The Future of Cocktails THE UNTAPPED INNOVATION OPPORTUNITIES IN THE HOME COCKTAILS SPACE

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1 The Future of Cocktails THE UNTAPPED INNOVATION OPPORTUNITIES IN THE HOME COCKTAILS SPACE

2 By Altitude CEO Dan Ostrower Altitude Principal Kenneth Jewell By any measure, cocktails are good business. Spirit consumption is on the rise, up 18 percent in 2010 alone. It seems every bar, and increasingly every restaurant, has a menu of specialty cocktails. Bars that tout the creativity of their menu and the skills of their mixologists seem to be cropping up everywhere. In 2012, US spirit suppliers sold more than $21 billion in spirits, up 4.5 percent from the previous year. But of all the money consumers spent purchasing alcohol at the store, only 12.6 percent of it was on spirits. And this is down substantially from past trends. Thirty years ago, Americans spent 34.6 percent of in-store purchases on spirits. So, if people love a good cocktail so much, why aren t they drinking more cocktails at home? Because it s difficult. Most companies only sell a small piece of what s needed spirits, mixers, equipment, glasses, and garnishes are all sold separately and it s up to the customer to take all of those ingredients and put them together to make a great cocktail. The industry needs to think differently, leveraging lessons from other markets, to break down barriers between components it thinks of as separate businesses. By applying an innovation lens and thinking beyond the bottle, players in the cocktail market can open up new opportunities in the consumer cocktail business and unlock billions of dollars of additional revenue. 2 / THE FUTURE OF COCKTAILS / Altitude

3 The Cocktail Experience The difference between drinking cocktails at home and out on the town is the experience. Drinking at a fully stocked bar staffed by an experienced bartender allows for a perfect match of drink to given desire. That level of sophistication is difficult to recreate in the home. To get it right you need to consider recipe, ingredients, shopping, preparation, and presentation. For the average person, the home crafted cocktail is either too intimidating to try or too disappointing when they do. At Altitude, we have been working with spirits, wine, and beer businesses for over 20 years. In designing products such as the Margaritaville frozen drink maker and the Anheuser-Busch Draftmark home draft beer system, we have built a successful track record of new category innovations that have led to hundreds of millions of dollars in new business for our clients. In our research, we met with, talked to, and observed consumers in their homes to understand what matters most to them. Invariably, they describe the spirits choices as confusing and unhelpful, doing very little to aid them in achieving the type of experience they were aiming for. For those desiring a true cocktail experience at home, there are challenges at every step: 1 Planning: What s the right cocktail for an occasion? What will the mixed drink say about me? How do I choose from all the options? Most non-experts are intimidated before starting because they simply don t know what to make or to serve, and the cocktail world with its insider nomenclature and unintuitive systems doesn t invite trial. 2. Preparing: If the planning hurdle is crossed and a cocktail is chosen, purchasing the right ingredients will likely send you to at least two different stores. Offerings from spirits companies, based on price tier and liquor type, help consumers make a choice of ingredients but not necessarily desire or mood [see sidebar on p. 4]. Often consumers are faced with their stock at hand the forest of bottles and are unsure about what s possible outside of their go-to drinks. 3. Making: Our research shows that cocktails have a high intimidation-todifficulty ratio. It s actually not that hard to make decent cocktails (assuming you have a recipe, the tools, and the ingredients), but people perceive it to be. They are worried not only about portions, but technique. The problem is further complicated in a social situation when a host needs to consider making 3 / THE FUTURE OF COCKTAILS / Altitude

4 a higher volume and tweaking (perfect or sweet?) for specific tastes. Cocktail novices will defer to experienced makers in hopes of hiding shortcomings. 4. Serving: As we all know, a cocktail isn t done when it is mixed. What glass should it be served in? How should it be garnished? People perceive these finishing touches as important and are intimidated by them. But when done well, the cocktail shines. Unlike single pours, mixed drinks provide a shared experience between maker and drinker. For the maker, he is offering a part of himself, his skill, and creativity. And for the drinker, she is able to enjoy something crafted just for her. Spirit companies think about their business in terms of the type of liquor and level of premium-ness see Diageo s corporate structure below. This approach works for single pours and go-to drinks, but consumers need more help when it comes to cocktails. 4 / THE FUTURE OF COCKTAILS / Altitude

