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07.2006

Massachusetts Beverage Business

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Article By: Lew Bryson

If you have any solid answers, there are some very large brewers who want to meet you. They have a problem that is defined by these questions. Two of the world's largest brewers think they may have found some answers already: Heineken and Anheuser-Busch. They're making major moves into the light sector with Heineken Premium Light and Budweiser Select.

Dan McHugh is Vice-President of Trademark Brands at Anheuser-Busch, a relatively new position that has been created to reflect the company's new perspective on its core brands (more on that below). He's very high on Budweiser Select as a solid, integrated part of A-B's total market strategy. "Budweiser Select gives us a new entry in the lighter-tasting profile that we have," he said.

"Heineken has been looking at the light category for quite a while. We feel it's right now for a light variant." That's the word from Andy Glaser, Heineken USA's Brand Director for Heineken Premium Light (and Heineken).

Are these two new brands an answer to these questions? To find out, we'll first have to take a deeper look at the problem. Light beer continues to grow and expand, a category dominated by a small number of identically positioned brands. Bud Light, Miller Lite and Coors Light are the dominant players. Though they may be a bit uneven in growth, depending on who's got the best ad campaign at the moment, all three continue to do well while their 'full calorie' stablemates slowly decline.

That's not a problem in itself. Everyone's happy to see their brands do well, and these brands are all the biggest sellers for their respective brewers. Bud Light's success increasingly comes at the cost of slipping sales of the iconic Budweiser brand, but Miller and Coors seem to have accepted that fate.

Their campaigns for their premium brands have the definite aura of rear-guard actions; self-aware, and willing to take the pleasant surprise of growth if it should happen, but rear-guard nonetheless. They can see the way the market's blowing. Putting all your eggs in the 'light' basket may be risky, but there are definitely riskier baskets to be in, like the 'ice' basket Molson jumped into a few years ago.

The problem with the light beer category is that these three dominant brands have become commodities: frequently discounted, and distressingly - at least to the brewer and wholesaler - interchangeable. Glaser indicated that Heineken's market research supports this. "We've found that there's very little brand loyalty in the category," he said. "Price is a big driver."

This isn't unusual, but the lack of anywhere to go but down to a bargain brand is not what marketers have successfully built into the other categories in the market. The beer market generally has plenty of options. If you like premium beer but want something a bit more special, there are the imports. If you like the variety of craft brews, the sky's the limit both in terms of price and extreme flavors. If you want to pinch your pennies, there are bargain brands of a number of types available. There are usually clear trade-up paths available for the customer.

But the biggest category in the market is light beer, and creating an upgrade path for light beer has proven to be a difficult job of market surveying. As Rhonda Kallman put it a few years ago when she tried to crack that market with Edison Light, "I have a picture in my mind of an open fridge, and there's bottles of Bud Light, Coors Light, Miller Lite, Miller Genuine Draft Light, Corona Light, Amstel Light, Busch Light, and Edison in there. That's the whole section! There is a need for some choice, and for something that's better."

Edison Light wasn't the answer - at least, the market didn't think it was. There have been other attempts to create an upscale light beer, the most successful of which is Amstel Light, with a hard-charging effort coming from Corona Light, but nothing has really caught fire yet. Amstel is almost too full-bodied, Corona Light is perhaps not differentiated enough from its big brother. Neither has been the break-out success the brewers and marketers are looking for. Sam Adams Light may appeal to the craft brew customer who's looking for a lighter alternative, but its darker color scares off a lot of light beer drinkers.

What exactly is it that customers want in a light beer trade-up? The answer to that question may be in another, more basic question: what is it that customers are looking for - and finding - in the light beer they're already buying? Judging from the qualities of the successful light beers, the answers are pretty straightforward. Light beer drinkers want lower calories (though they don't seem to be hung up on a particular calorie-per-serving number), light, drinkable body and light flavor without a lot of hop bitterness. They will look at a carbohydrate count, but not as sharply as they did a couple years ago.

Beers that buck those trends, or try to take them too far, don't achieve widespread success. But that's where those thorny questions come in. If people want less from a light beer - less calories, less body, less flavor - what is it that you sell them more of to justify the higher price and prestige of a trade-up brand? More less?

That's not it. Going too far doesn't work: there are limits to how little body or flavor people want, and the marketing highway is littered with the derelict wrecks of brands that tried to push those limits too far.

