DRINKWORKS ASSIGNMENT
ACTIVISMFEATURED
Drinkworks, a company formed through the joint venture of Keurig Dr. Pepper and AB InBev was working on home appliances which can make single serving cocktails and beers. As Keurig’s Coffee machines, these home appliances would use pods to make cocktails and beers
Background Analysis and key issues discussion:
Drinkworks, a company formed through the joint venture of Keurig Dr. Pepper and AB InBev was working on home appliances which can make single serving cocktails and beers. As Keurig’s Coffee machines, these home appliances would use pods to make cocktails and beers. Even though, Drinkworks was successful in developing a top-notch technology for this home appliance, some strategic decisions were uncertain. Among such decisions, Davis (CEO of Drinkworks) had to decide the target segment and the prices of devices & pods. Moreover, the company was also concerned to either launch non alcoholic cocktail mixer pods or alcoholic cocktail pods. AB InBev was already a market leader in beer industry with over $56.4 billion in sales having multiple famous brands such as Budweiser, Stella Artois and Corona among others. Now turning into market details, the beer consumption in US amounts to $234 billion which comprises of both on premises and in house consumption in 2017. As Drinkworks has to focus on in-house consumption, it stands at whooping $130 billion. Market research also shows that consumers feel the in-house consumption experience more relaxing and cheaper. Furthermore, in-house consumption is significantly related to social gatherings so analyzing this data was also imperative. Market research shows that 77% of the adults had conducted at least one party at their house in previous three years.
Although people consumed alcohol more frequently at home but cocktail had a different trend. Cocktail was less ideal for home consumption as the preparation process is a bit difficult. However, some companies had tried to remove this difficulty by providing ready to drink cocktails in cans & bottles. Some other companies also sold cocktail themed subscription boxes with $30-$50 subscriptions. Bartesian is one the most prominent one among them which sells its device for $299 with non-alcoholic pods.
Another important point to be considered by Drinkworks management is the regulation on alcoholic products. Alcohol sales in US is highly regulated by the governments. Some states banned its sales on Sunday while other permitted it in certain hours of the day. The permissible channels of alcohol distribution are also confusing. As mentioned earlier, the core purpose of this joint venture was to develop a home appliance for chilled alcoholic beverages using KDP and AB InBev’s technologies. As Keurig has already proven itself in coffee machines market, this joint venture decided to use Keurig’s name. The pods used in Drinkworks machine could be divided into three broader categories. Mixer pods without alcohol, cider pods and cocktails pods with alcohol. The pods with alcohol had the risk of getting distribution hurdles due to high highly regulated US market.
The reason for limited at-home cocktail consumption was probably due to two factors. Either the customers were unaware of making cocktail at home or they hesitated in making it. However, there was a good potential in this sector if these barriers could be removed. Drinkworks conducted online research involving 1800 qualified respondents. Based on this data, Drinkworks developed six customer segments and choose the preferred target segment. The main focus of Drinkworks marketing team was to win customers trust that they can get a perfect cocktail from home-based appliances and pods.
Channels and Communication:
Three main channels are considered for distribution:
Liquor Stores:
The licensed stores can be utilized to sells Drinkworks home appliances and pods. AB InBev has a large network and strategic relationships with such stores and wholesalers. However, the historical data shows that previous efforts by various companies to offer appliances at such stores were not successful. Liquor stores do not prefer such items as they are slow movement and non-repeat items. Another concern is that Drinkworks had to pay spirits excise tax of $0.10 to $0.15 if they choose to sell through this channel.
Traditional retail stores:
Selling through traditional home appliance retailers was the second option available for Drinkworks. Keurig’s coffee machines were also available at such stores. However, the problem was that Drinkworks would not be able to sell their alcohol pods at such stores. Consumers would face difficulty if they had to purchase the appliance at retail stores and pods at liquor stores.
E-commerce:
E-commerce seems to be the right channel for Drinkworks. They could sell their appliance on their own website or use other E-commerce giants such as Amazon and Ali Baba. However, the regulations of selling alcoholic products online are very complex and has many layers attached to it.
Communication/Promotion:
The main concern for Drinkworks is to ensure customers that they could get the same experience of having a cocktail at home which they get in the bars. For this purpose, Drinkworks had to educate customers about the machine’s operations and how its products tastes. Although Keurig’s brand brings the demand as consumers are aware about the quality of its coffee machines.