth straight year of declines, led by a 3.6% drop in domestic brews, IWSR said. But there were bright spots in the category, too, with craft beer consumption increasing 4.1%, low- and no-alcohol posting gains of 6.6% and imported brews rising 3.1%.
"If we were late to the game with some of our innovations I think we're making up for it at a pace that is going to astound a lot of people. The pace of innovation at our company, from two years ago to today, is amazing. It's hard to keep up, and I'm just being honest, keeping up with the pace of innovation is hard to do.”
Director of brewing and quality, Anheuser-Busch
As sales of Budweiser, Coors Light and other brews popular among older adults wane, big beer companies have increasingly turned to other alcoholic options such as hard coffee, kombucha, hard ciders, spiked seltzers and flavored versions of already popular brews to offset these declines and establish a base for future growth. AB InBev and Molson Coors also have partnered with Canadian companies to make nonalcoholic, cannabis-infused drinks, while Constellation Brands invested $3.9 billion in 2018 in marijuana company Canopy Growth.
For its part, Anheuser-Busch, the U.S. arm of global beer giant AB InBev, also has diversified its offerings by purchasing canned wine maker Babe Wine, debuted limited-edition lagers including one inspired by a George Washington handwritten recipe, relaunched its Lime-A-Rita drink as a brand for women and rolled out Bud Light flavored with real orange or lime peels.
Travis Moore, head of North America brewing for Anheuser-Busch, told Food Dive the company has created a suite of products for every occasion so when the consumer goes into the store they have a product that meets those needs, such as Michelob Ultra marketed toward individuals with an active lifestyle. As the brewer makes more products in a wider variety of serving sizes and containers, it has shortened how long it spends packaging each specific item with changes to its production line now occurring more frequently.
"We’ve definitely had to get better at managing complexity, but that’s part of what the consumer demands now," Moore told Food Dive. "We’re agile enough, even though we’re large. We’re agile enough to continue to adapt, to continue to be flexible and make a lot of different styles within our same infrastructure.”
To get these products to market faster, Anheuser-Busch has cut down the development times of new products from about 18 months to as little as a year as it embraces the work-fast, fail-fast mantra common throughout the food and beverage industry. The company often tries small batches first in a test market or collects real-time feedback from an online focus community of more than 600 consumers before deciding whether to roll out a product more widely.
“If you want to innovate faster you have to trust that you have a good process in place to catch issues because you’re innovating at a pace where you can’t dot every I or cross every T," Suellentrop said.
Even as Anheuser-Busch strives to create new beers and expand its reach into new areas like seltzers, the company can't forget that its core brews such as Budweiser, Bud Light and Michelob Ultra remain a lucrative source of revenue. Suellentrop is quick to note that even as Bud Light sales have declined, it's still responsible for one out of every six beers consumed in the U.S.
“The ones that have been with our brands for a long time, we’re not innovating for them. The best thing I can do for anyone who drinks 12 Budweisers a week is make sure that those 12 Budweisers are the same as he’s remembered his whole life," Suellentrop said. "They might try a new brand, but they very rarely make it their go-to brand. So, we’re trying to attract new drinkers to our company, and we’re trying to make sure loyal drinkers are happy.”
Despite a suite of products hitting the market, big beer companies continue to struggle. In its most recent quarter, AB InBev, the world's largest brewer responsible for one out of every four beers sold around the world, said volumes again dropped in the U.S. as the company lost 0.85 of a percentage point of market share. Revenue edged higher by 0.2% as the company benefited from more premium products in its portfolio.
'Not a lot of differentiation'
Molson Coors, which has ventured into many of the same categories of trendy alcoholic beverages at AB InBev, has experienced dismal results of its own.
After another quarter of falling sales in the U.S., which accounts for two-thirds of its revenue, Molson Coors announced sweeping changes to its business in October that included cutting hundreds of jobs, a change in its corporate structure and a decision to drop the word "brewing" from its name and replace it with "beverage" in an effort "to better reflect its strategic intent to expand beyond beer and into other growth adjacencies."
"While we made progress we know it's not enough and taking baby steps would have —," Marty Maloney, a Molson Coors spokesman, told Food Dive before pausing. "Changes were necessary. We needed to get the business back on track."
