Drink 2.0 ANYTHING BUT “THE USUAL.”

A critical look at the challenges and opportunities facing alcohol brands in the U.S.

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It is absolutely NOT recession proof.”

Peter Cressy President, Distilled Spirits Council of the U.S. January 2009

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INTRODUCTION As the marketing agency that coined the term brand infiltration™, Espresso is acutely interested in understanding how consumer expectations are changing in step with evolving technology, demographic shifts, economic factors, and cultural phenomena—and helping our clients rise to the challenges that unfold along the way.

So begins our foray into the world of Drink 2.0, the second in a series of publications we are releasing in 2010, in which we examine the challenges and the opportunities facing businesses as digital and social technology dramatically alter the way people discover, experience, and share information.

For marketers, this shift is truly seismic. The unwritten rules of communication to which we’ve adhered for decades are being burnt to the ground, and from their ashes, a new model based on unprecedented openness is emerging. Words like “transparency,” “authenticity,” and “engagement” are replacing beloved turns of phrase like “on message,” and “on brand.” It's quite possibly the most terrifying time for marketers in over fifty years - yet, without question, the most exciting.

Perhaps it’s this excitement that led us to examine the alcohol industry as our second “2.0” subject. Perhaps we’re just a little thirsty? Either way, we know you’ll agree that a perfect storm of new economic forces and lifestyle choices has been brewing, challenging the staid assumptions within the alcohol industry.

But today’s challenges come with significant new opportunities, as well. Drink 2.0 examines how brands can adapt to emerging consumer trends, create more meaningful relationships with their existing enthusiasts, and pave the road to enduring success.

Cheers!

Jacquelyn Cyr Chief Executive Officer Espresso

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Industry Trends Change, Distilled Brands Getting it Right Infiltration How-Tos Conclusion Credits

It’s been a rough couple of years. As economic upheaval swept through virtually every industry, and consumers dramatically cut back on spending, bars and restaurants felt the crunch.

STAYING IN IS THE NEW GOING OUT.

PHOTO: Adidas

68% are doing less fine dining.

59% are going to bars less often.

SOURCE: Nielsen, Oct 2009

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I don’t go to bars too much anymore.

This is a great way to be a beer geek without going out.”

Michael Endelman Writer at Rolling Stone New York Times

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THIS IS NOT A BAR.

Approach • Social activity audit • Stakeholder interviews • Competitive analysis • Ideation

While bar and restaurant sales declined, off-premise alcohol sales grew 3% according to the Distilled Spirits Council of the U.S. (DISCUS). Thanks to non-traditional, and off-premise consumption, the total spirits market grew 1.6% in 2009.

PHOTO: Todd Heisler/The New York Times

“Every week some beer store in New York City trumpets the arrival of growlers — 64-ounce, refillable glass vessels

that look like a moonshine jug. Some customers appreciate growlers for reasons of economy or ecology,

and as more craft brewers choose not to bottle their products, many fans like the idea of getting fresh beer

that until recently was sold only in specialized bars.”

—The New York Times

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EVERYONE’S A CONNOISSEUR.

In the U.S., there are currently more than 7,000 wineries, 1,500 breweries, and 200 distilleries, the majority of which could be described as “small”, “craft”, and “boutique” respectively. And they’re gaining traction. According to Restaurant News, while overall beer sales dropped 1.3% in the first half of 2009, sales of craft beer grew by 10%. The proliferation of choices is nurturing a much savvier consumer with a more sophisticated palate, and establishments are placing their orders to match.

PHOTO: Saul Loeb / AFP / Getty Images

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We decided to appeal to the person who is interested in drinking nice craft beers instead of having a list of American lagers that all taste the same.” Steve Tindle Wine & Spirits Director Shaw’s Crab House, Chicago

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HOME COURT ADVANTAGE.

SOURCE: MSNBC

The economy’s prolonged doldrums have given domestic brands a competitive advantage as consumers are shopping based on price.

• In contrast to the tremendous success of domestic craft beers, the sales of their imported counterparts have dropped 9%.

