CASE STUDIES

Anheuser Busch case study

Overcoming stagnant beer growth in the US
Reference Code: CSCM0098
Publication Date: June 2006

DATAMONITOR VIEW
CATALYST
Anheuser Busch, makers of America's largest beer brand, Budweiser, called 2005 a 'challenging year', recording sales
growth of just 0.1% in the fourth quarter as a result of the stagnant US beer market. In response to this, the company has
instigated a number of initiatives to improve its business, launching the Here's to Beer campaign, as well as numerous beer
and non-beer products, such as Tilt energy beer, Budweiser Select and Jekyll & Hyde liqueur.

SUMMARY

AB has set out to address the ailing beer market with the launch of Here's to Beer marketing campaign, which is
designed to promote beer's capacity to bring people together from all walks of life. Despite AB stating that the
campaign encourages people to drink all beer brands, not just its own, rival brewers have distanced themselves
from the campaign;

AB has attempted to grow its sales through innovations like BE and Tilt energy beers, encouraged by strong growth
in the energy drinks category. Whereas BE is designed to compliment the Budweiser style of packaging, Tilt
abandons AB's traditional style in favor of a bold silver can, mimicking the design of flavored malt beverages such
as the US version of Smirnoff Ice;

The company has exploited the growing specialty beer sector with the launch of a range of craft beers, both
developing its own and distributing foreign based brews. Budweiser Select, a stronger flavored, low carb beer, has
been particularly successful it was one of the best selling new beverage launches in 2005;

AB has diversified its portfolio, enhancing its offerings outside the beer sector. In order to cash in on the rising
popularity of the spirits market, AB has formed a division dedicated to this sector and has launched the Jekyll &
Hyde liqueur. It has also its moved further into the non-alcoholic energy drink market through a distribution
agreement with Hansen.

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ANALYSIS
Here's to Beer campaign aims to promote ailing beer sector
US beer growth remains stagnant
The US beer market was worth a substantial $76.4 billion in 2005; however, in recent years the market has been
stagnating, growing by a compound annual growth rate (CAGR) of only 1% between 2001 and 2005. In contrast, the wine
and spirits markets have been growing at a healthier pace: in the same five year period, wine grew by a CAGR of 3.7%,
and spirits by 2.4%.
The poor state of the beer market was highlighted in February 2006, when Anheuser Busch (AB) reported a net income
decrease of 39.5% for the fourth quarter, and gross sales growth of just 0.1%.

Patrick Stokes, president and chief

executive officer of AB, summed up the company's poor performance in a company press release:

Weve had a

challenging year in the domestic beer business and our 2005 sales and earnings per share were disappointing.
However, AB's results perked up in the first quarter of 2006, with net income falling by just 0.2%, and gross sales
increasing by 5.2%, benefiting from a series of initiatives undertaken by the company to boost its business.

Here's to Beer campaign focuses on marketing beer category instead of an AB brand

One of the ways in which Anheuser Busch has set about enhancing its beer sales is through the Here's to Beer campaign.
This takes the unusual step of promoting not an AB brand, but the whole beer category, with the message that sharing a
beer brings people together. The first advert in the series, which was directed by independent film director Spike Lee, was
aired in March 2006.
Beer is about sharing moments and creating memories with good friends and family. Through his one-of-a-kind directing,
Spike has been able to capture beers place in our culture and its ability to bring people from all walks of life together in an
unpretentious way. The ads bring to life the spirit and camaraderie of sharing a beer, Robert C. Lachky, executive vice
president, global industry development, Anheuser Busch (Press release, 2006).
Although AB declares that Here's to Beer promotes beer consumption as a whole, and not a AB brand, not all of AB's
competitors have given the campaign a good reception. Miller spokesman Pete Marino stated: "We believe that the beer
category does not have a problem, so we don't believe there's a category solution. We are focused on really developing our
individual brands," (Target Market News, 2006). Heineken USA has also given the campaign a lukewarm response stating
that it "more closely fits the needs of Anheuser-Busch and less closely fits the needs of the overall industry," (Associated
Press, 2006). Nonetheless, Budweiser would benefit greatly from growing beer sales in the US, not the least because it has
the top two leading beer brands in the US, Bud Light and Budweiser, which had a 19.9% and 15.6% share by volume in
2004, respectively.

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AB exploits trend for functional drinks with alcoholic energy beer launches
Functional and energy drinks are high growth categories
Anheuser Busch has attempted to boost the company's poor beer sales with the launch of two new beer brands, BE and
Tilt. These are both flagged as being high energy drinks, and therefore exploit the current strong demand for functional, i.e.
healthy, beverages.
The US functional drinks category grew by a CAGR of 11.7% between 2001 and 2005, spurred by the growing interest in
the possible health benefits of herbs such as ginseng. Within this category, energy drinks have been a particularly high
growth sector, growing with a CAGR of 22.9% in the same five year period to reach $1.7 billion in 2005.
BE straddles beer/malternatives market with traditional beer packaging
BE, which is pronounced B-to-the-E, is a fruit-flavored, ginseng and caffeine-infused beer that was launched by Anheuser
Busch in the US 2004. The beverage utilizes the Budweiser branding on its packaging, whilst its formulation is enhanced
with energy giving ingredients such as caffeine, guarana and ginseng. In this respect the brand straddles both the beer and
malternative market in its packaging and formulation, with the aim of easing AB into a beverage category outside of beer,
and encouraging both beer and non-beer drinkers to try the brand.
The brand has caused some controversy since its launch, with its mix of alcohol and energy enhancing ingredients leading
to criticisms that it encourages people, particularly younger consumers, to drink more alcohol on a night out. In the UK,
where it was launched in 2005, the brand is forbidden to make any energy claims in its adverts, due to tough alcohol
marketing laws. In response, AB markets the E in the brand name as standing for 'extra' in the UK, not 'energy'.

