ZX Ventures: a change of strategy for AB-InBev?
Are we alone in wondering if AB-InBev want to have the whole of the brewing industry covered from “AB”-InBev to “ZX” Ventures? Recall that AB-InBev launched the “disrupter” ZX Ventures (the Z reportedly stands for Zythology, the study of beer, and the X stands for eXperience) in February 2015, with the goal of investing into higher end and non-traditional areas of the beer category.
If you take AB-InBev’s corporate Newspeak at face value that “ZX Ventures is a global incubator, operator, and venture capital team”, staffed with a “small army of futurists, dreamers, doers, designers, engineers, scientists, marketers, brewers, builders, and data geeks” in ten countries, who do all kinds of things that will “accelerate the future”, you could be forgiven for thinking that AB-InBev have forked out good money to fund a pony farm where highly-paid people run gratuitous school projects.
However, from operating craft breweries, eCommerce sites, technology products and retail operations to investing in innovative third-party companies, ZX Ventures’ principal aim seems to be this: develop a deeper understanding of how consumer behaviour is changing and how technology is affecting them.
That’s why, in addition to making multiple international brewery acquisitions, ZX Ventures has already purchased two major US homebrew ingredient and supply companies, bought the UK’s online beer retailer Beer Hawk, plus made investments in the countertop homebrewing appliance PicoBrew, the rating site Ratebeer and the beer consumer website October.
If there were other investments, they have not been disclosed. Why? As ZX Ventures’ Chief Disruptive Officer, Pedro Earp, told US media: “with some of the companies where we make minority investments, it’s up to the company to decide whether they want [to disclose] who the shareholders are. Some we can’t talk about.”
To all intents and purposes, the New York City-headquartered ZX Ventures is a stand-alone business, wholly owned by AB-InBev, yet without the need to report to any other divisions or departments at AB-InBev. Most likely, ZX Ventures’ management reports directly to CEO Brito and the Directors.
As to the acquisitions of craft breweries from Italy’s Birra del Borgo to Spain’s Virgen and China’s Boxing Cat, it looks like the companies ZX invests in are run outside the management processes of AB-InBev. It’s all about creating innovation unencumbered by the bureaucracy of the mothership, one insider said.
Cynics would argue that the founding of ZX Ventures underlines that AB-InBev is now a mature company which is struggling to innovate (internal R&D takes too long), and straining under the weight of bureaucratic processes, not least corporate red tape, they can’t change. Hence, they bypass the company and create an incubator.
AB-InBev would not be alone in this. Lots of FMCG companies have jumped on the bandwagon and launched incubators. The drinks company Diageo set up their own, Distill Ventures, in 2016, just as Coke let the fizz out of theirs. After only three years The Coca-Cola Company wound down its accelerator, The Founders, in 2016.
Coke’s example notwithstanding, these ventures must be seen as an admission that big companies are not the environment in which small companies and their founders can thrive. All of AB-InBev’s recent announcements accompanying a craft brewery deal read that the original team will be “unchanged and management will remain in place to help grow the business”.
This was not idle talk or a blatant lie to be followed by redundancies. As the big corporations have come to realise, when they buy small companies they acquire mostly “walking assets”, the HR code for employees and their attribute of mobility. Chopping off the creative heads or allowing them to leave the company they founded are sure ways to reduce the value of the acquired company to the naked steel of the brewery. There is no faster track to asset destruction.
Yet, put one of those entrepreneurial primadonnas behind a desk at corporate headquarters, and you will have another disaster by announcement.
Moreover, it should not be forgotten that many craft breweries struggle financially for years despite registering sizeable growth, much like for example, the online retailer Amazon. It only turned a profit in 2003 – nine years after being founded and seven years after going public.
Consequently, these small companies require different benchmarks. It would be a mistake to apply the broader organisation’s KPIs to speculative projects that may not, at least in their early days, meet the financial or operational criteria demanded by management. But what would happen if comparatively tiny craft brewers like Virgen and Birra del Borgo were run by the very same units that look after big brands like Leffe and Stella Artois, yet with different benchmarks? A revolution, no less.
For the reasons outlined above, it makes perfect sense for AB-InBev to assemble these businesses under the roof of an outhouse. Nonetheless, it should never be forgotten that ZX Ventures is a financial outfit. It invests money to make money. ZX may leave the companies and teams in peace to do their own thing but there is a catch: AB-InBev will want their money back. Eventually it will be either or: either AB-InBev will invest more or exit – all depending on the success of the venture.
At the end of the day, AB-InBev will ask ZX Ventures for proof that its innovations in terms of strategies and profits will contribute significantly to the brewer’s bottom line and turn the fortunes on its besieged mass lager business. Mass brands are AB-InBev’s core business, not these tiny craft beer brands. The day of reckoning may be seven to ten years down the road. Rest assured it will come. Both for AB-InBev and ZX Ventures.
In the past six years, AB-InBev have acquired a portfolio of craft breweries. These include ten breweries in the US, which are part of AB-InBev’s High End division:
- Goose Island Brewing, Chicago/Illinois (March 2011);
- Blue Point Brewing, Long Island/New York (February 2014);
- 10 Barrel Brewing, Boise/Oregon (November 2014);
- Elysian Brewing, Seattle/Washington (January 2015);
- Golden Road Brewing, Los Angeles/California (September 2015);
- Breckenridge Brewing, Denver/Colorado (December 2015);
- Four Peaks Brewing, Tempe/Arizona (December 2015);
- Devils Backbone Brewing, Roseland/Virginia (April 2016);
- Karbach Brewing, Houston/Texas (November 2016);
- Wicked Weed Brewing, Asheville/North Carolina (May 2017).
In addition, AB-InBev have bought craft breweries outside the US through their local subsidiaries and lately through their venture capital arm ZX Ventures. These include:
- Bogota Beer Company, Bogotá/Colombia (February 2015, through AmBev);
- Cervejaria Wäls, Belo Horizonte/Brazil (May 2015, through AmBev);
- Cervejaria Colorado, São Paulo/Brazil (July 2015, through AmBev);
- Mills Street Brewery, Toronto/Canada (October 2015, through Labatt Breweries of Canada);
- Cervecería Tijuana, Tijuana/Mexico (August 2015, through Grupo Modelo);
- Cervecería Mexicana, Tecate/Mexico (August 2015, through Grupo Modelo);
- Cervecería de Baja California, Mexicali/Mexico, (August 2015, through Grupo Modelo);
- Cervecería Bocanegra, Monterrey/Mexico (August 2015, through Grupo Modelo);
- Camden Town Brewery, London/UK (December 2015, through ZX Ventures);
- Birra del Borgo, Borgorose/Italy (April 2016, through ZX Ventures);
- Brouwerij Bosteels, Buggenhout/Belgium (September 2016, through ZX Ventures);
- La Virgen, Madrid/Spain (January 2017, through ZX Ventures);
- Boxing Cat Brewery, Shanghai/China (March 2017, through ZX Ventures);
- 4 Pines, Sydney/Australia (September 2017, through ZX Ventures).
