Budweiser Tinkers with the Recipe

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Seeking Mass Appeal, Brewer
For Years Cut Bitterness;
Now Drinkers Want More
Drinkability vs. Fat Squirrels
By SARAH ELLISON
Wall Street Journal
April 26, 2006; Page A1

ST. LOUIS -- Sitting in the wood-paneled "corporate tasting room" of
Anheuser-Busch Cos.' headquarters here, August Busch III surveyed five
recently thawed cans of Budweiser beer, representing a quarter of a
century of beer history. In the early 1980s, the Anheuser chairman
ordered that freshly brewed cans of Budweiser and Bud Light be
cryogenically frozen, using technology typically employed in preserving
human tissue.

"We wanted to make damn sure we would have the same beer 20 years down
the road," said Mr. Busch, 68 years old, tapping the table rhythmically
with his index finger to accentuate his point.


For decades, Anheuser's aim was to develop a beer that would sell
across America, one inoffensive enough to appeal to the nation's varied
palate.

Now, that goal is out of step with a shift in consumers' tastes. From
coffee to fashion to media, niche products are rising, especially ones
that consumers can customize, and the great mass brands of the postwar
period are under attack. Imported brews and smaller so-called "craft"
beers with stronger flavors are more readily available and are selling
fast, as are wines and spirits.

Moreover, for all its devotion to consistency, Anheuser concedes
Budweiser has changed over the years. It quietly tinkered with its
formula to make the beer less bitter and pungent, say several former
brewmasters, a byproduct of the company's desire to create a beer for
the Everyman.

The question of taste has created opportunities for Anheuser's rivals
and has resulted in some ferocious marketing battles. Anheuser, an
industry bellwether, used to shrug off such challenges. Now, among
myriad other factors, it's begun to take a toll on Anheuser's financial
performance and has led beer makers to a moment of self-reflection.

Anheuser's flagship brand, Budweiser, has been losing market share for
more than 15 years. Two years ago, Anheuser as a whole lost market
share as its Bud Light for the first time didn't pick up the slack. In
2005, after years of confidently raising prices, the brewer decided to
discount cases of beer to retain customers. The brewer's profits last
year slipped 18% and its stock fell 14%.

Anheuser says the earnings decline is unrelated to the taste of its
beer. It also notes that Bud Light is on average more expensive than
Miller Lite, which Anheuser says is a sign of the brand's continued
strength. The company, however, has also acknowledged that the
discounts were designed to combat SABMiller PLC's Miller Brewing Co.,
which has relentlessly poked fun at Bud Light's flavor in national TV
ads. In part because of the discounts, Anheuser's shipments picked up
late last year. The company is expected to report first-quarter
earnings today.


In search of new drinkers, Anheuser last year threw more than 30 new
products into the market. And, in a little-noticed move Anheuser is
loath to discuss, the brewer recently added more hops to its beer to
make it stronger.

After World War II, marketers strived to create products that would
appeal to palates across the U.S. They succeeded, and partly with the
help of the interstate highway system, built an unrivaled mass-market
food industry. As refrigeration became widespread, it swiftly delivered
products to every corner of the country at a reasonable price.

A diverse nation learned to like the same things. As regional varieties
gave way to national brands, companies embraced soft-edged, broadly
appealing formulas, which gradually lightened products from cigarettes
to bread. It was a winning strategy that created success stories such
as ranch dressing, Maxwell House coffee and Kraft cheese. A similar
strategy in Hollywood produced the mass-market situation comedy and the
Hollywood blockbuster. Market research fed the trend with its
relentless tendency to find the common denominator.

For a long time, consumers were satisfied. Daniel Ennis, director of
the Institute for Perception in Richmond, Va., a group that analyzes
consumers' flavor preferences, says every person has an "ideal" taste
for a beer or potato chip or cookie. But in the real world, companies
create foods consumed by millions. "People live in suboptimal
situations," says Mr. Ennis, who has consulted for Miller. "They don't
send their kids to the best schools, they don't have the best jobs,
they don't eat the best foods."

