David Brown (17:17)
It's 2019 and Heineken is launching its new non alcoholic beer, Heineken 00 in the United States. It hits the ground running with a bold, innovative and funny ad campaign and a 50 million dollar marketing budget. The central message of the campaign is now you can. And it focuses on the idea that with Heineken 000, you can now drink beer in all those moments where you normally wouldn't. In one ad, an executive is giving a presentation in a boardroom. Partway through, he cracks open a beer and when his colleagues look at him in horror, he simply turns the bottle around to reveal the blue label of Heineken 00. In another, a woman steps off a treadmill at a gym, takes a swig of beer, and then, faced with the disapproving gaze of her fellow gym goers, flashes a grin as she turns the bottle around to reveal that same distinctive blue label. Wait a minute. This is a pretty big fork in the road, isn't it? Are these companies selling beer or selling something else? Here's the shorthand. Athletics Pushing customers to develop new habits Change your life for the better with healthier beer, right? But it seems like Heineken's going down a different path. Live life on your own terms only with beer. One is selling Transformation The a more convenient version of what people already do. Drink beer. The marketing differences between Heineken and Athletic also extend to the way the two companies handle their outreach and brand positioning. At Athletic, Bill Schufelt is still personally driving to ultra marathons and handing out samples to endurance athletes. This is on the ground marketing, meeting with customers face to face and building the brand one interaction at a time. Heineken, well, they're operating on a completely different scale. The company has the financial and distribution muscle to roll out 00 nationally by giving away 10 million free sample bottles. It can also afford to sponsor global events like Formula one and the US Open tennis championship. Then Heineken launches an irreverent eye catching campaign, national bring your beer to work day. And it enlists the cast of the office to help promote it. These star studded campaigns seem to show results. In the first three months of 2019, US sales of non alcoholic beer are up 6.6% compared to the same period the year before. On the surface, Athletic and Heineken are happy to say that the market is big enough for everyone and that the growth of the non alcoholic beer sector will benefit all players. Representatives of both companies attend the same trade fairs and speak on the same panels, all claiming with smiles and back slapping that the two brands are not in direct competition. And to a certain extent, that's true. This is still a growing sector. If Athletic helps grow demand for non alcoholic beer, Heineken can benefit as well, and vice versa. The more non alcoholic beer becomes a thing, the more both brands stand to gain. But at the same time, business is business and both companies want to secure more of that market growth than their rivals. And for Schufeldt, the situation must be worrying. He thought Athletic was ahead of the curve. But now Heineken, one of the world's biggest breweries, is swooping in to gobble up all that growth. If Athletic wants to keep up, it's gonna have to lace up its running shoes and move quickly. You know, this is the moment every category Pioneer eventually faces, when the market it helped build attracts a giant rival. Early advantage doesn't guarantee lasting advantage. Once a big player arrives, the game shifts from invention to execution. And so from here on out, it's not just about being first. Now, it's about staying relevant. Schufelt knows Athletic needs to scale if it wants to keep up with the fast growing demand. So in March 2020, the company takes on a second brewing facility in San Diego, making a significant new financial investment, raising another $17.5 million to help fund it up to that point, Athletics beer was brewed on the east coast and then shipped across the country, which made west coast distribution expensive and inefficient. This new facility changes that. It allows the company to increase their west coast footprint, reduce shipping time and keep up with demand more effectively. As Athletic heads west, Heineken is gearing up for another major marketing campaign, one that builds on its bring your beer to work day. Only this time, it's not just a day. It's the entire month of April. But just as that campaign launches, people stop going to work. As COVID lockdown spread, offices empty out and bars, restaurants and much of the hospitality industry shut down almost overnight, the entire beer business is thrown into chaos. Across the world, millions of barrels go undrunk. And in some places, brewers are forced to get creative. Like in Manchester, England, where Heineken's team finds a way to turn 7 million pints of untapped beer into green energy. At first glance, it looks like a disaster for the beer industry. But beneath the surface, something more complicated is happening. The pandemic disrupts people's drinking habits. Some people start drinking more heavily, but others begin to cut back. And this shift helps to spur new interest in alcohol free beer. In the first half of 2020, Heineken's overall global revenue slumped 16% as beer sales across the board plummet. It looks like a catastrophe. But within that grim picture, Heineken 00 experiences a double digit gain, especially in markets like the US and Mexico. For Athletic brewing, the pandemic has a different effect. Early on, when Shufelt was trying to get the company off the ground, he tried to partner with contract breweries to produce Athletics beer. That's how almost all craft breweries operate. But none of them would work with him. Many simply laughed at him, saying there would never be a market for non alcoholic beer. So instead, Shufelt was forced to find his own master brewer and scrape together enough money to set up his own brewery. At the time, it felt like a costly and stressful detour from his original plan, which was to run Athletic as a business with low fixed overheads. But now, as the pandemic unfolds, this decision is worth proving to be a lifesaver. The pandemic snarls global supply chains, leading to a backlog at all the commercial contract brewers. This hits small craft brewers hardest. And with so many bars and restaurants closed, some don't survive. But Athletic doesn't have to wait in line for anyone. It owns its own production, manages its own supply chains. And can keep on brewing even while other craft breweries and major brewers like Heineken suffer. You know, early on, owning production looked like an expensive inconvenience. During the pandemic, that turned into strategic control. A workaround can become an advantage when conditions change. And conditions always change. Even if you can't predict how or when, what may feel inefficient in year one can become your edge in year three. This is one of the advantages of being a smaller company. You can be nimble, you can adapt. And when conditions change, this flexibility can matter more than scale. By the time the pandemic begins to ease at the end of 2021, athletic sales are soaring. Shufelt realizes, almost in disbelief. They've sold 100,000 barrels of beer that year, generating around $37 million in revenue. They've come a long way. Only four years earlier, he and Walker were still experimenting with recipes in the family garage. Now they're operating on a whole different level. As the company grows, it also begins to use celebrities to boost its brand. But it takes a very different approach than Heineken 00. Instead of using celebrities as the face of its advertising campaigns, Athletic brings them on as investors. NFL superstars like J.J. watt and Justin Tuck invest in the company, as does Olympic cyclist Lance Armstrong, reinforcing the brand's connection to sports and fitness. And when celebrity chef David Chang also comes on board, it signals something else entirely. That non alcoholic beer can have a place in high end dining. It tells chefs that they can put it on their menus with confidence. And it gives customers an alternative to soda when they want to skip alcohol without compromising their experience. But when Shufelt looks more closely at the data around who's drinking their beer and how they are drinking it, he discovers something surprising. Athletics fans generally aren't teetotalers. Instead, they enjoy regular beer and non alcoholic beer, sometimes on the same night. They might be hanging out at a bar or at home with friends and they'll have a beer or a cocktail for one round and then an Athletic IPA the next. Athletics starts to describe this type of drinking as chaser, pacer or replacer. Some people use non alcoholic beer to follow stronger drinks as a chaser. Others alternate between alcohol and alcohol free drinks, making it a pacer. And some people replace alcohol entirely with non alcoholic beer. And as this pattern becomes more common, more companies start paying attention. Soon, more major brands are entering this space, like Budweiser zero, Guinness zero zero and a growing list of other alcohol free options tied to familiar names. Athletic and Heineken may have led the way, but amidst the growing competition, one question becomes harder to ignore. In a market they helped build, how do they hold on to their.
