Inside AB InBev’s Test, Learn, Scale Approach to DTC

What began as AB InBev’s global incubator has evolved into a driving force that was well-positioned to meet consumer demands and accelerate its efforts during the pandemic. Focused on building innovative solutions that connect with customers, the direct-to-consumer model leverages data and technology to empower small retailers and drive consumer connections. CGT explored how the company came together to invest and build a customer-centric mindset, scale its digital ecosystem and supply chain, and evolve DTC capability post-pandemic for global scale. Albert Guffanti: Good morning everyone. I'm Albert Guffanti, publisher of CGT, and I'm thrilled that you've joined us for this highly anticipated webinar today entitled, “How AB InBev is Using Direct-to-Consumer to Connect with Customers and Empower Small Retailers.” I will be your moderator and I'm extremely excited to introduce this topic as well as our accomplished speakers. The topic of DTC is always popular among the CGT readership, it's also one of the most polarizing. Our readers struggle with balancing the DTC imperative with the challenge of producing a successful outcome. In other words, it's not easy to do, but the rewards are significant when done right. That's why I'm very excited to dive into this conversation with a consumer brand that's figuring it out. Five years ago, AB InBev's global incubator, Zé Ventures, invested in direct-to-consumer with a focus on building innovative solutions that connect with customers. Since then, AB InBev has focused on designing experiences that revolve around the consumer connection and empower small retailers using data and technology. Of course, the big question is: How did they do it? How did they transform into a consumer-centric model? How were they able to rapidly scale their digital ecosystem? How are they planning on scaling this globally? Here to tell the story are two seasoned industry experts, Pablo Panizza, chief direct-to-consumer officer at AB InBev. He oversees the strategy and execution of the company's global direct-to-consumer business, focusing on building innovative solutions to better connect with consumers. Also on the panel is Justin Honaman, who leads the worldwide consumer products food and beverage organization for Amazon Web Services. His team focuses on delivering supply chain e-commerce data analytics and digital engagement business solutions for CPG customers globally. Let's get to the good stuff. Justin and Pablo will dive deep into this conversation. Without further ado, I'm really excited to hand things over to Justin and Pablo. Justin Honaman: Thanks, Albert. We're excited to be here and we really appreciate all the work that your team has done to help set up this event today. A couple of things first, as Albert was saying, thanks to the nearly 500 of you that registered and are here today, we're excited to unpack the idea around direct-to-consumer and what AB InBev is doing in the space. I think you'll find it fascinating, unique, and very applicable. We're here not to just show-and-tell, but also give you some things to go and do with your organization out of today's discussion. Second, I want to thank the CGT community. Not only those of you that come to CGT events regularly, but the staff. For those that have been involved with CGT for a long time, you know that consumer goods technology is really an environment and community where we can connect. Thank you to the CGT team for creating that, and for bringing us together in a way that elevates relationships and thinking. Finally, thank you ABI – Pablo, and the team behind this –putting together this presentation is not simple. We didn't throw this together yesterday, there are teams on both sides to help with content, review, and whatnot. Thank you all. One quick add-on. I'm part of the CGT Executive Council, so mark your calendars, October 25-27 is the next in person – yes, believe it or not – CGT event here in New York. It’s focused on a big idea called The Power of Relevance. Registration will be open in a couple of weeks, and you'll be getting emails on that. Ok, a little bit of our roadmap. What are we going to do today? First, we're going to talk about AB InBev, just at a very high level, for those that may not be familiar, we're going to hit some numbers. We're going to go into Pablo's background, and then how even got into the direct-to-consumer space, and then we're going to dive into solutions. A little on AB InBev, I'm sure all of you know the business, but there are some things about the business you may not know. First, they're the largest brewer in the world. 237 brands, operating in 50 countries. What's interesting on the direct-to-consumer side is that this is a billion dollar-plus business for AB InBev, which is very significant. You'll notice that Pablo started in his role in 2019, they've seen an increase of more than 200% in the portfolio around e-commerce in the last year during COVID. Very interestingly, you're going to hear today about how AB InBev is affecting and positively influencing smaller retailers and the smaller business folks out there. You'll see that's a big focus of AB InBev today. Pablo, can you share a little bit of your background. How did you navigate your way through your career at AB InBev, and then we'll get into our solution. Pablo Panizza: Thank you, Justin and thank you, Albert for having me. I’ll start by quickly sharing my story in the company. I was born in Patagonia, in Argentina. I joined operations in Buenos Aires – that was 20 years ago, and that was a company mostly focused on operations in South America. I had the opportunity to grow in the company, develop a career, while ABI became a global company with presence. Now we know we're 50 countries. I started in the commercial area by alternating roles both from future-looking (like revenue management, route-to-market, or