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Welcome to the 44th edition of The Look BackThis week we’re looking at Diageo’s tequila investment, AB InBev’s pivot away from, around, and back to Bud Light, Voodoo Ranger’s outsized impact at New Belgium, and more.

The most-read link from the 43rd edition of the newsletter was, “The Supreme Court meets again, will it be different this time?” (Irish Liquor Lawyer)

Let’s dive in. 

#1 - Diageo Doubles Down on Tequila Bet

The Headline: “Diageo to invest $500 million in tequila production in Mexico”
The Source: Reuters
What You Need To Know:
British beverage company Diageo said on Thursday it will invest $500 million to increase its tequila production capacity in Mexico and help it meet local and international demand for the alcoholic beverage.

The president of Diageo for Latin America and the Caribbean, Alvaro Cardenas, said the company will begin to build the company's third local manufacturing [plant] in the La Barca municipality of the western state of Jalisco.

"We're going to have an investment of more than $500 million dollars to expand our operations here," said Cardenas at an event in Jalisco.

"It is the most significant investment we have made in Latin America and the Caribbean in the last 10 years," he added.
Our Take: If you’ve tried to buy a bottle of Don Julio 1942 lately this news shouldn’t surprise you at all. We’re not talking about Pappy Van Winkle here, but as VinePair’s Tim McKirdy wrote back in May, 1942 is tequila’s first unicorn — and “r​etailers across the nation say they cannot keep 1942 on their shelves.” Of course, Don Julio moves a lot more volume across its entire range, and Diageo also has mega-brand Casamigos to fulfill (not to mention Diddy-affiliated DeLeon). So, things are good across the board, but supply is definitely tight across the tequila price spectrum.

The last thing to note is that this marks another major production investment this year for Diageo in a fast-growing category. Back in March, it was $80 million into a canning facility in Illinois with the capacity to do 25 million cases of RTDs annually — to support everything from the still-fairly-recently-acquired-and-now-national Lone River ranch water brand to Crown Royal’s successful foray into canned cocktails.

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#2 - AB InBev Says It Continues To Look Beyond Beer Bud Light

The Headline: “Bud Light Maker Tries Again With Hard Seltzer”
The Source: Wall Street Journal (possible paywall)
What You Need To Know:
The maker of Budweiser tried to jump on the alcoholic seltzer craze years ago — and flopped. The problem, according to Anheuser-Busch’s new chief executive: It was too focused on Bud Light.

Now the White Claw brand dominates the hard seltzer market and the category’s growth is slowing. But Anheuser-Busch says it isn’t too late to cash in. It aims to do so by using the marketing heft of its Bud Light and Michelob Ultra brands, along with a new seltzer created with rapper Travis Scott.

The brewer is remaking itself, retooling both its operations and mind-set to market a broader range of drinks, said Brendan Whitworth, who took the helm of Anheuser-Busch InBev’s North American business in July.

To that end, Anheuser-Busch for the past three years has been working to improve its consumer research, build new product-development capabilities, and change the culture throughout the company and its wholesale network.

“I will give us, in terms of progress, a six out of ten,” said Mr. Whitworth, a 45-year-old Marine veteran and former U.S. intelligence officer who likes to use military analogies. “It is hard to turn a ship around.”

“Bud Light is an amazing brand that plays a key role in everything that we do, but we have a portfolio that will take us into the future,” he said. “You’ve got to bring a lot of people along that have done certain things certain ways for an extended period of time, and that’s not easy.”
Let’s pause for a moment on the excerpt. This is an interesting reconstruction, from AB InBev’s own perspective, of how they fumbled an early opportunity in hard seltzer. I’m going to pull out that lede for emphasis — although most of you probably already know where we’re ultimately going with this: “The maker of Budweiser tried to jump on the alcoholic seltzer craze years ago — and flopped. The problem, according to Anheuser-Busch’s new chief executive: It was too focused on Bud Light.”

Let’s keep excerpting:
Explaining the failure of SpikedSeltzer to become a significant national brand, Mr. Whitworth said that Anheuser-Busch in 2016 was organized around supporting its core brands. It didn’t have R&D capabilities for seltzer, nor did it have the consumer insights it needed.

“It was just, for us as a company, before its time,” he said. “We just didn’t have the structure to focus on it. We did not have the right insights to say really what this could have been, and we didn’t have the capabilities that we have now to produce amazing liquids that are unmatched.”

That has changed, he said.