5 The Cocktail Occasion When it comes to cocktails, our consumer research has shown that the large majority of people primarily care about the experience of making a great drink and sharing it with friends not the level of premium-ness of the spirit. For the home cocktail maker, we have identified four key cocktail occasions or experiences. Each occasion for drinking cocktails requires a different strategy for businesses looking to capture that market. Let s look at each in more detail, along with some of the products that have started to fill the most important needs. 5 / THE FUTURE OF COCKTAILS / Altitude

6 The ritual cocktail is a familiar, perfectly prepared cocktail that complements an anticipated moment. This is the Friday night Manhattan or Martini. It s your go-to drink to accompany a particular ritual, such as ending the week, unwinding with friends, or watching a favorite drama on HBO. This drink is made repeatedly, with ritual and tradition, and to satisfy prescribed expectations. It s critical to the experience that consumers rely on trusted ingredients that can be individually tailored to their preferences. My Ritual Consumer Attitudes Craft Serve Enjoy Familiar, trusted ingredients The artist s hand is evident Time is not an issue Specialized tools All the details matter A specific drink for a specific moment Fulfills rigid expectations Want the same thing every time Opportunity: This is the most well served quadrant in today s market. With the separation of ingredients and components by level of premium-ness and type, the spirits industry is set up to serve this occasion, with the craft industry offering unique spirits, specialized tools, and ingredients, as well. It s tempting to target innovation in this area because it s today s customer and players are drawn towards serving his or her needs. But it is well-trodden and competitive ground. Less well-served needs lie elsewhere. 6 / THE FUTURE OF COCKTAILS / Altitude

7 A well-thought out and proudly prepared cocktail is the finishing touch on a carefully scripted and themed gathering. It could be a margarita for a backyard summer party or a Martini for an Oscar s party. Such drinks have to make guests go wow ; at the same time, they need to be easily and consistently prepared in an uninterrupted flow and connect to an event theme. The host of these events considers the cocktail a critical component of their party and a thoughtful offering for their guests. Showtime Consumer Attitudes Craft Serve Enjoy Consistent and repeated preparation Doesn t take host away from the party Easy clean up A gift offered by the host Guests are impressed Drinks keep coming Fits with the theme Taste meets expectations for a professionally prepared drink The drink enhances the party Opportunity: Helping avid party throwers host the perfect gathering is a huge opportunity. Pride is on the line and stress is high. Our research has shown that avid party throwers often budget considerable portions of their disposable income to their gatherings and are less price sensitive in entertaining than in other parts of their lives. Strides have been made to help hosts easily provide certain tent pole drinks, such as the Margaritaville frozen drink maker. But existing solutions tend to be limited to tropical drinks. Where s the solution to the Martini party? Even with available offerings, hosts report feeling that they are trading off quality and remain stuck without a variety of solutions for providing wow without a hassle. 7 / THE FUTURE OF COCKTAILS / Altitude

8 Getting together to get together the cocktail helps keep us connected. Cocktails can be the perfect connector at dinner parties, book clubs, or a girls night in. Drinks must be simple to gift, easy to pour, allow people to serve themselves, and fit the mood with an unpretentious offering. Getting over the hurdles of planning and preparation are key here, as consumers will gravitate to simpler solutions like beer and wine if the cocktail isn t friendly and easy. Connect Consumer Attitudes Craft Serve Enjoy Keep it simple Focus on my friends Gift-able No clean up Keep glasses full As easy as pouring No fuss, no hype Drink matches the mood; something to talk about Something new to try A personal twist is nice Opportunity: Our research suggests that this is a significant untapped opportunity. For this occasion, the consumer seeks more help than just choices within spirit categories. She is seeking a finished drink with variety, panache, and almost no hassle. Some premixed items, such as Skinny Girl and flavored spirits, are becoming available that fit these needs, but the efforts are sporadic, limited, and incomplete. 8 / THE FUTURE OF COCKTAILS / Altitude