technology), and leading operations and teams in the field that gave me an interesting view of our business from different perspectives. In the last years, I've been leading the business in Latin America, as president for Rio de la Plata, Chile, and Paraguay. Until three years ago, when I was in an airport and got a call from our CEO, Brito, inviting me to start something very new, and was actually setting up the direct-to-consumer function at ABI. This has been three amazing years where we have seen a lot of growth and a lot of learning because we're innovating from within the company – a brewing company – starting to develop channels and technology-driven platforms that are going to help us better connect with the consumers. I will say, I'm only one of the over 2,000 colleagues that we have in direct-to-consumer at ABI. If you see this journey, for some of my colleagues, it would be very different. It's a big learning, and a big recommendation for the people listening, is the diversity of the teams. Because we are a brewer starting to develop platforms, we are combining very different worlds. These two worlds have to talk one with each other. If you see my team, we have colleagues that have a very strong experience in technology, we have a very strong experience in product development, we have expertise in e-commerce and retail, but we also have a very long trajectory in some of the colleagues on the brewing side. That's how we are trying to connect, and trying to leverage the brewing capabilities when we design the initiative, to better serve consumers in the direct-to-consumer channels. Honaman: Pablo, one thing that stuck out to me was that you started in this role in 2019. At that time, the whole idea of direct-to-consumer was relatively new in CPG. It still is today for many of our customers across the CPG landscape. What was it that ABI saw in terms of the need to start this channel? How did they decide to create this role? Panizza: That's a great question, Justin. I will say that I was lucky enough that I got appointed to start this organization, but we had a very interesting portfolio of businesses that were already being developed over time. When I started we had Modelorama, our retail business in Mexico, and it had over 40 years of trajectory on a meaningful scale. We had been investing in e-commerce, partly ahead of the trend over the last five to six years. So, there were more independent businesses not connected yet with the strategy – what a great starting point for us as an organization to really bring them together, understand the role of direct-to-consumer for ABI, and also understand how this different business could leverage and help one another to become a truly direct-to-consumer and consumer-centric ecosystem. Honaman: Interesting. ABI's a big brand with a big scale, it has grown through acquisition and growth over time. You've seen much of that. How would you describe some of the changes you've seen in the business environment that have allowed ABI to become more agile, more flexible, and interested in some of these digital innovations? Panizza: If you see the history over these 20 years, many things have changed. I joined a company that was mostly operating in South America, and now we are in over 50 countries. We have more than 160,000 colleagues around the world. We have more than 500 grants, and we reach 2 billion consumers. This is a truly global company and that has changed over time. To answer your question, I would start by saying what didn't change. What really hasn’t changed over the last 20 years is the importance of people and our culture. We're a company where we believe that everything starts with a great team, and we try to assess ourselves by the quality of our team, hire people that will be better than ourselves, and dream big. This is a company that has a big dream. It takes the same effort to dream big as to dream small. We have this big ambition that we want to deliver together with our teams. It's a culture of people first, a culture that believes in meritocracy, and a culture that really praises ownership. This has not changed over time. When I think about the journey in direct-to-consumer, the diversity of our people, the culture of our people, and the connection with the culture of the company, it has been something that was a critical factor in our success so far. Then things evolved, and the category changed over time. When we see markets, because we are a global company that operates in very different markets, we have what we call the Market Maturity framework. We compare the category, the consumer needs and expectations in markets that are more in the developing stage, and markets that are more mature. Just to give you a reference, the complexity or the amount of SKUs of brands and tax that we need to address the consumer needs in more mature markets, is 10 times bigger than it is in the early developing market. That has consequences in the category and that we develop our channels. So, as markets mature, we tend to add more complexity in the portfolio, we tend to have more brands, we tend to have more premium brands, and the premium brands also require a more differentiated execution. When consumers are connecting with a premium brand, they expect a better experience. This complexity of the category somehow has consequences in the way that we reach consumers. That's why the third part – and I think one of the biggest changes for the future – is that in the last couple years we have embraced digital transformation. Now, since the consumer has raised the expectation, the category and the portfolio is becoming more complex and fragmented. We need to evolve in the way that we connect with both our customers and our consumers. We have three initiatives that are very exciting, happening in the last year, and accelerating the pace and the momentum especially during 2020 with the effects of the COVID-19 pandemic. What