• Sales of American vodkas, which cost 50% less than imported brands, grew 8.1%.

• Sales of domestic wines, which costs 25% less than imported, grew 5%.

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LOCAL FORECAST LOOKS WET. Contributing to the rise in off-premise consumption has been a nationwide liberalizing trend in alcohol laws, as more and more states are looking for ways to generate increased tax revenues. In 2009 alone, 2,400 new off-premise locations selling alcoholic beverages opened across the U.S.

Fourteen states have rolled back their Sunday Blue Laws over the past decade in an effort to increase revenue. With

tempting examples like Colorado, which saw a 6% increase in alcohol tax revenue in 2008 alone, more states are expected

to follow suit in the coming years.

SOURCE: MSNBC

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Industry Trends

The Times, They are a-Changin’ Brands Getting it Right Infiltration How-Tos Conclusion Credits

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ONCE UPON A TIME… Advertising used to be simple. “Media fragmentation” just meant cable. A bigger ad buy was the best way to increase market share. And a brand’s marketing success lived and died by its TV spots.

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TODAY, THINGS ARE A BIT MORE COMPLICATED.

IMAGE CREDIT: http://www.barcelonaschiringuito.com/no-hay-marcha-atras

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INTERNET > TV.

The mainstream American consumer is far more digitally sophisticated and venturesome than commonly believed. According to new research in the Razorfish FEED report, U.S. consumers now spend, on average, about the same amount of time online as they do watching television. In fact, according to Forrester, those under the age of

45 spend significantly more time using the Internet than watching television.

PHOTO: http://www.bandlem.com/Xmas/2006/

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CONSUMPTIONFACTS

• 84% of consumers rely on the web to get current news or information.

• 76% regularly watch online video on sites like YouTube and Hulu.

• 73% regularly visit social networking sites like Facebook, MySpace, and LinkedIn.

• 62% listen to music online through services like iTunes and Pandora.

SOURCE: Razorfish FEED Study

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•  Virtually all consumers have searched for a brand online. •  76% welcome brand advertising on social networks. •  73% have posted a product or brand review on a web site like Amazon, Yelp, Facebook, or Twitter.

•  70% have read a corporate blog. •  67% have watched a commercial video on YouTube. •  65% have played a branded, browser-based game.

SOCIAL MEDIA IS UBIQUITOUS.

PHOTO: http://www.flickr.com/photos/constantine-graphics/3859971253/

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--Razorfish FEED Study

SAY GOODBYE TO “THE USUAL.” Your customers are increasingly more digitally savvy. Their palates are increasingly more sophisticated and their wallets are noticeably thinner. Meanwhile, your competition keeps growing. And the old reliable methods of gaining market share and maintaining brand loyalty are going the way of the VHS.

Yes, these days, the alcohol business — like so many others — is anything but “usual.” Your customers are less likely to order Dad’s brand at the local bar than to whip up their own signature cocktail at home—using a boutique vodka they heard about on Facebook, no less.

To thrive in this new landscape, your brand must embrace the digital medium and adapt to the ever-evolving needs and expectations of a 21st century consumer.

The cape and tights, fortunately, are optional.

PHOTO: http://www.flickr.com/photos/wengistein/472176875/

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Industry Trends Change, Distilled

Brands Getting it Right Infiltration How-Tos Conclusion Credits

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BACARDI: BRINGING THE PARTY HOME

In 2008, Bacardi made the smart decision to adapt their marketing in step with both consumers’ digital media and off-premise consumption habits. Their Bacardi Mojito Party Facebook app helped guide users in mixing the perfect Bacardi Mojito and planning their own at-home parties. Also included were an iPod tutorial, a Cocktail Calculator, and a feature that let users invite friends via Facebook or Evite.

The application was installed 100,000 times in its first week and ultimately helped Bacardi Limited produce its highest sales in history for the fiscal year ending in March 2008.

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In the Summer of 2008, Flying Dog launched an extremely limited edition beer. The brew was the result of a collaborative creation process—called “Open Source” for the practice of openly sharing information and access, prominent within the hacker community—in which brewing enthusiasts were able to contribute their input on the ultimate Flying Dog beer recipe.

