The Innovation Crapshoot Continues

IT’S A PERENNIAL dilemma for big beverage companies: how to place the right bets on burgeoning niches and then nurture those brands so that, if they prove to be the right horse (always a crapshoot!), they have a chance at crossing the finish line.

It’s fair to say that, over the past decade and a half, the big beer and soft drink conglomerates have shown great ingenuity in structuring these efforts, both to develop new brands in-house and to seek alliances or acquisitions of promising outside brands. Sadly, it’s also fair to say that the companies have remarkably little to show for it, if we measure success by how many sustainably above-premium brands were added to their portfolios. I’m talking here not about line extensions, but more cutting-edge innovation that pioneers big new categories or segments.

Often, those efforts involve setting up a separate division that can insulate cutting-edge ideas from innovation-deadening accommodations to the agendas of larger, existing brands. The trick here is to maintain an adequate flow of resources to the unit through thick and thin, as well as the handoff to a sales force and distribution network that’s relentlessly flogged not to take their eye off the core brands. The latest effort Anheuser-Busch’s establishment of a new company, 9th Street Beverages LLC, to grow its non-alcoholic beverage business. It operates from separate offices but taps into corporate resources for its overhead.

Another familiar trope is to seed innovation gurus – preferably fresh thinkers recruited from outside the company – as proselytizers for new ideas. Early this decade, each of the big three soda companies acquired a brand they perceived as innovative and kept its leader on to foster new thinking across the broader corporation: Mike Weinstein at Cadbury, after it bought Snapple; John Bello at Pepsi, after it bought SoBe, and Larry Trachtenbroit at Coke, after it bought Planet Java. As far as I can tell, each of the three pursued his mandate with energy and enthusiasm, but little of even short-term value came of the efforts and all three departed in less than two years. Even for seasoned entrepreneurs, it proved too hard to battle the bureaucracy.

Currently, the most extensive effort to up-end convention in fostering new brands is occurring at Coca-Cola. It’s established a new unit, Venturing and Emerging Brands, as a brand incubator, but this time it’s kind of a venture capital shop, investing in companies via outright acquisitions (it’s where Coke placed Fuze Beverage once VEB had been set up) or minority investments (as with Honest Tea and Bossa Nova). Meanwhile, Coke is managing its outsize acquisition of Glaceau by allowing the company to operate autonomously out of New York, even encouraging it to put its marketing smarts to work on an important Coke brand, Powerade. Even Trachtenbroit’s back in the mix – Coke took a 20 percent stake in his latest venture, Brain-Twist. It’s an ambitious matrix of activities and its success will be benchmarked largely on whether Glaceau’s Vitaminwater continues its brisk growth at above-premium prices or whether Honest Tea can be put on a glide path to material sales without undermining its uniqueness and price premium.

Still, for all the ingenuity these initiatives reflect, I’d still put the odds at challenging. I’d venture that only Molson Coors’ Blue Moon rates as an unmitigated success. But it’s interesting to note how it got there. After launching in three flavors via Coors Brewing’s short-lived UniBev unit, it didn’t really get far – not enough, anyway, to make a difference to a bottom line starved for above-premium successes. Indeed, the brand was on the verge of discontinuation, except that a handful of distributors in Chicago and perhaps a few other difficult markets for Coors pleaded for its existence. So, reduced to a single Belgian-style white beer, the brand soldiered on with little in the way of corporate focus or resources.

That, of course, was the best thing that could have happened to it: no unattainable revenue targets, no marketing campaigns du jour by marketers intent on moving on to bigger and better things at Coors. Instead, the brand was left to seek its own level, in the process developing a devoted following. It’s a sobering example, because whether you call it hands-off management or corporate neglect, you can imagine how hard it is to replicate as an established brand-development process in a process-driven organization.

So Blue Moon may be just a one-off. For those trying more formal innovation-boosting efforts, I do have a few recommendations. Balance the unit’s staffing needs: combine company stalwarts who know which levers to push with outsiders with refined instincts in the sectors you’re trying to crack. Also, as Blue Moon’s example suggests, patience is a virtue; it’s better to keep pressure off the unit (even at the cost of keeping it slightly starved for resources – not such a bad thing!) than to burden it with unrealistic expectations. Give its executives some latitude on their distribution choices – if the brand’s not ready for the company’s own network, let it start elsewhere. After that, just pray for a happy accident or two.

Longtime beverage-watcher Gerry Khermouch is executive editor of Beverage Business Insights, a twice-weekly e-newsletter covering the nonalcoholic beverage sector.