is a B-to-B? How do we digitize our customers? Then we have our biz platform globally, and this is interacting in a digital way with our fragmented portfolio of customers all over the world. We have over 900,000 customers in this today, already transacting digitally with the company. Then we have direct-to-consumer and digital retail, where we are growing our business in the last several years. For example, during 2020 we were able to grow 10 times the number of orders we sold direct-to-consumer in e-commerce, and expand it to a new market. There are new ways of connecting digitally with consumers. We have our internal agency, a marketing agency that is draftLine. We were able to connect during last year with more than 600 million consumers, for example, through live streaming. This was the advantage of trying to provide solutions to the consumer that were maybe in a different environment, locked down in their houses. Digitalization is the name of the game for us, both in connecting with customers, connecting with consumers, and for the brand to find new ways to interact digitally with our big consumer base globally. Honaman: That's a great segue into the DTC solutions at ABI. You guys have a portfolio approach in terms of your go-to-market, which I think is unique and differentiated. Can you talk about the different focus areas and how they've grown or evolved since you've been in your leadership role? Panizza: You said it right, we have a portfolio approach because we want to solve different consumer needs. But there's something that is an overarching principle, and that is delivering a differentiated experience for our consumers. What we learned is that beer is a complex category. There’s an expectation that beer consumers are normally connected to unplanned locations, and then that's consequent in the service level that they expect. So, very short delivery time – coldness is a big part. Beer is chilled, cold supply chain adds some complexity. The last mile is also challenging because of the weight and the relationship with the price of the category. Trying to solve some of this problem was part of the inspiration for many of our business leads around the world. What we learned is that if we focus on one category — we are beer-centric — and try to design the full consumer journey on our platform (connecting the asset that we have as brewers, the unique advantages that we can have as a brewer, with the technology and understanding the consumer needs), that can create a differentiated, valuable position that has been working very well for us. What I will say is that we are beer-centric. Technology is a big enabler, and we have a technology-first, direct-to-consumer mindset. We are trying to solve the intersection of four different needs: 1. Consumer needs, and connecting to what I was just describing, cold, availability, finding the brands that consumers love, a better experience, finding the right price. 2. Amazing and fast service level. 3. The industry and the brewers, how can we guarantee that consumers enjoy our beers as the brew master thought that they should be enjoyed? With the right quality, the right availability of brands, and with the right packaging. 4. Consumer and community problems, because as we develop direct-to-consumer, we are connecting thousands of small retailers by the franchisees or small retailers, with consumers, and then empowering them to develop their business with the technology that we are providing. Honaman: I’m thinking about our listening audience who may not be familiar with all of these, but can you talk about what you mean about on-trade locations, what Modelorama is, Zé Delivery. Maybe just at a quick, high-level bit? You can throw scale and scope. Panizza: When I say the portfolio page of these segments are addressing different consumer needs. When we talk about on-trade, it's mostly brew pubs, and the role of the brew pub is to connect the brands with the consumer, driving innovation. For example, in some of these brew pubs, we brew in the pub. We have a rate of innovation and differentiation that is different from the packs that a consumer would find in a retail location. These are places for the consumer to unwind, to connect with the brands, and they're purely experiential, with the objective original building brand and surprising consumer. Modelorama is a retail chain. We have over 13,000 retail locations globally. Modelorama is in Mexico, where we have 9,500. These are convenience stores centered on beer that deliver proximity for consumers. Then, on the left side was retail, on the right side of the screen was e-commerce. The biggest business we have today is the delivery, providing 30-minute deliveries of cold beer, at the right prices. We saw a massive growth last year, to reach 27 million orders. That was the fastest growing business in the entire portfolio, and really made a difference for our business in Brazil. The last one is PerfectDraft, but I will talk more about this later. What is providing the ultimate beer experience? I use a draft machine to enjoy the beer as you would enjoy in the pub, but in your home, connected with e-commerce and solving the circular economy of the return and location. Honaman: One question that ties to the next slide here is around just how you've approached different markets and navigated privacy regulation requirements, etc. Can you share some of your thinking about that as you outline the global approach on this page? Panizza: We have a global portfolio and a global footprint, but our initial priority started in Latin America and Europe. What you're saying, regulations and markets make it more challenging for us to have direct-to-consumer. In other markets, like Asia, the technology ecosystem presents another channel in terms traffic. However, we have a global footprint with our brew pubs, retail, and e-commerce businesses. In South America we're largely trying to solve