Or drink the strongest beer. From 1950 to 2004, the amount of malt used
to brew a barrel of beer in the U.S. declined by nearly 27%, and the
amount of hops in a barrel of beer declined by more than half,
according to Brewers Almanac. Part of that decrease is due to
improvements in how brewers extract flavor from hops. Nonetheless,
beer's taste became steadily lighter. (Flowers of the common hop plant,
Humulus lupulus, are used as a flavoring and stability agent in beer,
helping create its characteristic bitter taste and aroma.)

The beer industry measures bitterness using a scale called
International Bitterness Units. The higher number of IBU's, the greater
the bitterness. Over the past twenty years the IBU's of most
American-style lagers has dramatically declined, from roughly 15-20
IBU's to fewer than 10 today, according to the Siebel Institute, a
Chicago laboratory and brewing school that tests beer.

"The North American palate has become lighter and lighter," agrees
Graham Stewart, director of the International Centre for Brewing and
Distilling at Heriot-Watt University in Edinburgh, Scotland. Mr.
Stewart used to brew beer under license for Anheuser when he worked as
technical director for Labatt Brewing Co., now part of InBev SA.

Following this approach, Anheuser-Busch grew to control half the market
for beer in the U.S. and its brands have dominated the beer industry
for decades. It owns 50% of Corona brewer Grupo Modelo and 27% of
Tsingtao, one of China's top brewers. As it put regional breweries like
Rheingold and Schlitz out of business, Anheuser's flavors came to
dominate beer drinkers' palates. Bud Light is now the best-selling beer
in the world.

One key to Budweiser's popularity is that it produces no "palate
fatigue" after several drinks. The bitterness in stronger beers tends
to build up, causing a drinker to tire of the taste. Bud's appeal is
what people in the industry call "drinkability." (In the U.K., it is
called "sessionability," for how many beers one person will drink in a
session.) Budweiser tests drinkability in "pub tests" in which the
brewer rents a pub or a bar and invites people to drink free.
Afterward, Anheuser drives the drinkers home.

For Mr. Busch, the definition of "drinkability" is simple: "I want the
next beer!" he says. "You stop drinking because you know it's time to
stop but you don't want to: That's drinkability."

Mr. Busch's obsession for protecting the integrity of his product is
legendary. Head brewmaster Doug Muhleman says that in the 10 years he's
been on the job, Mr. Busch has called virtually every evening at about
6:00 p.m. to discuss the day's batches.

"We've been tasting these beers for 50 years," says Mr. Busch. "If we
can't sit down and drink three or four of them, then it's not right."

Mr. Muhleman, who is officially Anheuser's group vice president for
brewing and technology, says the company didn't set out to make the
beers less bitter. He calls the change "creep," the result of endlessly
modifying the beer to allow for changes in ingredients, weather and
consumer taste. "Through continuous feedback, listening to consumers,
this is a change over 20, 30, 40 years," says Mr. Muhleman, gesturing
toward the row of Budweiser cans. "Over time, there is a drift."

The five Budweiser cans in front of Mr. Busch, dating from 1982, 1988,
1993, 1998 and 2003, were pulled off the production line shortly after
they were brewed. They were cooled to minus-321 degrees Fahrenheit over
16 hours and stored at that temperature in a secret laboratory in the
company's headquarters.

The sample cans demonstrate how "creep" works. The difference in taste
between two beers brewed five years apart is indistinguishable. Yet,
the difference between the 1982 beer and the 2003 beer is distinct.
"The bones are the same. It is the same structure," says Mr. Muhleman.
Overall, however, "the beers have gotten a little less bitter."

The gradual move toward lighter tastes accelerated in the mid-1970s
when Miller introduced Miller Lite. Anheuser followed with Bud Light
several years later. Consumer tastes, influenced by the 1980's fitness
and diet craze, gravitated toward products that promised fewer
calories. Brewers followed and started tweaking the flavor of their
full-calorie lagers as well, according to beer executives and industry
analysts.

Bud's ever-increasing lightness worked for years. But lately, consumers
have started cooling on mass brands in favor of smaller, often unknown
rivals. The proliferation of new media gave consumers more information
about niche products. Their tastes grew more sophisticated and
aspirational, spurred by an increase in overseas travel.

