Glowing bottles set to save declinig beer businness

Brewers Power Up Technology for 'Smart' Beers

Source: Dow Jones

SIMON ZEKARIA

Jun 25th

Lager is going high-tech.

With demand falling in the West's biggest beer-drinking markets, where mainstream sales have been stung by a consumer shift to spirits and wine, brewers are changing up the game by plowing money into research and development.

At Milan Design Week in April, Heineken NV HEIA.AE +1.14% released 200 "Ignite" bottles of its eponymous lager brand that strobe when they are drunk, light up when clinked with another bottle and flash as the music beats thanks to a custom-built circuit board with motion sensors, computer processor and wireless receiver. When left alone, the bottle dims and goes into hibernation.Paul Smailes, Heineken's global head of digital, said the brewer was planning to release an improved version next year at large music events.

"We have lost a little bit of ground to spirit and champagne brands. We really wanted to tackle that in an innovative way," said Mr. Smailes.

Connected products are having a "big impact for brands and companies around the world," he said. "Other brands are already playing in this space, like the Nike+ FuelBand and the Pebble smartwatch. Adidas has a smart shirt, shoes and [soccer] ball."

Bernstein Securities analyst Trevor Stirling said "big beer was asleep at the wheel" on marketing for many years. "They have woken up. If they didn't do this, beer would continue to decline in relevance as an [alcohol] category."

There must be care in assessing technology's impact on consumer perceptions, according to Simon White, chief planning officer of advertising agency Draftfcb. "Once you start adding wizzy bits of technology, it could start affecting brand image," he said. "Although the taste is the same in reality, your perception of that taste changes."

However, Mr. White said the social aspect of beer drinking lends itself to social-media technology. "If you are a young man going out drinking in a bar, it is not about the beer but being seen," he said. "If beer truly is a social lubricant, then [technology] can help you."

This can be advantageous, said Pete Brown, writer and blogger on the beer industry. "I think brand owners mistake the level of reverence that consumers have for their product. The brand isn't the sole focus of being there. It is very much a facilitator to having a good time."

With mobile technology, the cost factor is critical. Heineken doesn't disclose what it spent on the Ignite project, but Mark Van Iterson, the brewer's global head of design, said that even though the souped-up bottle won't be found "in every six pack in every supermarket," ground-breaking product innovation will reap financial rewards. While some lager brands allow interaction with smartphones by scanning bar codes, beers with embedded motion-based technology, like the "Ignite", are available to consumers only through marketing events. Mr. Van Iterson says that may change as the product becomes more sophisticated.

"The more functionality we add to it, the more value it will add for people so maybe they will be prepared to pay for it and it becomes a business case."

Draftfcb analyst Chris Miller says current interactive beverages are "just the tip of the iceberg". "I would guess in 10 years it would be strange not to have it. The challenge will be to move it from gimmick to relevancy."

Budweiser's "Buddy Cup," created by the company's Brazilian unit, already has smartphone connectivity. A code on the bottom, when scanned though a Budweiser smartphone app, links the tumbler to a Facebook Inc. FB +1.30% profile. A "bump sensor" then enables the drinker to "friend" request someone when two cups strike during a toast.

The cup was tested in a pilot event in São Paulo. Brazil is one of parent company Anheuser-Busch InBev NV's ABI.BT +2.12% major markets, yet a relatively new one for the Budweiser brand. Brazil is hosting the FIFA soccer World Cup next year, representing a big opportunity for the global brewer to release innovative products.

"Once technology is proven and consumer benefits are proven, then we roll [products] out," said Pedro Earp, AB InBev's global vice president of consumer connections, without specifying individual projects. "The World Cup is going to be probably the most social event we've seen in the last decade."

Brewing rival Carlsberg AS says it has a number of "interesting projects" in the pipeline, while SABMiller SAB.LN +1.55% PLC says it is focused on brand and packaging innovation.

Marketers for liquor distillers are also starting to think high-tech. Pernod Ricard SA's RI.FR +1.65% whiskey brand Ballantine has teamed up with a niche clothing specialist to create a digitally-connected T-shirt enabled to flash online status updates. And Diageo DGE.LN +0.64% PLC has allowed consumers to create personalized video messages when gifting its blended Scotch drinks. By scanning codes on the bottle with a smartphone, the recipient can view the video.

Beer makers need to "premiumize" their brands to boost margins as Western volumes struggle, and technology is another tool to do that, said Jefferies analyst Dirk Van Vlaanderen.

"They need to create excitement about the brands again. It has become more prevalent in the last two to three years as we have seen a big slowdown in mainstream categories," Mr. Van Vlaanderen said. The U.S. and Germany, the two biggest Western beer markets, saw beer demand between 2009 and 2012 fall 2.5% and 2.3%, respectively, according to research group Euromonitor.

"I don't think it's a game of desperation. I think it is good sense [by] keeping edgy," said Mr. Van Vlaanderen.

Beer makers know they have to "fight back," said Mr. Brown, the writer. "Lager has become commoditized. Brands have become interchangeable and less special."

For Heineken's Mr. Van Iterson, there is simply the need to stand out.

"The money we invest in music sponsorship like festivals and concerts is one of our biggest. The challenge is how do we make sure we are not just another beer brand that is sponsoring music," he said.

Technology "is a tool that makes that money work harder for us," he added.