the consumer need for convenience. In the European side of the business, we are mostly covering the experiential side of the business, both with the brew pub and with the in-home draft business. Honaman: As we think about innovation, in order to deliver direct-to-consumer, you've shared you have all kinds of different partners and different markets. Can you talk about your approach there, and how you think about innovation within the direct-to-consumer space? Panizza: For us, it starts with people and ways of working. That was a very important part of our learnings in the journey. Before scaling, we tried to be consumer-centric and validate that we are solving something that is meaningful enough for the consumer to drive adoption. That led us to a different operating system, a different management system, and different routines for direct-to-consumer, especially in the initial stage of the business, compared to what we had on the brewing side of the business. So, we organize ourselves in smaller units, teams that are fully dedicated to solve one problem. This is what we call a vendor, and each vendor has a founder that is 100% dedicated to understand the consumers, develop the technology, and develop the operational model to solve for that need. That starts with the more fragmented portfolio, that as we move from pre-seed into a scale mode, we start to consolidate and connect the dots. For example, the retail business with the e-commerce business. In this journey, the partnership has been very important in many senses. First, because we learn that during the initial stages, during what we call the seed-and-launch, and maybe eventually the growth stage as well, we don't have to be very intense in terms of developing our own technology. The focus here is more to understand the consumer, to fine tune the value proposition, to really deliver something for the market that is differentiated and unique, develop the operational mold and the route to consumer, and technology's a big support. That's why we are partnering with AWS, to help us to be agile, to be faster to market without having to develop our own technology in each of these stages. That helps us to cover more market factors and test different value propositions. We know that out of the many we test, a few are going to be successful. That's why at this stage, we believe that agility and ways of working are very important to validate and fill in the initial stages, but not after big investment, or maybe too much time to get to market. Honaman: How do you think about the channel being competitive with your legacy retail customers? I think part of the answer, though, is that you are actually empowering local entrepreneurs with the right tools to grow their business. What's your opinion on that? Panizza: First, we had a very strong partnership with our retailer. When I comment on the biz side of the digital transformation, we are also connecting digitally with all our retail customers globally. What we're trying to do in direct-to-consumer is follow two principles: Complementarity. Things that some of the consumers need that cannot be sold by the traditional formats of retail, and then we are adding something new. In this journey, we always try to partner with retailers, so if you think about the example of the delivery in Brazil, we are creating a technology platform that brings together millions of customers, but we are rotating these orders to delivering points, and these fulfillment centers are actually our retail customer. That's the way we are actually increasing, or helping them improve the business, as we grow direct-to-consumer. In the example of Modelorama in Mexico, or our own trade pub, these are 100% franchise businesses. Our role as direct-to-consumer is to understand what works for consumers, to create the framework, the playbook, the technology, and the operational model, and then find the right retail partners to develop this at scale. Out of our 9,500 Modeloramas in Mexico, 99% are a franchise. That's the way that we can not only get closer to the consumer, develop our direct-to-consumer footprint, but also empower local entrepreneurs and develop the communities. Next, connecting to help society, to the better world part of direct-to-consumer. We are also now connecting with some minority groups in order to help them start a business. We have deals with some NGOs that are helping us with mentoring or with financials to help some of these groups set up a business and start the journey of becoming an entrepreneur inside our Modelorama network, or our franchise store in the different markets we operate. Honaman: In terms of commercial strategy and where direct-to-consumer fits in; one of the things that we're often asked is, how do you think about that strategically as a channel, versus your other traditional go-to market channels? How do you frame that for ABI in your space? Panizza: I will answer that in two parts. First, what is the business problem we're trying to solve, reaching direct-to-consumer. This connects with understanding better. We have around 2 billion consumers globally, but we reach this consumer through a one- or two-tier system. Some of them we reach through wholesalers, some we reach through wholesalers and retailers. Even if that's very efficient in terms of giving us reach and connecting our brands with the consumers, it's also limited in how much we can understand on a one-to-one basis what consumers need. The main intent of our direct-to-consumer development is to better understand the consumer. We want to connect, to reach them directly so that we can understand their preference, learn what they want, and that speeds our commercial process. That's why this is a very important part of our commercial strategy because what we learn about the consumers by reaching them directly. How do we fit all our commercial processes into the brewing business like innovations so that