Black Crown Challenges Bud’s Image in AB InBev Innovation Push

In 2013, U.S. drinkers will be able to taste a new take on their iconic Budweiser. Black Crown, a stronger version of the American classic, is just one example of the brewer’s focus on faster, more dynamic innovation.

The drink, which Anheuser-Busch InBev NV (ABI) says has a more distinct flavor and taste than regular Budweiser, was selected for production from 12 experimental varieties submitted by head beermakers at each of the brand’s U.S. breweries. With an alcohol content of 6 percent, Black Crown will pack more of a punch than the standard brew’s 5 percent and is scheduled to go on sale in the U.S. early next year.

Attention-grabbing drinks are becoming more important for global brewers such as AB InBev as they seek growth in the face of competition from craft beers, wine and spirits. Changing the attitude of consumers toward established brands and keeping them interested is proving crucial.

“Black Crown’s bringing Bud to a more sophisticated crowd and occasion,” AB InBev Chief Marketing Officer Miguel Patricio said in an interview in New York. While the main purpose of innovation is to boost sales, it is also about creating “better brand health,” said the 46-year-old executive, who started in the position in July.

Photographer:Alexander Zemlianichenko JR/Bloomberg

AB InBev has been struggling to stem declines in Budweiser sales and boost Bud Light revenue in the U.S., the world’s second-biggest beer market. Close

AB InBev has been struggling to stem declines in Budweiser sales and boost Bud Light... Read More

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Photographer:Alexander Zemlianichenko JR/Bloomberg

AB InBev has been struggling to stem declines in Budweiser sales and boost Bud Light revenue in the U.S., the world’s second-biggest beer market.

AB InBev, created in 2008 when InBev NV bought Anheuser- Busch Cos. for $52 billion, has spent the last four years selling assets, stripping out costs from the combined business and paying down debt. Now, with the help of new brews including Bud Light Platinum and Bud Light Lime-A-Rita, the Leuven, Belgium-based brewer is honing its focus on selling more beer.

New Products

“When we bought A-B, our focus was much more on deleveraging,” said Patricio, who has also led the company’s Asia-Pacific unit. “This is behind us. Now we’re focusing on what we’ve been seeding” in new products.

AB InBev has been struggling to stem declines in Budweiser sales and boost Bud Light revenue in the U.S., the world’s second-biggest beer market. Sales of Budweiser to U.S. retailers fell 6 percent by volume in the nine months through September.

About 6 percent of AB InBev’s beer volume globally last year was the result of innovation and “renovation initiatives,” Patricio said. Bud Light Platinum, a higher- strength beer in a blue bottle, and the margarita-flavored Lime- A-Rita were introduced this year and helped add about 0.75 percentage point to the brand’s 21.5 percent share of the U.S. market in the third quarter, AB InBev estimates.

“Platinum was by far the biggest source of growth for ABI in the last three months,” Trevor Stirling, an analyst at Sanford C. Bernstein, said in a Dec. 11 note.

Festive E-Card

For AB InBev, innovation isn’t just about new brews, Patricio said. It’s also about packaging and marketing initiatives, such as a personalized festive e-card, where consumers can send friends a video of a glamorous blonde delivering a chalice of Stella Artois to any address, using Google Inc.’s (GOOG) Street View service.

AB InBev plans to introduce a new Budweiser can with a distinctive waistline shape in the U.S., and has added different sized and shaped cans globally, including a red-and-gold dragon- patterned bottle in China to celebrate Chinese New Year. New Brahma cans in Brazil enable the entire lid to be peeled off instead of just a tab, creating a ready-made beer glass.

“We’re feeding this funnel of innovation constantly,” Patricio said, adding that new products typically take three or four years to develop.

Renovating or designing new varieties of established drinks, such as Stella Cidre and Lime-A-Rita, is more important than creating entirely new brands, though the company isn’t avoiding the latter, Patricio said.

Marketing Spending

Known for its prowess in reducing costs, AB InBev is also seeking to sell more profitable drinks. Bud Light Platinum is priced about 35 percent higher than Bud Light, according to Stirling.

Still, the brewer is resisting cuts to sales and marketing spending, which climbed 7.7 percent in the first nine months of 2012, after rising 4.1 percent a year earlier. Patricio declined to comment on whether spending will continue to rise. AB InBev’s Ebitda margin, a measure of profitability, is wider than main competitors SABMiller Plc (SAB), Carlsberg A/S and Heineken NV.

The executive said it’s easier to be agile with innovation and marketing in the digital age because of better and faster consumer feedback. AB InBev is soliciting ideas from customers through the “open innovation” section of its website and is using technological innovation around gigs and sports events to drive interaction through social-media websites such as Facebook. It has a digital innovation center in Palo Alto, California, the heart of Silicon Valley.

“It’s much easier to make consumers loyal when they experience an event” with a company, Patricio said.

That’s not to say that AB InBev has perfected the process. Profit this year was hurt by higher distribution and administration costs in the U.S. as the brewer struggled to keep up with demand for Platinum and Lime-A-Rita, which required extensive -- and expensive -- countrywide distribution.

“We have to be better” at planning, Patricio said. Still, “I wish we had that problem everywhere -- of having innovation be so successful.”

To contact the reporter on this story: Clementine Fletcher in London cfletcher5@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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