Anheuser-Busch InBev’s beyond beer division is organizing itself around four priorities: hard seltzers, Cutwater Spirits, Nütrl Vodka Seltzer and Ghost Energy, beyond beer business unit president Fabricio Zonzini shared during Beer Marketer’s Insights’ spring conference in Chicago last week.
Although dollar sales of the company’s Bud Light Seltzer brand family have declined -4.2% year-to-date through April 17 at off-premise retailers tracked by market research firm IRI, A-B still has faith in the segment.
“Seltzer is suffering from comps syndrome,” Zonzini said, referring to negative trends when compared to “an accelerated growth with everything that was happening in the world.”
“All the trends were shifted during that period,” he said. “But the reality is the market is humongous.”
As consumers migrate from sugar- or malt-based hard seltzers to spirits-based, ready-to-drink (RTD) canned cocktails, A-B is prepared with offerings from Cutwater Spirits, which A-B acquired in 2019, and Nütrl Vodka Seltzer, which launched in the U.S. last September.
“We see customers bouncing back and forth, or more forth, to the real vodka, and so that’s something that is happening already,” Zonzini said.
Cutwater is the second best-selling RTD brand and holds 12.8% of the market, according to NielsenIQ data shared by Bump Williams Consulting that BMI president Benj Steinman presented to kick off the conference. Cutwater trails E. & J. Gallo’s High Noon Sun Sips, which holds 26.8% of the RTD segment.
Zonzini envisions the RTD segment bifurcating into bar-quality cocktails similar to Cutwater’s portfolio, and vodka sodas and similar products that consumers seek out for their “lower ABV, super refreshing” qualities that offer an “upgrade” from hard seltzer.
“You get quality, you get a premium product and you get the convenience,” he said, referring to Cutwater’s attributes. “We’re scratching the surface of what this category can be.”
Nütrl launched in Canada in 2017, and A-B subsidiary Labatt Breweries of Canada acquired its parent company Goodrich & Williams in early 2020. A-B expanded Nütrl’s U.S. distribution in January 2022.
Nütrl offers similar specs to most hard seltzers (100 calories, 5% ABV) and comes in four flavors: Mango, Pineapple, Watermelon and Raspberry. All flavors are available in variety 8-packs, and Pineapple and Watermelon are available in single-flavor 4-packs.
A-B has shortened its innovation timeline away from its 18-month stretch from idea to market at Zonzini’s urging to one that is more comfortable with “failing super fast.”
Ghost Energy – the non-alcoholic energy drink and supplement maker A-B’s ZX Ventures arm has invested in – is the beyond beer division’s fourth priority, and straddles several high-growth segments.
“The non-alc space is growing, but energy is growing,” Zonzini said. “And within that, performance energy is growing even faster.”
Ghost’s portfolio includes flavored products licensed under agreements with cross-category brands, such as Sonic Drive-In Ocean Water, Sour Patch Kids, Swedish Fish and Oreo, according to its website.
Through their partnership, A-B distributes non-alc, ready-to-drink Ghost energy drinks to off-premise retailers such as GNC, The Vitamin Shoppe, Circle K and QuikTrip. Each can contains 200 milligrams of caffeine and “brain-boosting nootropics to deliver the perfect combo of energy and focus,” according to the brand’s website.
After the partnership began in January, Ghost Energy has reached a 6% share of the performance energy segment in some markets, Zonzini said.
Mergers and Acquisitions Expected to Ramp Up
Mergers and acquisitions on both the distributor and supplier tiers will likely pick up in the latter half of the year, according to Arlington Capital Advisors strategic consultant JB Shireman and Independent Beverage Group president Joe Thompson.
“I think there’ll still be robust M&A activity across all beverage, of which craft will get some of that,” Shireman said.
Both pointed to the changing nature of the beer industry – consumers trading up to more premium products and portfolios growing more complex – as a reason why owners of multi-generational, family-run companies may seek an exit in addition to the “death, divorce and dysfunctional families” that typically drive such deals, Thompson said.
“Most of these are family-run businesses,” said Shireman, who has worked on several craft acquisitions. “A lot of them don’t really or did not really have a succession plan in place to address the future and they ultimately come to this crossroads.”
The maturation of the craft beer industry may have some founders feeling out of place and looking for the door, he said.
“What were once the cute little neighborhood regional businesses are now talking national distribution and calling on c-stores and chains and dealing with sophisticated wholesalers that have very large books,” Shireman said. “All of a sudden it’s a very, very different world than what they grew up in.”
The pandemic boosted profitability for many distributors, who benefited from elevated off-premise sales and gained efficiencies through not being able to service most of their on-premise accounts for a time, Thompson said. However, as the on-premise channel reopens and consumer behavior normalizes, those profits may begin to evaporate and distributor deals could ramp up over the summer.
“The consumer has less discretionary income,” he said. “I think the second half of the year or sometime after Memorial Day, and the Fourth, people have a pretty good feel for their profitability.”
Diageo and Constellations Execs Talk DEI Initiatives
Constellation Brands and Diageo Beer Company executives discussed their companies’ approaches to diversity, equity and inclusion (DEI) during the conference.
Both support investment initiatives that bolster beverage-alcohol entrepreneurs from underrepresented groups.
Last year, Diageo partnered with spirits industry veterans Erin Harris, Dia Simms and Dan Sanborn to launch Pronghorn, an independent entity with the goal of generating $2.4 billion in economic impact for the Black community by 2030 through infusing Black-owned spirits brands with capital and working to raise the average hourly wage of Black spirits employees to $34/hour nationwide. In addition, Pronghorn works with HBCUs, community and industry organizations to recruit spirits industry workers.
Constellation Ventures – the company’s investment arm – operates twin funds with matching pledges of $100 million invested over 10 years. Focus on Female Founders, launched in 2018, focuses on women-owned bev-alc brands, and Focus on Minority Founders, launched in 2020, focuses on bev-alc brands from Black and Brown entrepreneurs.
Internally, both Diageo and Constellation are working toward gender parity among employees, Diageo CMO Jay Sethi and Constellation chief communications, CSR and diversity officer Mike McGrew said. Constellation aims to have a 50% female workforce in the next three years, and increase ethnic diversity by 50%, which it plans to support with a “truly inclusive environment.”
“You can’t just bring diversity into an organization that’s not totally diverse today and expect it to automatically work,” McGrew said.
Diageo is working toward a 50% female workforce and leadership made up of at least 45% people of color, Sethi said. In addition to diversifying internally, Diageo has also committed to hiring multicultural casts for marketing materials.
“We truly believe it’s going to make our brands and business better,” he said.