At the same time, stores began using technology to improve their
inventory systems. That made it easier to spot which products were
selling well, letting retailers offer with precision an array of
products more in tune with customers' new tastes.

As a result, rivals and some industry analysts blame Anheuser's recent
lackluster financial performance on the very foundation of Budweiser
dominance: its light, bubbly formula, which has been mocked for years
by beer snobs and beer drinkers outside the U.S.

"I think you're seeing an increased consumer acceptance that bitter is
a positive characteristic in beer," says Keith Lemke, vice president of
the Siebel Institute.

Last year, craft beer shipments by volume grew 9% to 7.1 million
barrels, according to the Brewers Association, the craft beer industry
group. Beer drinkers reached for tiny brands such as Fat Squirrel Nut
Brown Ale, Obsidian Stout and Dogfish Head Chicory Stout. Likewise,
imported beer volume grew 7.1% to 25.6 million barrels, according to
information compiled by the Beer Institute, the industry group for the
big brewers.

At the same time, domestic beer volume dropped 1.2% to 178.8 million
barrels. While the sales of regular American beer still dwarf those of
the upstarts, the momentum is not running in its favor.

Anheuser's public response has been to introduce an array of niche
products. This month, Anheuser said it would allow beer drinkers in
Ohio and New England to pick a "hometown specialty brew" by voting on a
selection of new Anheuser specialty beers with names such as Old
Eyepopper. The beers that win will go on sale this summer. Anheuser
recently signed deals to distribute imported beers such as Grolsch and
Tiger Beer.

In October, the brewer also started selling Spykes, a flavored malt
beverage designed to be added to beer, in flavors such as spicy mango
and hot melon.

"People have been having fun with cocktails, mixing up
different-colored and different-flavored cocktails," says Mr. Busch.
"Well, we're going to have a little fun with beer."

Anheuser didn't talk publicly about it, but the brewer also recently
made changes in its brewing process to correct for over-lightening. In
August 2003, Mr. Busch met with hops growers in Oregon and Washington
and told them that Anheuser was planning to increase the proportion of
hops used in its beers, according to several people who were there.

Mr. Busch confirms the account, saying in a written statement: "I told
the growers of our desire to use more hops in our brewing for the
purpose of delivering more amplitude and hop flavor in Budweiser."

Mr. Muhleman adds that Anheuser makes changes all the time to maintain
consistency. "When we've made changes, they haven't always been in the
direction in removing hops," Mr. Muhleman says. "Sometimes we had
more."

To Anheuser's chagrin, this sensitive issue has become a weapon in its
battle against its smaller rival Miller. For years, Miller executives
saw their slightly stronger-tasting beer as a weakness compared with
Budweiser and Coors, according to current and former Miller executives.

In the late 1990s, Miller lowered the bitterness of Miller Lite to
catch up. "Miller got caught for several years in the trap of trying to
emulate all the things that were driving the success of the Bud
brands," says Charles Frenette, a former Coca-Cola Co. marketer who now
sits on Miller's U.S. board. "So there was no differentiation and
everyone was looking more and more the same."

Then, in 2001, Miller increased the bitterness in Miller Lite to undo
some of the prior lightening moves and the company started to embrace
its slightly darker color and stronger flavor.

In a series of marketing campaigns in 2004 Miller attacked Bud Light's
taste with TV spots such as "Epidemic," in which panicked Bud Light
beer drinkers run through the streets, shouting, "I can't taste my
beer." Another spot, called "Air beer," showed people in bars
obliviously pouring and drinking invisible beer.

The spots highlighted the issue of taste at a time when consumers were
ready to hear it. After years of declines, Miller Lite shipments by
volume grew 13.5% in 2004 and another 2.1% the following year.

In the summer of 2004, Miller started testing Bud Light and Budweiser
each month instead of twice a year, as had been its practice. Miller
pulled Anheuser's beers off shelves in markets across the country,
getting samples from each of Anheuser's 12 breweries. The beers were
shipped to Miller's quality assurance labs in Milwaukee and tested for
color, aroma, bitterness and "mouth feel," among other traits.