But giving the customer more flavor and body doesn't work on a broad base either. You find out why when you ask Glaser the question that's been on everyone's mind ever since the first hints of the arrival of Heineken Premium Light: don't you already have a light beer? What about Amstel Light?

"First, Amstel Light is at the more robust end of the light spectrum," he said. "Secondly, in terms of occasion opportunities, Heineken Premium Light is different from Amstel Light. Amstel Light is for regular import specialty drinkers. On certain occasions, they want something lighter - with food, to extend the evening, whatever - they want to stay flavorful, but go light.

"Heineken Premium Light is targeting a whole new category of consumer," he said, "one who drinks primarily within a stable of domestic lights, but occasionally wants to trade up: if you're out for drinks with family or friends, it's a bit more special. Ordering a Bud Light or Miller Lite isn't quite the cachet you want to project. Heineken Premium Light now has that premium badge and cachet to give them confidence in that occasion. The liquid is a new recipe, a much lighter taste profile than Amstel Light, a lighter flavor profile."

If that sounds like a lot of market research and thought went into this decision, give yourself a gold star. This is a long-term program. "Heineken has been looking at the light category for quite a while," said Glaser. "We've tracked the category 'til it's grown to almost 5O%. We've tracked several trends and see a maturity in the category, and we're starting to see fracturing, and some niche markets are appearing. The imported light category is there to develop."

What they saw and how they decided to proceed meets the basic parameters we've already discussed. "We did a segmentation analysis," said Glaser, "and saw that a need was not being met: a beer that was easier to drink, but with 'premiumness' and badge equity. We saw a chance to put the Heineken equity into this space."

Amstel Light met some of that unmet need, but had been aimed at a small part of the niche. Heineken Premium Light aimed broader; it was aimed at "easy", according to Glaser. "The day of acquired tastes are over," he said. "People want things that are easier to consume, and they want them now. Light beer is easy to drink and provides a high degree of drinkability. Now was the time to really explore the Heineken light variant."

Anheuser-Busch has put the same kind of heavy market research into the light category, but in a slightly different direction. They're not looking to move upwards, as Heineken is, and traditionally has. A-B's success has historically come by moving outwards, in expanding categories and markets, and that's where Budweiser Select is aimed.

Dan McHugh explained what their research found. "You had your Bud Light drinkers, Bud drinkers," he said. "We saw a need for a beer that captured the upwardly mobile consumer. What they were looking for was light beer stats on calories and carbs, but with no lingering aftertaste. That's where we said there was room for a beer at a premium price."

Budweiser Select was the answer. The research and the brand came from A-B's new innovation team, headed by Pat McGauley, the literally-titled 'Vice-President of Innovation'. McGauley's whole job is coming up with new beers. The key is finding where to put a new product. "We have an 8-step progress," he said, "and the first part is identifying the need, identifying the white space. We're filling empty spaces in the alcohol beverage market."

McGauley and his team had a vision for Budweiser Select. "We created a light beer, but we don't say light on the packaging," he said. "We talk about the taste, and we package it differently. It has the stats of a light beer, the positioning of a premium beer." Once the brand and the product were developed, they handed it off to McHugh's team.

Budweiser Select represents a bigger idea for McHugh's Trademark Brands group: a key position to build the breadth and stability of the Budweiser mark. "It's important that the one thing we've done is to establish very distinct positions for our Bud Family brands," he said. "Bud is the traditional classic. Bud Light is the fun party beer. And Budweiser Select is for the white collar, 25+ crowd, after college. They're looking for that beer with low stats on carbs and calories, a bold taste that finishes clean."

Like the "what about Amstel Light" question, there's a no-brainer that comes up when A-B comes up with a new "Bud Family" brand that's narrowly slotted with Bud Light and Michelob Light and Michelob Ultra: what about cannibalization? What brands are the folks who are now buying Budweiser Select no longer buying? How much of the brand's success has come at the expense of other A-B brands?

McHugh was quite candid. "It's there, as in the introduction of any new product, especially one that's plopped right in the middle of the Bud Family," he said. "But we're pleased to see that 28% of Budweiser Select drinkers are either coming from our competition or were formerly non-beer-drinkers. We're having a good run of capturing non-beer drinkers and beer drinkers we weren't getting before."

