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Anheuser-Busch InBev: Global Company Needs to ‘Craft’ Local Focus

Anheuser-Busch InBev

A corporate strategy article by Thunderbird students Andrea Bly, Sangeetha Nagaratnam, Joseph Rosing, David Roudybush and William Todd

Can, or even should, the global leader in brewing take on the numerous craft beer companies, whose sole focus is on satisfying the unique tastes of their local customers?

Blame the Carmel Macchiato. Or maybe the Mocha Frappuccino. I am not sure exactly when the tipping point struck, but at some time post-millennium, the U.S. society morphed into an environment where consumers attempt to display individualism through their sophisticated and differentiated purchases. Accordingly, companies were anxious to provide expanded and unique assortment to meet the evolving consumer demand. Starbucks now has 87,000 different combinations of drinks, which dwarfs the 31 flavors of Baskin Robbins that offered significant variety for many generations of Americans. [1]

Walking through the beer aisle of a local grocery store can be an experience analogous with stepping into a Starbucks for the first time. With so many choices, fancy names, and a plethora of brew styles, consumers are able to satisfy their individual tastes or explore a new option that they may have never even heard of before. With so much product differentiation in the beer industry, the loser is the tried-and-true Budweiser. Why reach for a Bud when you can try a scarcely available Dogfish Head 90 Minute IPA? Especially in certain U.S. markets, there is a growing preference for national as well as local craft beers. It’s not always easy being the big guy trying to sell Budweiser, and this is certainly true in the recent world of consumer product goods (CPG).

Major advantages of large global companies include their benefits from economies of scale and superior resources relative to their local competitors. However, in the U.S., consumers’ tastes have been gradually shifting towards distinctive items that are differentiated from the perceived sameness of global CPG offerings, and these more diverse products are often introduced by smaller local companies. Nowhere is this consumer shift more apparent than in the U.S. beer industry. As consumers migrate from global brands to glocal or local products, large beer companies such as Anheuser-Busch InBev need to be global but act local by leveraging their vast resources to implement local marketing strategies, unique product offerings, and first-to-market innovation.

According to the Brewers Association, “America’s beer drinkers are rapidly switching to craft because of the variety of flavors they are discovering.” The craft beer movement has been educating American consumers, encouraging beer exploration and developing their palate. Consumers are also shifting from big beer brands to crafts to enjoy products made from natural ingredients (usually locally sourced) and brewed using traditional methods. The Brewers Association opines that, “they are connecting with small and independent craft brewers as companies they choose to support.”

Figure 1 US Craft Breweries Grow 11% by Volumem in 2010 [2]
As a result, the US craft beer industry has been growing with more premium offerings in the beer category. Breweries in the US grew from 1,582 in 2009 to 1,693 in 2010. There were also many more forms and applications in the works to develop more breweries in 2011. As such, consumers have been moving away from lagers to explore other beer styles causing volume sales of lagers to decline. However, dark beer, which covers many craft beer styles, registered an 11% CAGR over the review period. [3] In 2011, dark beer volume sales increased by 10% to reach 958 million liters. So how does a Goliath like Anheuser-Busch InBev compete on David’s turf? The following insights can equip the larger brewers such as Anheuser-Busch InBev with a little more bite on the CPG playing field when competing against local competitors. In other words, it’s time to bring in the ringer.

Be Global, But Act Local
Take a trip through the aisles of health food giant Whole Foods and you will notice a preponderance of shelf tags identifying items as local. Whole Foods’ “Locally Grown” program identifies and sources produce from farmers within a seven-hour drive of each store. Although this initiative adds complexity and reduces efficiency gained by national buying, its environmentally-friendly orientation is aligned with the company’s values and creates an opportunity for stores to further connect with the community. Global companies need to strike a balance between global efficiency and local needs.

Large companies like Anheuser-Busch InBev are ill-equipped to be small and “crafty;” however, they are well equipped to appear this way. Anheuser-Busch InBev has developed a first-class marketing machine that drives beer sales. They can, and should, use this weapon to not only target the craft brewers but also become one. By using their unparalleled market research they can gain consumer insights that will allow them to establish their own specialized beers and/or buy the craft brewers with the best value.

In their attempt to reach out and identify with local consumers, Anheuser-Busch InBev has made sponsorship agreements with many of the MLB and NFL teams and has created customized packaging for their products, which include team logos during sports seasons. Anheuser-Busch Inbev could take this strategy a step further by identifying other opportunities outside of sports to customize packaging (e.g., state-specific mottos, emblems, or landmarks). Although much more complex than package changes, Anheuser-Busch InBev could also create new local craft-style beers that are exclusive to certain markets. This strategy is currently being executed in one market by Goose Island, which is a Chicago-based craft brewery that was acquired by Anheuser-Busch in 2011. Goose Island’s Green Line brand (a local tagline derived from one of the transit lines of Chicago’s rapid transit system, the “L”) is exclusive to its native Chicago market. Local, unique products that are exclusive to a certain area, as Goose Island knows, foster consumer engagement and drive demand. Another local strategy that large-scale operations such as Anheuser-Busch InBev may reap rewards from is in making an effort to source and call out local ingredients utilized in their products. With an increased focus on localness, Anheuser-Busch InBev’s products will be better aligned to the local consumers.