Tilt abandons look of conventional beers for upmarket FAB look

In summer 2005, AB announced the launch of Tilt, a malt beverage infused with raspberry flavor, caffeine, guarana and
ginseng, around the same time that its rival Miller abandoned trials of a similar product, Brutal Fruit. Brutal Fruit, which was
a fruit juice with five per cent alcohol by volume, a level similar to beer, was, like Tilt, designed to attract non-beer drinkers
to the brand, with its strawberry, mango, lychee and kiwi flavors. However, Miller decided to discontinue the trials because
consumers didnt like the taste.
Unlike Miller, AB did not test market Tilt before launching it, but was confident the positioning of the product as an upmarket
malt beverage would attract its target audience of 21-27 year old males. Pat McGauley, vice president of Innovation and
New Products at Anheuser-Busch, explains: "We didnt test market Tilt. We had a good feeling that it was better to get that
product to market more quicklyWe're going to do our homework and were going to get it out there because being fast
and being quick is really needed in the industry today," (BrandWeek, 2006).
Tilt abandons the look of the company's other beer beverages in favor of presenting the beverage in a silver can; this
clearly defines its position as an upmarket 'malternative' in the same genre as Smirnoff Ice, rather than a beer that attempts
to straddle more than one market. *
*There are two different versions of the Smirnoff Ice brand. In the US and France, this is a citrus flavored malt beverage,
and elsewhere it is a premixed vodka drink.

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Miller hasn't given up on the genre however, debuting Mickey's Stinger in some states in mid 2006. This will compete
directly with Tilt, consisting of a malt beverage with caffeine, guarana, taurine and honey.
Figure 1:

The BE brand is recognizable as a beer from the Budweiser stable, while Tilt
abandons the look of conventional beers

Source: Productscan Online

DATAMONITOR

AB enhances offerings of craft beers to conform to changing consumer taste

Craft beers are a growing sector of beer market
In addition to introducing energy-giving beers, Anuheuser Busch has addressed the flagging beer market by enhancing its
offerings of specialty or craft beers. These have shown much stronger growth than the overall beer market, highlighting
changing consumer taste for stronger flavored beers: US specialty beers grew by a CAGR of 3.8% in 2001-2005 and are
forecast to have a CAGR of 2.5% from 2005-2009.

AB has introduced Budweiser Select with a more 'robust' taste

Budweiser Select was introduced by Anheuser Busch in 2004 and is described by the company as a premium, Americanstyle lager beer. The launch of this new beer was one of the company's most successful in recent years: AB quotes
Information Resources Inc. (IRI), an independent consumer products research firm, as ranking Budweiser Select as the
second best-selling new food and beverage brand in the US in 2005, grossing more than $123 million in sales in 2005.
AB promotes Bud Select as a premium beverage, using images such as home dining, casual sports and artwork in
advertising for the brand during the Olympic Winter Games 2005. The company stated that this promotion aimed to
"elevate consumers' awareness and understanding of the brand's attributes by showing how it fits into their modern
lifestyles." It also designed a website for the brand featuring gender-specific content, for both men and women, highlighting
that it is not only young males that are the target consumers for this brand.
As well as exploiting the rise in popularity of specialty beers by having a stronger taste than the regular Bud brands, the
new beer is also positioned as a low carb beer, competing against the likes of Miller Lite: Budweiser Select has 3.1 carbs
per 12-ounce beer, compared to Miller Lite's 3.2 carbs. By introducing a new competitor against Miller Lite, the company
plans to slow the growth of its rival Miller's low carb brand, which grew by 10.5% in 2004, whilst being sufficiently different
in taste and appearance to not cannibalize sales of its own Bud and Bud Lite brands.

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Figure 2:

Bud Select is positioned as a premium and low carb beer

Description: Anheuser-Busch, Inc. introduced new

Budweiser Select in select markets in 2004. "Priced the
same as Budweiser and Bud Light," the Beer is promoted
as having "slightly more hops flavor, while offering a lower
carbohydrate and calorie content than any product in the
Budweiser family, including Bud Light." The "great, crisp
taste that finishes clean" is said to have been created by
doubling the length of time the mash spends in the brew
kettle, and by adding a different blend of imported and
domestic hops. "With 99 calories and 3.1 grams of
carbohydrates per 12-ounce serving," literature claims that
roasted specialty malts are used to give the beer a richer
color.
Source: Productscan

DATAMONITOR

AB has formed distribution agreements to enhance specialty beer offerings

Alongside launching its own brand of specialty beer, Anheuser Busch has formed a number of deals to distribute imports
from foreign beer makers such as Harbin and Grolsch, utilizing their expertise in specialty beer to exploit the growing
market for this sector in the US. AB began importing Harbin in 2006, which is described by the company as being "brewed
with a blend of select traditional Chinese and European hops, old-world-style yeast and the finest of malt." AB will begin
distributing Grolsch, from Dutch brewers Royal Grolsch, in January 2007.

