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

1. Drink 2.0
ANYTHING BUT “THE USUAL.”
A critical look
at the challenges
and opportunities
facing alcohol
brands in the U.S.

2. “
It is absolutely
NOT recession
proof.”
Peter Cressy
President, Distilled Spirits Council of the U.S.
January 2009
2

3. INTRODUCTION
As the marketing agency that coined the term Perhaps it’s this excitement that led us to examine
brand infiltration™, Espresso is acutely interested the alcohol industry as our second “2.0” subject.
in understanding how consumer expectations are Perhaps we’re just a little thirsty? Either way, we
changing in step with evolving technology, know you’ll agree that a perfect storm of new
demographic shifts, economic factors, and cultural economic forces and lifestyle choices has been
phenomena—and helping our clients rise to the brewing, challenging the staid assumptions within
challenges that unfold along the way. the alcohol industry.
So begins our foray into the world of Drink 2.0, But today’s challenges come with significant new
the second in a series of publications we are opportunities, as well. Drink 2.0 examines how
releasing in 2010, in which we examine the brands can adapt to emerging consumer trends,
challenges and the opportunities facing businesses create more meaningful relationships with their
as digital and social technology dramatically alter existing enthusiasts, and pave the road to
the way people discover, experience, and share enduring success.
information.
Cheers!
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 Jacquelyn Cyr
Chief Executive Officer
of phrase like “on message,” and “on brand.” Espresso
It's quite possibly the most terrifying time for
marketers in over fifty years - yet, without
question, the most exciting.
3

4. Industry Trends
Change, Distilled
Brands Getting it Right
Infiltration How-Tos
Conclusion
Credits
4

5. STAYING IN IS THE NEW GOING OUT.
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.
68%
are doing less
fine dining.
59%
less often.
are going to bars
SOURCE: Nielsen, Oct 2009
PHOTO: Adidas

6. “
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
6

7. THIS IS NOT A BAR.
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.
“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,
Approach craft brewers choose not to bottle their
and as more
• Social activity audit like the idea of getting fresh beer
products, many fans
• Stakeholder recently was sold only in specialized bars.”
that until interviews
• Competitive analysis
—The New York Times
• Ideation
7
PHOTO: Todd Heisler/The New York Times

8. 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
8
consumer with a more sophisticated palate, and establishments are placing their orders to match.
PHOTO: Saul Loeb / AFP / Getty Images

9. “
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
9

10. HOME COURT ADVANTAGE.
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%.
10
SOURCE: MSNBC

11. 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.
11
SOURCE: MSNBC

12. Industry Trends
The Times, They are a-Changin’
Brands Getting it Right
Infiltration How-Tos
Conclusion
Credits
12

13. 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.
13

14. TODAY,
THINGS ARE
A BIT MORE
COMPLICATED.
14
IMAGE CREDIT: http://www.barcelonaschiringuito.com/no-hay-marcha-atras

15. 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
more
45 spend significantly
time using the Internet
than watching television.
15
PHOTO: http://www.bandlem.com/Xmas/2006/

16. CONSUMPTION FACTS
• 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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17. SOCIAL MEDIA IS UBIQUITOUS.
• 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.
17
PHOTO: http://www.flickr.com/photos/constantine-graphics/3859971253/

18. SAY GOODBYE
TO “THE USUAL.” --Razorfish FEED Study
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.
18
PHOTO: http://www.flickr.com/photos/wengistein/472176875/

19. Industry Trends
Change, Distilled
Brands Getting it Right
Infiltration How-Tos
Conclusion
Credits
19

20. 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.
20

21. FLYING DOG ALE:
EMBRACING OPEN SOURCE CULTURE
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.
21

22. IMAGE: Diageo
DIAGEO: RAISING THE BAR
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.
22

23. PABST BLUE RIBBON:
EVENTS
[aka THE OTHER SOCIAL MEDIA]
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.
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IMAGE: Traitor

24. ROCK ART BREWERY:
THE SOCIAL MEDIA REVOLUTION
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 The hashtags #monsterboycott and #boycottmonster became trending
Drinkers Against Monster” Facebook topics on Twitter. And all this happened in just three weeks.
group gained 19,000 members. The
YouTube video of Nadeau explaining
his side of the story (“Matt and the On October 20th, the two sides reached a settlement that allows Rock
Monster”) was viewed over 82,000 Art to continue to market the brew. Nadeau credits the power of the
times. social media grassroots movement for the win.
24

25. Industry Trends
Change, Distilled
Brands Getting it Right
Infiltration How-Tos
Conclusion
Credits
25

26. “
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
26

27. THE RULES OF THE GAME.
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.
27
PHOTO: http://www.flickr.com/photos/gord99/315490873/

28. 1. ENGAGE YOUR CUSTOMERS.
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. 28
PHOTO: David Cyr

29. 2. INVEST IN COMMUNITY.
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.
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30. 3. ADAPT WITH SHIFTING CONSUMER TRENDS.
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.

31. 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.

32. 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

33. Hi, we’re Espresso. Nice to meet you.
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™.
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
brandinfiltration.com

34. Infiltrate Now!
www.brandinfiltration.com