Drink 2.0 ANYTHING BUT “THE USUAL.”

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

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It is about winning the alcohol share of stomach."

Kevin Meens Chief Operating Officer Cool Brewery Toronto

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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

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It's a tough environment. Everybody is just downgrading and that's what is happening with liquor.”

Trevor Johnson of National Bank Financial, who covers the Liquor Stores Income Fund

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THE ECONOMY IS DRIVING US TO DRINK.

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

Despite (or perhaps due to) the current economic downturn, sales of beer, wine, and spirits in Canada are growing. Sales in 2008 hit $18.8 billion, an increase of 4.3% from the year before. October 2009 sales were up 17% over the same month in 2007, according to a Statistics Canada snapshot of unadjusted sales by large retailers’ liquor stores.

PHOTO: Todd Heisler/The New York Times

"People are backing off big purchases. They're not buying a car this year, but they still like having a glass of wine or a beer with friends. We're returning to the daily

small pleasures.”

Brent Barr Marketing & Retail Business Professor

Ryerson University, Toronto

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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In addition to the increase in off-premise consumption, Canadians are also making their own alcohol for home consumption in greater numbers than ever. Retailers that allow people to inexpensively make their own beer and wine are seeing a boost in sales. For example, business at Vancouver-based West Coast U Brew, and Ottawan Wine Kitz, has been growing steadily.

PHOTO: awesomepickle.com

BREW IT YOURSELF

People who were buying $20 to $25 wine are now buying $15 to $18 bottles. People who were buying $15 to $18 bottles are now buying $12 to $15. Some of the $15-price-range products have slowed in sales but the $10 to $12 products have increased dramatically.”

Tom Green of 20 Bees Winery in Niagara-on-the-Lake

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BARGAIN-HUNTING.

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Beer is still Canadians’ drink of choice, but according to Statistics Canada, the past two decades have seen its overall market share drop 7%. Within the category, imported beer continues to outpace domestic products, more than doubling market share in the last decade.

By 2002, imported brands comprised approximately 9% of Canadian beer sales. That figure is three times what it was 10 years before, and continues to climb today.

In 2008, imported beer sales increased 7.2%, while sales of domestic brands remained virtually unchanged.

DOMESTIC BEER GROWING COLD?

Mainstream beer sales have been stagnant or falling for years.”

Stephen Beaumont, beer writer and industry expert “

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THE OTHER RED & WHITE

Driven in part by a larger drinking-age population, a better assortment of choices, an increase in private liquor stores, and increased demand by women, Canada has seen wine sales grow 11% over the past two decades.

Since 2000, red wine sales have surged an impressive 130% and white wine grew 33%.

In some parts of the country, wine sales have almost tripled.

“Wine is becoming more and more a part of everyone's culture and day-to-day experience.”

Sherri Haig, spokeswoman for the Wine Council of Ontario

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Liquor stores and agencies sold $4.7 billion worth of spirits in 2007/2008. While whiskies, scotches, and bourbons are still Canadians’ spirits of choice, it is vodka’s gains in the category that continues to fuel sales growth of spirits. In fact, the 4.4% gain in the spirits category over the previous year was due mainly to a 9.1% increase in vodka sales, according to Statistics Canada.

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BOTTOM LINE: WE’RE THIRSTIER THAN EVER.

Overall, Canadians are consuming 12% more alcohol now than we did a decade ago, a development which is attributed to a variety of factors, including the aforementioned larger drinking population, a better assortment of choices, more private liquor stores, and a better retail experience at vendors like the LCBO.

Turning really miserable retailers that looked like you should cross yourself three times and feel guilty when you walked through the door into nice places was a success…. The LCBO is the perfect example of this. It’s now a fun place to go.”

Alan Middleton Marketing Expert York University

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Industry Trends

Change, Distilled 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 Canadian consumer is far more digitally sophisticated and venturesome than commonly believed. According to new research from the IAB, the Internet is the number one medium in terms of percent share of weekly time spent for 18-34 year-olds in English Canada. 

Not only does the Internet reach more adults per week than magazines, newspapers or radio, but it’s neck-in-neck with TV for weekly reach among the increasingly large segment of 18-24 year-olds.

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

MOLSON: CROWD-SOURCED RECORD-SETTING

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Beginning in February 2009, Molson asked Canadians of legal drinking age to show their support for their 2010 Olympic athletes by uploading an image of themselves cheering on Team Canada. A year later, over 13,000 Canadian faces comprise the final tribute to Team Canada, which spans the side of Molson’s Kitsilano brewery building in Vancouver, creating Canada’s largest photo mosaic.

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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.

BACARDI: BRINGING THE PARTY HOME

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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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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 a chance to be part of a huge fan-generated mural or participate in co-creating a new product, an iPhone app that helps users throw a better party or a Facebook app that allows them to share their enthusiasm with friends, 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. Molson did it by putting their community literally on the side of their building, 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 shifting tides in consumer 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, US 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™.

brandinfiltration.com

Infiltrate Now! www.brandinfiltration.com