AB explores options outside beer market

AB sets up liquor division with first release, Jekyll & Hyde
In September 2005, Anheuser Busch developed a new response to declining beer sales, by setting up a spirits division,
Long Tail Libations. Under this division, AB aims to introduce new products from a beverage category which has
demonstrated better growth than beer: sales of spirits in the US grew by a CAGR of 2.4% from 2001-2005 to reach $44
billion, and are forecast to growth at a similar rate over the next five year period.
AB president August Busch IV told the National Conference of State Liquor Administrators in 2006 why the company is
moving into the spirits market. "The loss of beer volume to wine and hard liquor has accelerated in recent years. And if this
trend continues, we at Anheuser-Busch will have to reevaluate our business model going forward in terms of expanding
beyond beer and broadening our position within the total alcohol industry," (Associated Press, 2006).
With the accelerating liquor market in mind, the company introduced Jekyll & Hyde in 2005, which targets consumers in the
21 to 27 years age group and is composed of two different liqueurs packaged in separate, curved bottles that are designed
to be served together (although they can be consumed separately). Jekyll is a red wild berry flavored liqueur, while Hyde is
a herbal-tasting black spirit that floats on top when poured over Jekyll; when placed side-by-side, the graphics on each
bottle form one picture.
As the spirits market is new territory for AB, Jekyll & Hyde is unlikely to be the first of many liquor brands to be developed
by AB. Instead, the company is likely to partner with liquor manufacturers; a safer route into the spirits market involving less
investment.
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Figure 3:

Jekyll & Hyde consists of two different flavored liqueurs presented in bottles that
fit together

Description: As a new product venture, Anheuser-Busch

Inc. is offering Jekyll & Hyde Liqueur in test markets. The
two new products are packaged in separate, curved
bottles that nestle together and are said to be served
together, although they can be consumed separately.
When placed side-by-side, the graphics on each bottle
form one picture. Targeted toward consumers 21 to 27
years old, Jekyll is said to be a sweet, scarlet-red spirit
tasting of wild berries, while Hyde is claimed to be an
herbal-tasting black spirit that floats on top of Jekyll when
poured.
Source: Productscan

DATAMONITOR

AB enhances non-alcoholic energy drinks offerings with Hansen distribution agreement

Anheuser Busch first recognized the potential of the non-alcoholic energy drinks category in 2001, developing 180, an
orange flavored carbonate containing guarana and vitamins C, B6 and B12. With energy drinks becoming more popular
with consumers over the following five years, the company has more recently undertaken a quicker and less expensive
route to increase its offerings in this sector by forming a distribution agreement with California-based energy drink producer
Hansen Natural. The deal, formed in May 2006, will enable AB to distribute Hansen's Monster Energy, Lost Energy and
Rumba energy juice drinks.
On announcing the partnership, August Busch IV underlined the reasons for furthering its offerings in this drinks category:
"We pride ourselves on innovation and will not limit ourselves to malt beverages in offering exciting new products for our
wholesalers and consumers." Expect AB to therefore launch new energy beverages in the coming years, to compliment the
rising number of AB's other non-malt beverages in its portfolio.

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APPENDIX
Case study series
This report forms part of Datamonitor's case studies series, which explores business practices across a variety of
disciplines and business sectors. The series covers a range of markets including food and drink, retail, banking and
insurance, pharmaceuticals and software.
Each case study provides a concise evaluation of a company that stands out in some area of its strategic operations,
highlighting the ways in which the company has become one of the best in its field or how it deals with different problems
encountered within that sector.

Methodology
A variety of primary and secondary research was carried out for this case study. This included researching the US
beverage market on Datamonitor's Interactive Consumer Database and on the Productscan Online Database of new
products, alongside an extensive review of secondary literature and other in-house sources of information.

Secondary sources

Anheuser-Busch may enter liquor market; Associated Press (June 2006)

Anheuser-Busch is only backer of its beer industry campaign; Associated Press (May 2006)

SpikeDDB's Anheuser-Busch spots give black spin to 'Here's to Beer' theme; Target Market News (March 2006)

Q&A: Anheuser Buschs Pat McGauley; BrandWeek (March 2006)

Further reading
Beer, Cider & FABs in the USA to 2009 (Datamonitor, DMCM2799, June 2006)
High Quality Snack & Beverage Consumers (Datamonitor, DMCM2378, October 2005)
Insights into Tomorrow's Over 25s Alcoholic Drinks Consumers (Datamonitor, DMCM2379, August 2005)

Ask the analyst

The Consumer Knowledge Center Writing team

askcm@datamonitor.com

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