9 This cocktail complements a unique and special moment and invites new tastes and experiences. This is the cocktail experience people seek when on vacation or out to dinner when they are feeling relaxed and adventurous. Recreating it at home requires a menu of tempting choices, access to the right ingredients, accurate preparation, and a beautiful presentation that delights the senses. Discover Consumer Attitudes Craft Serve Enjoy Exotic ingredients Preparation is a display Tells a story A menu of unusual choices Serving is seamless with crafting Presentation is a feast for the eyes Delight all the senses Surprising flavors Opportunity: Consumers associate this occasion with out-of-home experiences, such as restaurants and vacations. They did not often describe to us the experience of seeking surprise in home-based cocktail drinking, mostly because of how difficult it is. However, there are moments of experimentation, especially with small numbers of guests. As the trend of craft cocktails has expanded at bars, consumers have desired to experiment at home and offer their guests more appealing choices. This becomes most prominent in small dinner party settings where they can impress close friends with their creativity and add custom-crafted cocktails as part of the overall menu to savor. 9 / THE FUTURE OF COCKTAILS / Altitude

10 The Opportunity Landscape Craft Serve Enjoy My Ritual Familiar and trusted ingredients prepared the right way All the details matter, the preferred glass, garnish, and presentation A specific drink for a specific moment, fulfills expectations Show Time Consistent and repeatable, doesn t take host away and clean up is a snap Impress the guests, fits the event theme, drinks keeps them coming Drink enhances the party, with a taste that matches expectations Connect Keep it simple no cleanup, the focus is on my friends As easy as pouring no fuss, no hype, keep the glasses full Drinks to match the mood, variety for preferences or something new to try Discover Exotic ingredients, unique preparation, creates a story worth sharing A menu of unusual choices, presentation is a feast for the eyes Delight all the senses, surprising flavors and experience The Innovation Opportunity These four key at-home cocktail experiences and occasions are the starting point for innovation. Rather than beginning the innovation process with what you make today spirits, glasses, blenders, mixers and asking how to make them better, start with the desired experience and ask yourself how it can be brought to life by using both what you are good at today, while leveraging across offerings and capabilities where necessary. 10 / THE FUTURE OF COCKTAILS / Altitude

11 At Altitude, we took up this challenge. Through our Connected Cocktail Project, we asked ourselves how we could help people discover and connect around cocktails at home. The result is Stem, a concept system for making home cocktails easy, delicious, exciting, and accessible to everyone. It s a series of smart caps that live on top of a consumer s existing bottles. Controlled by the proprietary app, the caps help choose the perfect cocktail for an occasion, source the appropriate ingredients, and then intelligently meter out the right quantities to make the perfect cocktail. Cocktail makers use the app on any smartphone or tablet to build custom cocktail menus, select drink options, and follow directions for shaking, stirring, and garnishing. But more than picking drinks and following directions, users can also sign onto the app to buy additional supplies, such as fresh juices and unique cocktail-grade mixers, that are delivered conveniently to your door. The Connected Cocktail helps people get to know their bar again by bringing the fun and excitement of cocktails into the home, with a sense of ease, convenience, and support, so that hosts can spend their time interacting with guests and friends, rather than get stuck trying to play bartender. Check out the video: Our project demonstrates the innovation potential that can be unlocked by truly understanding the cocktail occasion and freeing yourself from the constraints of what you offer today. By following our approach of understanding people and relaxing constraints, we think the home cocktail space can be fruitful ground for innovation and growth. 11 / THE FUTURE OF COCKTAILS / Altitude