Dos Equis' Interesting Year

FILED DECEMBER 18, 2009

Dear Client:

One of the recurring themes I've heard from industry members over the last year or so is that there hasn't been any major national beer TV advertising that has captured the imagination of Americans and or entered the zeitgeist in a long while. No "Tastes Great, Less Filling" or "Whassups!" or "I love you, man." Tip Jar had its day in the sun, but it was web only. Other than Coors Light's cold train, it's been years since we've had a blockbuster ad. Except one. And it comes from an importer: the next in our growth brand series this month.

You know you've hit a home run when in casual conversations with folks not in the industry, somebody will say, "I don't always drink beer, but when I do, I prefer Dos Equis." The campaign isn't a new one, but Heineken USA went national with it this year, spent heavily behind it, and it entered the national lexicon. The campaign strikes that rare balance between being ludicrous yet funny and authentic. Even though it's clear the character in the spots is clearly an over-the-top parody, deep down inside you want to be him. Yes, I grew a beard and have taken to speaking in a faux Spanish accent.

TV can still sell beer when it's done right, and Dos Equis sales have borne out the integrated campaign's success. Dos Equis is up 29% in case volume in IRI ytd all scan through November 29, inching out Stella Artois for the number 8 imported beer. Dos Equis has the biggest percent increase of all top imported brands, and the second largest share gain of imports, just trailing Modelo Especial, and has grown double digits in 8 out of the last 10 years.

We rang up new Heineken USA chief Dolf van den Brink and Femsa's vp - international Luis Duran about Dos Equis' growth. "It all starts with the strategy," says Luis. "Heineken USA and Femsa spent a lot of time -- two years really -- talking about that particular point." Luis says that from the strategy comes the communications and the campaign, in this case one based on the notion of "interesting."

Dolf echoed that sentiment: "Being new to the organization, I cannot claim any of the successes. But coming from the outside in gives a fresh perspective. It's really a perfect marketing case. If you look at the growth of Dos Equis in the four years preceding partnering with Heineken USA, the brand was growing around 6.5%. In the last four years, the average growth rate has been 13.5%. So basically, by starting working together on the brands, they doubled the growth rate. The key word for me is integration. The campaign is on fire, it's spot on. But it really fits into all of the other elements of the campaign. In my short career, I've never come across such a well-balanced, well-integrated mix. You see that even in a declining import market, you can generate significant growth if you can all of the elements right."

Luis stresses that it took time. "It's really taken ten years....and the campaign has been around for three years, it's just that it went national this year. You'll remember when we first introduced this campaign, some people were uncomfortable with it. They thought it was strange. But it has resonated..."

They have also invested aggressively behind the brand, quadrupling the marketing spend over the last ten years. Luis stresses that the brand has also benefited from "world class execution.....For a brand like this, if you don't get it right in the marketplace, nothing else matters....In my years in the beer business, I've never seen anything like it." Indeed, national distribution for Dos Equis has doubled since HUSA took it over. Luis says, though, that there's still a lot of room for distribution growth. "The pull is there, we just need to really push it while we have this momentum." Dolf observes that they have "seen high willingness of wholesalers and retailers on that, but we are ambitious. It's very rare that you have the pull ahead of the push."

When I asked Dolf if having such a successful marketing campaign has helped with chain execution, he says, "It's like the dream of the salesman, Harry. To have this kind of campaign generating so much awareness and interest, it makes the selling job much easier. But you still have to get the economics right, etc."

Dolf stresses that the key to Dos Equis success so far is staying true to the original vision throughout the marketing and sales integration and execution process. "The concept of 'interesting', that humor insight originally brought to us by the agency, both teams have sold that story, which wasn't easy in the beginning, both across the ocean and here. People were raising their eyebrows on that. But it was that vision, which was really pursued, without compromising, that was key to its success."

FORMER MODELO CFO SAYS COMPANY WILL LOSE ARBITRATION

A former CFO for Grupo Modelo said on Thursday the company may lose the $2.5 billion arbitration against partner AB InBev. Says Ernesto Alcalde y Rodriguez in a Credit Suisse call: "My personal opinion regarding the arbitration is that AB will win." Modelo is asking for $2.5 billion in the New York-based arbitration case, saying Anheuser-Busch failed to consult with it when InBev bought A-B. "According to the investment agreement between AB and Modelo that (claim) is not true, literally speaking," he said.

"The agreement says only that AB and Modelo shareholders cannot sell Modelo shares to a competitor in the beer business in Mexico or the U.S. I don't know the reasons, but they forgot to put in the investment agreement of 1993 a clause regarding a change in control in AB."

Alcalde y Rodriguez said Modelo's controlling shareholders would be willing to sell the company at an adequate price and that they would prefer to be paid in cash rather than stock, says Reuters.

Until tomorrow, Harry

"The length of a film should be directly related to the endurance of the human bladder."
-Alfred Hitchcock

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