What's interesting is that Budweiser Select isn't selling on the light beer stats, which kind of supports A-B's market findings on non-beer-drinkers. You won't see it pitched as a "light beer" per se, although it definitely fits in the category. "It actually has lower carbs and calories than Bud Light," said McHugh. "But that's not really a selling proposition. The consumer discovers that on their own, and they're pleasantly surprised. It's a discovery thing. When they find out that it's a light, that's a plus, they like that whole feel. You see a lot of brands doing the discovery thing."

The flavor characteristics of Budweiser Select push the light beer profile in some slightly different directions, pushing in the risky "lighter" direction in one way, while going "bolder" in another. The beer sports a sharper hop attack up front, while delivering a cleaner finish than other light beers.

A-B credits their "Extended Brewing Process" for this, and McHugh explained it quite simply. "It stays in the brewhouse much longer than any other beer we brew," he said. "To get the full benefit of the European hops and other quality ingredients we use, it has to stay in the brewhouse longer." Those ingredients, specially selected European and American hop varieties, are also the origin of the "Select" moniker.

The two different beers represent two different approaches to the issue of a category that has become a commodity, and their market positioning follows up on that. Heineken Premium Light is carefully positioned to be a step up within the category and taste profile of a light beer.

"We've developed a communications strategy the aim of which is to try to have domestic light drinkers challenge their relationship with their brand," said Glaser. "It's a very product-centric strategy. We see the product benefit around smoothness. The domestic light drinker is predominately not a Heineken drinker, and they need reassurance that Heineken Premium Light is going to fit their need.

"People said that it was just so wonderfully smooth," he said. "You get that signature Heineken taste, but it finishes very clean and quickly. We wanted to connect with this consumer group and say, 'Look, this is what you're looking for, it's very smooth and very premium.' The creative lines you'll see are being playful with the consumer on the whole smooth aspect."

Budweiser Select, on the other hand, is an attempt to expand the entire light beer category, not just add an upgrade tier on top. "While you call it light beer category," said McHugh, "Budweiser Select has a bit more bite than your normal light beers. It's all about preference. Anheuser-Busch is being very progressive. We're going after variety, trying to see where the consumer's going and what they want, and addressing those issues as they come forward. It's really early to tell, but early indications are that it is expanding the light beer arena for us."

Both companies are serious about these brands, and indicate that they are behind them for a prolonged push. McHugh's statement about Budweiser Select's position in the Bud Family is a strong one on its own; backed by the continued ad spends and sell-through of the brand, it looks like a winner, though as he said, it's really early to tell.

"We're very committed to the launch," said Glaser of Heineken Premium Light. "We're doing a lot in the on-premise channel. We've created some innovative sampling techniques. Most people are used to girls in t-shirts. We've got teams in flight suits and uniforms. We call it the Red Star Airline, and the idea is to upgrade tonight, like from Coach to First Class. 'How would you like to upgrade to Heineken Premium Light?' It creates a lot of buzz in the bars. We describe it as the Heineken Way, a bit more intelligent, giving credit to the consumer."

It's not just bar sampling, though. Glaser knows that one promotion doesn't make a brand, and this is one they see as a big opportunity. "We believe that in order to create this subset of luxury lights," he said, "it's somewhat different from ice beers, or dry beers. We're trying to create a more sophisticated niche within a category. There's an emerging and under-represented opportunity here, a long-term brand opportunity. It's all about getting the right side of a trend. Consumers are moving that way: premiumization is really big today."

Both men were also talking about an unexpected bonus: support for the flagship brand. "Budweiser Select has allowed us from a marketing standpoint to let Bud be itself," said McHugh. "A brand like Bud is going to stand the test of time over the years. Bud is so established it will always have a base. But before, Bud had to get that entry-level drinker. Now it can just be Bud, an American classic, for the core drinker. When it's all said and done, Budweiser Select is actually going to help Bud out."

Glaser agrees, and sees it already. "We saw an acceleration effect on Heineken from the launch," he said. "I think there are a couple of dynamics. There's a halo effect that increases awareness for core Heineken, and the innovation creates a buzz for Heineken in general. It's also excited people in the wholesale and retail systems, it's created a better share of mind within the whole system."

How do you promise more when what your customer really wants is less? Deliver on a promise of smooth flavor with a solid badge that radiates luxury. How do you put more wheels on the bandwagon? Add another car to the parade instead. Heineken Premium Light and Budweiser Select look like two solid answers to the paradox of growing profits in the light beer market.

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