In early 2005, instead of the regular shift downward in bitterness it
had come to expect, Miller says it found that Bud Light's bitterness
had increased slightly. It had seen a similar shift in regular Bud two
years earlier -- something that could be explained by the acknowledged
increase in hop content.

Miller gathered a small group of top executives to work on a response.
The project was named "Project Delta," referring to the letter in the
Greek alphabet that denotes change in mathematics.

One Friday night in November, Miller started showing TV ads contending
that the taste of Bud Light, the world's biggest beer brand, had
"changed."

Anheuser realizes what damage a claim of a "change" in recipe could do
to an iconic brand like Budweiser or Bud Light. Unlike many consumer
and food products, "new and improved" is the kiss of death in the beer
industry, which trades heavily on its heritage.

As a result, brewers tend to keep quiet about changes they make.
"Almost every brewer is constantly changing their beer," says Henry von
Eichel, president and CEO of John I. Haas Inc., a closely held hops
producer, trader and importer based in Washington, D.C. "But no one
likes to talk about it."

Mr. Muhleman says, "We don't chase our competition," and calls Miller's
claims a "marketing ploy." He also says the company has made many fewer
changes in Bud Light than in Budweiser over the years.

Many smaller brewers in the industry scoff at the idea there's any
difference between the two beers. "I sit back and chuckle at them going
after each other," says David Blossman, president of microbrewery Abita
Brewing Co. in Abita Springs, La., which makes brands such as Purple
Haze and Turbodog. "It's like comparing Bunny Bread to Wonder Bread."
Last year, sales at Abita rose 22.4% to $9.3 million.


Re: Budweiser Tinkers with the Recipe


For compliance purposes:
Above article Used with permission from The Wall Street Journal Online.


Re: Budweiser Tinkers with the Recipe



Thanks for posting a most interesting and informative article, John.  

Quoted text here. Click to load it

Unfortunately, AB still doesn't get it.  It's not novelty beers that
people are beginning to turn to, its *good* beer.  The recent drift to
craft and good imported beers (not Heiniken, Corona, etc) is not
because they are different or trendy.  It's because once a consumer's
palate becomes educated to good quality beers in all their varied
styles, they're not likely to go back to the mediocre one style fits
all beer of the past.  Beer drinkers should no more be limited to a
single beer than wine drinkers be limited to one wine.

Bud no longer rules the roost, here in NorCal.  In approx 40ft of
coldcase space at the average supermarket, AB only gets about 5ft for
all its offerings.  Imported and craft beers now typically take up 1/2
to 2/3 or all available beer space, leaving the rest to domestic
swill.

Coors is the only US mega-brewer I've seen taking positive steps.
Their Bluemoon Belgian-style wit beer is amazingly good and a step in
the right direction.  They tried earlier with their Killian Red, but
it was too soon.  I'm sure it's selling better, now.  Hopefully, the
other mega-brewers will get a clue.

nb

Re: Budweiser Tinkers with the Recipe



notbob wrote:
Quoted text here. Click to load it

Yeah, my sense in reading the article is that they are coming from
behind and struggling a bit with the right decisions.  There will
always be a place for a light flavored beer like Bud and Bud light, so
fiddling with those blends doesn't seem to make sense from the outside.
 Image is a big part of beer sales, and they are I'm sure looking long
and hard at whether a makeover is due.

I would think that as you said adding beers that "taste good" but are
targeted to a narrower group with a more sophisticated palate would
make more sense.  A fruit flavored ginseng enhanced beer is probably
not a good idea, but a good hefe would find a place in my icebox anyway.


Re: Budweiser Tinkers with the Recipe


notbob wrote:
Quoted text here. Click to load it

I'm not sure I'd call Blue Moon "amazingly good," without qualifying it
with "compared to their other products," but I do agree it's drinkable
and interesting. That's a major step in the right direction.

--
   Beer blog: http://blogs.tmr.com/beer Unsigned numbers may not be negative. However, unsigned numbers may be
less than zero for suffietly large values of zero.

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