True to the open source ethos, the recipe for the beer was made public so others could brew their own.

FLYING DOG ALE: EMBRACING OPEN SOURCE CULTURE

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In December 2009, Diageo, the world’s leading premium drinks company, whose portfolio includes Smirnoff vodka, Jose Cuervo tequila, Captain Morgan Original Spiced Rum, Johnnie Walker blended Scotch whisky, Sterling Vineyards wine and Guinness Draught, launched a mobile version of its very successful website thebar.com. Consumers of legal purchase age were essentially handed an on-the-go resource to help inspire, plan, and shop for any occasion, on any budget.

Like its parent URL, the mobile site offers an extensive drink recipe database supported by the breadth of the Diageo portfolio, detailed drink information, notifications on special offers, a store locator, and more—right in a user’s pocket.

DIAGEO: RAISING THE BAR

IMAGE: Diageo

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After more than two decades of steady decline, Pabst Blue Ribbon sales had hit their lowest point in 2000. But a few years later, the brand started popping up in trendy urban bars all across the country. By 2006, the brand’s volume was over 1.6 million barrels, according to trade publication Beer Marketer’s Insights.

PBR’s unlikely comeback started — and was most pronounced in — Portland, OR. The local community of punks, skaters, and bike messengers had started drinking the beer because it was cheap. In the process, they ended up redefining what their own meaning for the aging, almost blank-slate of a brand.

Passing on higher-profile partnerships, Pabst instead chose to support alternative subculture events like rowdy “bike messenger polo matches.” Pabst saw its sales rebound through mini event sponsorships and partnerships with the communities that had embraced its brand.

PABST BLUE RIBBON: EVENTS [aka THE OTHER SOCIAL MEDIA]

IMAGE: Traitor

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In September of 2009, Matt Nadeau, founder of Rock Art Brewery, a nine-person company based in Morrisville, VT, received a cease and desist letter from Hansen Beverage Company, which owns Monster Energy Drink. Nadeau was ordered to stop using the name “Vermonster” for one of Rock Art’s specialty brews. Trademark attorneys informed Nadeau that while he could probably win this dispute in court, fighting for the name against a billion dollar company would likely bankrupt him.

Nadeau aired his outrage online, and ignited a nationwide social media maelstrom.

The “Vermonters and Craft Beer Drinkers Against Monster” Facebook group gained 19,000 members. The YouTube video of Nadeau explaining his side of the story (“Matt and the Monster”) was viewed over 82,000 times.

The hashtags #monsterboycott and #boycottmonster became trending topics on Twitter. And all this happened in just three weeks.

On October 20th, the two sides reached a settlement that allows Rock Art to continue to market the brew. Nadeau credits the power of the social media grassroots movement for the win.

ROCK ART BREWERY: THE SOCIAL MEDIA REVOLUTION

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Industry Trends Change, Distilled Brands Getting it Right

Infiltration How-Tos Conclusion Credits

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We require that all alcohol-related advertisements use our tools and demographic targeting options to restrict the ad to users who are over the legal drinking age. We strictly enforce this policy through proactive investigations and response to user reports.” Facebook

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THE RULES OF THE GAME.

PHOTO: http://www.flickr.com/photos/gord99/315490873/

Since 2003, FTC regulations require alcohol advertisers to ensure that at least 70% of the audience for their print, radio, television, and, later, internet ads is comprised of adults over 21. Five years later, an FTC study found high levels of standards compliance and even voluntary third-party self-regulation across the industry.

Since 2008, the FTC has also recommended that the 70% standard also be applied to event sponsorships. Online platforms like Facebook have also adopted these standards, enforcing them with their own alcohol advertising policies.

Of course, while alcohol products face some particular restrictions,

four key approaches still apply to connecting with modern consumers of legal age.

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What we drink can be incredibly personal. Our choice of beverage is more than just a matter of taste; it’s often an expression of who we are. The desire to feel involved with and a part of the brand we love is therefore that much more acute.

