AB InBev Brews Up Elderflower Ale and Canned Cocktails for Growth

(Bloomberg Businessweek) -- From an art deco storefront in New York’s Chelsea neighborhood, a company called ZX Ventures has assembled stakes in scores of nascent consumer brands: There’s a partnership to research protein snacks for yoga fans, a controlling interest in a marketer of canned rosé founded by a social media impresario who calls himself the Fat Jewish, and alcohol-focused e-tailers in more than a half-dozen countries. But this isn’t your typical startup incubator. It’s an arm of Anheuser-Busch InBev NV, producer of mass-market stalwarts such as Budweiser, Beck’s, and Bass. ZX’s “culture is about dreaming big,” says Pedro Earp, AB InBev’s chief marketing officer and head of ZX. “There are so many opportunities out there, man.”

The idea is to identify potential growth engines and bet on them fast, either in-house or via acquisitions, so the world’s largest brewer isn’t caught out by insurgents. That’s one reason Labatt, AB InBev’s subsidiary in Canada, is researching cannabis beverages in a partnership with Tilray. Staying current with changing trends is a challenge facing companies making products from detergent to ketchup as fickle shoppers abandon old-line brands for small-batch upstarts. This was highlighted on July 12, when AB InBev pulled an offering of shares in its Asia unit because of tepid investor interest. Recognizing that drinkers were turning their backs on big-name beers, AB InBev board members in 2015 met to discuss ways to boost innovation—an acknowledgment that the group was struggling to pull funding away from juggernauts such as Corona, Michelob, and Stella Artois. “We’d been focusing a lot on innovation, and we took trips to Silicon Valley like all the other companies,” says Earp, a jovial Brazilian with a penchant for flannel shirts. “But what we gained was more incremental than exponential growth.” At the meeting, he says, the board approved a unit that would be totally independent, “to focus 100% on what can be important for our future.”

ZX has become one of the brewing giant’s most successful initiatives, with 1,500 employees, stakes in more than 60 companies, and 2018 revenue topping $1 billion. Last year it accounted for 10% of AB InBev’s global sales growth and more than half in parts of Europe. The goal is to boost the cool quotient while addressing problems that developed as AB InBev grew from a small Brazilian brewer into a conglomerate that produces a third of the world’s beer. The company has a reputation for multibillion-dollar hostile takeovers followed by massivfe job cuts, part of a tireless obsession with costs, which must be kept in check to pay down the $100 billion in debt taken on to fund acquisitions. That issue came into focus on July 19, when AB InBev said it will sell Australian beer assets to Asahi Group Holdings Ltd. for $11.3 billion.

It’s a 10-minute cab ride from AB InBev’s Park Avenue offices to ZX’s digs in Chelsea, but they seem decades apart. At headquarters, perks are scarce. In 2010, Chief Executive Officer Carlos Brito outlined the company’s culture to students at Stanford University. “I don’t like the word ‘fun’—fun is too weak,” he said. “I don’t like people at the company to have fun. I have fun at the beach with my kids.” In another Stanford speech, in 2008, Brito said, “I don’t want the company to give me free beer, I can buy my own.” At ZX the reception area is brightened by a Day-Glo mural of cartoon characters swimming in beer. On Thursdays the mostly millennial workforce gathers for happy hour with free beer and pizza. A couple of floors down there’s a workplace brewery, 24th St. Hops, which experiments with concoctions such as a cherrywood-aged stout and an ale infused with elderflower, Earl Grey, and honey. “With ZX, they’re creating the space for new ideas,” says Sanford C. Bernstein & Co. analyst Trevor Stirling.

There are few limits on what ZX can invest in. It’s working with Minneapolis food technology company Zea10 to make protein snacks aimed at the yoga crowd from spent grain left over after brewing—a side hustle Earp says could be worth billions of dollars. (The grain is currently sold as cheap cattle feed.) A brand called Cutwater Spirits offers premixed cocktails such as margaritas, bloody marys, and gin and tonics in single-serve cans. Via investments in websites such as Britain’s BeerHawk.com and France’s Saveur-Biere.com, ZX gains insights into purchasing trends and emerging flavors. ZX has a sister innovation lab that counts parallel investments such as WeissBeerger, an Israeli startup that installs software in bars’ cash registers to collect data on what drinks sell best at different times of day.

In one program, Zxlerator, staffers are encouraged to propose solutions to a business headache they’ve faced. Every summer, about 15 people from across AB InBev are selected to attend a two-week boot camp where they learn how to quickly turn an idea into a product, then spend nine weeks working on their concept. One team developed Saturday Session, a low-sugar, low-alcohol wine aimed at casual drinkers who don’t like beer but want something with less alcohol than liquor and fewer calories than wine. It’s being test-marketed on the U.S. East Coast. A group in Europe developed OneStopShop, an e-commerce platform for wholesalers.

Patrick O’Riordan, an Irishman partial to bright plaid shirts and colorful Doc Martens, left AB InBev in 2006 because transformative ventures weren’t on the agenda. Having written his Ph.D. thesis on what he calls “the flavor diversification of cheddar cheese,” he landed at an Irish milk producer. In 2015 he got a call from Earp saying, “Look, all the stuff you’ve been talking about in terms of innovation, we’re going to do it. Will you help?” O’Riordan signed on as a founding member of ZX and now reports to Earp as leader of AB InBev’s consumer insights division. He says ZX has challenged the thinking at the mother ship, and the support the unit gets indicates that top executives are finally interested in new models of growth. “It’s the company saying, ‘What you guys are doing is great,’ ” O’Riordan says. The key is “recruiting the right people to create a legacy that will see a lot more people like me in the company.”

To contact the editor responsible for this story: David Rocks at drocks1@bloomberg.net

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