By the end of 2019, the company still didn’t have a strong hard seltzer contender. So last year, Anheuser-Busch threw its biggest brand into the ring, launching Bud Light Seltzer. The company in January this year introduced Michelob Ultra Organic Seltzer, a higher-priced option with 80 calories and no sugar, and in May launched Cacti, a fruitier and boozier agave-sweetened concoction created with Travis Scott, the rapper.

Bud Light Seltzer now holds the No. 3 spot with 9.6% of hard seltzer sales in U.S. retail stores tracked by Nielsen, according to Ms. Herzog. Michelob Ultra Organic Seltzer is in seventh place behind High Noon. In recent weeks, however, as U.S. seltzer sales fell below 2020 levels, Bud Light Seltzer’s market share has slipped.

Mr. Whitworth said the slippage is a concern but he remains optimistic. Seltzer is driving growth for the Bud Light franchise, which last year had its highest sales volume in five years, according to Anheuser-Busch.
Our Take: Let’s bullet point this:
  • AB InBev was early to the hard seltzer game, acquiring SpikedSeltzer in 2016, which would later be rebranded into a number of variations on BON V!V Spiked Seltzer.
  • The company failed to capitalize on the acquisition because it was too focused on Bud Light.
  • Three years later, after failing to make meaningful progress on the hard seltzer front, the company launched a Bud Light-branded hard seltzer.
  • Natural Light Seltzer, Michelob Ultra Organic Seltzer, and Travis Scott-associated Cacti were launched in fairly rapid succession.
  • Bud Light Hard Seltzer is still a distant third place behind White Claw and Truly, while the other three seltzer brands have seemingly done a better job of drumming up early buzz than lasting sales.
  • The company is optimistic because Bud Light Hard Seltzer — increasingly reliant on a rapid flavor release strategy — is propping up the larger Bud Light franchise’s flagging sales.
  • Not mentioned in the article: The latest Bud Light Hard Seltzer ads, which will be familiar to anyone who has watched NFL games this fall, encapsulate this whole circular dance nicely. In one, the “Bud Light” logo is pixelated to “cover up” confusion around the brand. In the other, former NFL star Nick Mangold spends 20 seconds covering up the “Bud Light” portion of the can with two fingers — a somewhat comical admission/sexually suggestive owning of the potential consumer confusion this endeavour has tried to waltz past since day one.
In other words, the solution to focusing on Bud Light is to transform Bud Light into more than a beer brand. Or, as we wrote at the time of the announcement of zero-carb Bud Light Next:
​​Following on the heels of Bud Light Seltzer, which debuted in early 2020, Anheuser-Busch hopes the new product will shift consumers’ perceptions of Bud Light from “the light beer to the light brand,” Goeler said.
A more cynical interpretation would be the old line: “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.”

But we can be charitable too. The news that the beer giant is looking into a $1.2 billion sale of non-priority German beer brands (Franziskaner and Spaten among them) certainly supports the idea that the company is prioritizing innovation (while also paying down its significant debt burden). On that front, back in the 25th edition of this newsletter we reported that for 2020, the company booked $1.2 billion of “beyond beer” revenue. Stepping further back, historically, betting against the company’s American predecessor because it wasn’t first to a trend has turned out poorly. After all, look at the success of Bud Light.

To go back to the original excerpt, “It is hard to turn a ship around.”

#3 - One Good (New Belgium) Tweet

(Via @PintsLLC)

#4 - One Good (Sierra Nevada) Quote

#5 - One Good (E-Commerce) Tweet Thread

(Via @AaronandML)

Bonus Reads:

  • Constellation Posts Strong Quarter Despite Supply and Seltzer Struggles (Beer Business Daily) (paywall) (other coverage at CNBC)
  • Gopuff's rampant growth created 'a downward spiral into chaos,' with fraud, unsold inventory, and warehouse managers throwing away thousands of dollars' worth of food every day (Insider) (paywall)
  • First Rodeo — Yuengling’s Expansion into Texas Bucks Competition, Ropes Big Returns (Good Beer Hunting)
  • Increasing Temperatures Led to Better-Tasting Wine Grapes, but for How Long? (UC Davis)
  • Into the awards void (The Food Section)
  • BevAlc Insight’s Top Predictions for 2021 Holiday Sales (Drizly)

And that’s a wrap. We hope you found this newsletter informative and useful. Whether you did or didn’t, we’d love to know why at vppro@vinepair.com.

Cheers! 
 
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