Whether it’s an iPhone app that helps users throw a better party, a Facebook app that allows them to share their enthusiasm with friends, a chance to participate in co-creating a new product, or even just the opportunity to stay in the know and offer feedback via a brand blog, consumers want the kinds of access and experiences that let them feel closer to the brands that are important in their lives. These experiences serve not only to keep customers, but to attract new ones.

1. ENGAGE YOUR CUSTOMERS.

PHOTO: David Cyr

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Bacardi did it through an app that engages Facebook users’ existing friend networks. Pabst Blue Ribbon did it by supporting the subcultures that had embraced it. Rock Art Brewery did it through a uniting rallying cry. Flying Dog did it by creating a platform that invited enthusiasts to collaborate with the brand while paying homage to progressive digital-culture values.

The most successful branded experiences aren’t gimmicks. They’re true commitments to nurturing and cultivating a vibrant community that reflects both the brand values and that of its enthusiasts.

2. INVEST IN COMMUNITY.

Your customers are spending as much or more time online as they are watching TV. Their palates are becoming more sophisticated and their drinking habits more off-premise. Adapt your marketing strategy to address these shifting behaviors and expectations.

Consider mobile applications. Explore social marketing opportunities. Entertain them, provide them with utility, sponsor the events and causes they care about—or better yet—create new ways to make those events even more interesting and meaningful.

Inspire old fans and new customers to be creative in their newfound frugality with applications, games, and branded entertainment that markets with them, not at them.

3. ADAPT WITH SHIFTING CONSUMER TRENDS.

4. EXPERIMENT! Change is definitely brewing. We can face that change with fear and resistance, or we can welcome it with open arms and fresh ideas.

Right now, there are unprecedented opportunities to connect with consumers in more engaging and meaningful ways than ever before, turning customers into avid enthusiasts, and enthusiasts into ambassadors.

Right now, the world is watching the innovators, the daredevils, and visionaries eat everyone else’s lunch.

Our view? Clearly, we recommend rolling up your sleeves and getting those hands dirty. Experiment with new digital tools and social strategies. Pursue new ways to engage your consumers. Take risks.

You may be surprised to discover that these days, trying something new is the safe bet, and the real danger is in sticking to the status quo.

CONCLUSION Like the explosion of beverage choices, the widespread consumer adoption of and reliance on digital and social technology is not a passing fad. Things are not going back to the way they were before. The reign of the ad is as dead as the Budweiser frogs. The new digital mainstream consumers expects you to market with them, not at them. They’re more than happy to be part of a conversation, to laugh at your jokes, to respond to your questions, to be part of your experiment. But they’re not even remotely interested in your latest “campaign.”

To survive and thrive in a brave, new Drink 2.0 world, you must adapt your marketing strategy to meet your customers on their terms.

Brands that embrace this philosophy will discover unprecedented opportunities to generate revenue, grow their consumer- base, and earn the loyalty of their most avid enthusiasts.

Those that do not, well... they won’t be there for the next round.

This is not “the usual.“

This is Drink 2.0.

Bottoms up.

PHOTO: Hottrix

Hi, we’re Espresso. Nice to meet you.

SAY HELLO, WHY DON’T YOU?

TORONTO Jacquelyn Cyr Chief Executive Officer 416 620 6773 jacquelyn@brandinfiltration.com twitter.com/infiltrators

BOSTON Marta Kagan Managing Director, U.S. 617 477 5811 marta@brandinfiltration.com twitter.com/mzkagan

Drink 2.0 was researched, written, and produced by a team of amateur beer geeks and spirits connoisseurs who also happen to work for an integrated marketing agency called Espresso. We’re a bunch that firmly believes it’s time to stop wasting precious marketing dollars creating ads that people ignore, and focus instead on creating experiences your customers (and prospects) will love. We’re super-committed to doing just that in the most [cost-]effective way possible—while never losing sight of our relentless pursuit of being Amazing at Life™.

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Infiltrate Now! www.brandinfiltration.com