To do that, Molson Coors is focusing on above premium products and moving beyond beer. Most recently, it announced it is testing La Colombe cold brew with the addition of an alcoholic malt in four markets. In November, Molson Coors also purchased a stake in L.A. Libations, a nonalcoholic beverage incubator that has worked with Body Armor sports drinks and Core Nutrition before they were picked up by Coca-Cola and Keurig Dr Pepper respectively.
Similar to AB InBev, Molson Coors has shrunk its testing process that used to span 18 to 24 months, with some brands seeing the time reduced dramatically. Movo wine spritzers, for example, went from concept to market in four months, Maloney said. Its Saint Archer Gold, a 95-calorie, 2.6 carb light lager competing against Michelob Ultra, went from being in four test markets less than a year ago to having an ad in the Super Bowl next month. Most products have seen their development times cut in half to a year or less.
"There's still huge demand for the Miller Lites and the Coors Lights so we're still investing and in fact doubling down on those brands, but we also want to make sure that we have a wider portfolio so we can meet the consumer trends," Maloney said.
Still, the barrage of products hitting the market in many of the same categories has sparked concern that alcohol companies are not doing enough to separate themselves.
"There isn't a lot of differentiation into what everyone is doing," Nathan Greene, analyst at the Beverage Marketing Corporation, told Food Dive. He said with the malt beverage segment facing a slowdown — with the exception of craft — beer giants have no choice but to try to enter new categories, even if their product rollouts are strikingly similar to their competitors.
"It's really just a question of can any certain product have that long-term staying power," Greene said. "It's also still a fairly fickle consumer that does kind of always look for what's next. It's really about hedging your bets to prepare that there's a chance that the exact trend you're creating will" catch on with shoppers.
One of the hottest trends that so far has shown signs of lasting for the long-term is hard seltzer, a big reason all the major beer producers are in the segment or have announced plans to enter it. Retail sales of the product soared 208% to $1.4 billion for the year ending Nov. 30, 2019, according to data provided to Food Dive by Nielsen. This followed increases of 169% and 358% in the previous two years. UBS expects the hard seltzer category to increase to $2.5 billion by 2021.
"There isn't a lot of differentiation into what everyone is doing."
Analyst, Beverage Marketing Corporation,
Up until now, the market has been dominated by White Claw, which is the category leader with a 59% dollar market share, according to IRI data ending in September, followed by Truly, owned by the Boston Beer Company. Both are innovating in a bid to grow and retain their market dominance as the bigger players enter the space.
But AB InBev has struggled in its previous venture into hard seltzer after it acquired Spiked Seltzer in 2016, which has since been rebranded to Bon & Viv. The product is being marketed to millennial women as a healthier offering with no sugar and fewer calories. It also rolled out Natural Light Seltzer, marketed to bargain-seeking younger consumers with larger packages, a higher alcohol level and a lower price point, in 2019, and recently started introducing a Bud Light Seltzer aimed at the average backyard beer drinker.
Molson Coors' new CEO Gavin Hattersley has vowed to attack the hard seltzer in an effort to capture a bigger share of the space, and the beer giant has spent millions to create Vizzy, a hard seltzer made with acerola cherry, a superfruit that features 30 times more vitamin C per cup than an orange.
"We believe the seltzer category is here to stay," Hattersley told analysts in October."It's a category that we need to do a much better job competing in."
William Newlands, CEO of Constellation Brands, told Wall Street during its recent earnings call that the alcohol company will spend $40 million this spring to launch its Corona hard seltzer — its largest-ever single brand investment. Newlands said retailers already are setting aside space for the product on their shelves.
As the purchasing power of younger consumers becomes more influential, data shows they are less loyal to brands as generations before them. These consumers also want more choice, providing an impetus for food and beverage companies, including alcohol, to keep innovating. The hope, of course, is that alcohol companies find the next item that resonates with a mercurial audience even if it marks an abrupt departure from the iconic brands that were reliably brewed for decades without much need to innovate.
"I don't look like a seltzer guy, do I?" the 53-year old Suellentrop said with a laugh. "But that's the way the market is trending."