Leverage Resources to Provide Unique Product Offerings
By design, global companies are built for scale and thus lack the flexibility and perceived creativity of their local competitors. As a result, many U.S. consumers view local products as more “authentic” and thus superior to offerings from large multinational companies. Global companies need to effectively harness their resources to create unique products that cannot be matched by local competitors.

Anheuser-Busch InBev has a wealth of global resources, including in excess of 200 beer brands in its portfolio, as well as ownership of many storied European breweries with hundreds of years of brewing history. Anheuser-Busch InBev has failed to fully wield the power of its global portfolio in the U.S. For example, Brahma is the largest beer in South America and is not currently available in the U.S. Additionally, there is an opportunity to collaborate with European breweries to create special offerings for the U.S. market. Anheuser-Busch InBev has the ability to tap its international resources for products, which is a key point of differentiation from local competitors.

Furthermore, Anheuser-Busch InBev has not fully developed its limited edition and seasonal brand portfolio, both of which create consumer excitement and demand. Recently, Anheuser-Busch InBev announced “Project 12”, which is an initiative whereby each of the twelve U.S. breweries will create their own Budweiser brand extension named after the brewery zip code (e.g., Saint Louis Brewery’s offering will be 63118). The top “Project 12” beers will be available in a limited edition sampler pack for the holiday season. “Project 12” is a great example of how Anheuser-Busch can capitalize on its resources to create a one-of-a-kind product offering. [4] Anheuser-Busch InBev should maximize the use of its resources to continually provide new products to the U.S. market, which will satiate consumers’ demand for distinct goods.

After Anheuser-Busch InBev utilizes their in-house innovation to launch perfectly targeted craft beers they can then leverage the company’s large capital investments to create economies of scale in this scale economy. In other words, they can use their existing label and glass bottle contracts to manufacture the product for cents while other craft brewers struggle with the decision to use Kinko’s or Copy Mart.

While the ink is still drying on the labels, Craft brewers are struggling to find a distributor for their product. Anheuser-Busch InBev is kicking up their heels. Why? Well, they already have the largest distribution network in the industry.

Be the Innovation Leader
Innovation is the lifeblood of all companies. Local competitors rely on innovation to creatively compete against well-healed global giants. Likewise, global companies use innovation to defend or grow their market position. Global companies have superior resources to fund innovation through research and product development. Furthermore, global companies have the benefit of competing and having visibility to other markets, where innovation insights can be gleaned and transferred to other markets.

Local competitors regard innovation as a necessary survival tactic and it is imperative that global companies maintain the same mindset.

Anheuser-Busch InBev has a successful history of innovation in its brands, packaging, marketing, and sales, which it relied on to become the dominant brewer in the U.S. In 2012, Anheuser-Busch launched two new significant brands: Bud Light Platinum, which is an upscale lager, and Bud Light Lime-A-Rita, which is a ready-to-drink margarita. Notably, these two new brands have helped create new beer categories and combined to capture an approximate 1.9 dollar share of the market. [5]

Anheuser-Busch InBev should continue to leverage its global network to provide innovative products and marketing to meet the changing U.S. consumers’ demand for specialized products. With the capital, global presence, distribution network, and market research that Anheuser-Busch InBev has, all the resources are present to enter and compete with the craft beer industry. Implementing the strategies of creating local beers with locally sourced ingredients, creating limited edition brews, and making international products available locally will reinforce Anheuser-Busch InBev’s positioning as both the global and local innovation leader for the beer category.

Figure 2 Anheuser-Bush InBev and Grupo Modelo Beers [6]
Works Cited:
[1] Espresso, Ethan S. “What’s your Starbucks Signature?.” Starbucks Corporation, 12 MAR 2011. Web. 1 Aug. 2012. .
[2] Nason, Adam. “U.S. craft breweries grow 11% by volume in 2010” Web. 21 March 2011. http://beerpulse.com/2011/03/u-s-craft-breweries-grow-11-by-volume-in-2010/
[3] “Beer in the US .” Euromonitor International 2 Feb 2012. n.pag. Passport GMID. Web. 1 Aug 2012.
[4] Budweiser Project 12. ANHEUSER-BUSCH, INC., BUDWEISER, n.d. Web. 1 Aug 2012. http://www.anheuser-busch.com/Project12/default.aspx?redir=/Project12/ma….
[5] IRI Food Last 4 Weeks Ending 7/15
[6] Nason, Adam. “A-B InBev buys Modelo’s remaining stake for $20.1 billion: 25 key facts.” 29 June 2012. http://beerpulse.com/2012/06/a-b-inbev-buys-modelos-remaining-stake-for-…