we can design better products, adapt our communications and reach our consumers with more meaningful and relevant content for them, and also our design, our whole communication? This is a big transformation from the brewing side, and it starts with better understanding — that's the first part of the strategy. The other part is how consumers raise expectations. As the category grows more complex with the portfolio and consumers are interacting with other gateways — through more digital channels that provide more convenience and better experience — they are expecting our category to follow the same path. What we are trying to do in direct-to-consumer is provide a better experience. That better experience can be through more convenience and that's the example we talk about in Brazil, in Latin America. We are now live in 12 markets where we can offer our consumers 30-minute delivery of cold beer. That's what they normally need, from the category to some more experiential channels. The perfect at-home brewing experience in Europe with our PerfectDraft machine is a perfect example. It's about better understanding the consumers, then providing something new and unique to them for an experience that is different from other channels. As you said, while we develop this better experience, we are bringing aboard retail partners through the franchise or connecting with the technology. These are the two main connections with the strategy, right? Honaman: One of the questions we often get when you think about strategy is the two different elements. One being, what can you do with the new consumer insights and data that you get? Then, how are you able to use that to better personalize the experience or whatnot with the consumer? Panizza: There are three outcomes from what we learn and the insights we get from the consumers. One is product innovation, which is critical for us. We have a fast-growing category, so innovation is becoming the fastest growing segment. How do we innovate better? When you're thinking about direct-to-consumer, it gives us the ability to really understand what consumers want. We can have a product online, and can understand right away the conversion rates, what products are moving faster and what products are not. When we compare that to the traditional innovation process that would be designed based on insight, then move to the production phase, and then distribution, to then understanding the result – the speed of innovation can be way faster when we use direct-to-consumer. The other opportunity is that as we start to create this direct channel, we are solving part of the supply chain challenges of innovation. Then we can innovate on smaller matches because we are building the channels that connect the consumer with the brewery in a shorter cycle. That opens many new opportunities of innovation, with different types of pubs, with more of a seasonality, which for beer is very important. Now we can plan ahead and use our channels to reach the consumers in a way that wouldn't be possible, in a fragmented way, with a smaller slice of innovation. That's actually what consumers are expecting. The world is moving toward more personalization, so they expect more beers, more innovation, and that cycle is empowered by direct-to-consumer. The other part of the answer is the efficiency in the communication. By better understanding the consumer and by testing and learning in our D2C platforms, we can adapt what works, and then scale this to our other retail channels. Direct-to-consumer serves as a kind of lab where we understand what works and what we can replicate at scale in the remaining channels, which also helps our retail partners drive category growth. Honaman: The second part of this question is about economics. For example, I was talking to a customer a week and a half ago, and they have not ventured into direct-to-consumer. Primarily, they are concerned about the weight of the product, the cost to ship, those types of things. What do you think about unit economics, when you think about D2C? Panizza: Unit economics are a key part in each stage, of course. We know that as we reach a higher scale, the efficiencies help the unit economics become viable. In the initial stages we are focusing on validating that this would convert into sustainable unit economics. It's an important part of the design of direct-to-consumer in each of the steps because that sets the service level, the operational model, and the value proposition itself – it has to be sustainable over time at scale. One of the things we’ve learned is that when we connect the things that make us unique, with the needs of the consumers, there are more creative ways of solving the problems that won’t go against or drive higher unit economics. Think back to the example of the courier platform that we have in 12 countries in Latin America. Because we are using fragmented retail, these traditional retailers that are placing inventory very close to consumers already have an established and sustainable retail business in many of these locations. These capillaries enable us to reach the consumers faster, and in a very cost efficient way. At the end of the day, it will depend on the category. When we're thinking about beer, we’re trying to connect and redesign the supply chain from the brewery to the consumer in a way that we don’t just add one more step. If we do that we’d be following the traditional route to market and adding that next consumer layer, but how can we redesign the process in order to not only reach consumers, but also find efficiencies to make this viable. Long story short, I would say the model is viable. We know that we can reach unit economics that are sustainable over time for us to develop D2C. Honaman: That's very helpful and insightful. I was sitting here realizing that we jumped over one of the key solution areas for ABI in terms of PerfectDraft. I want to make sure we at least hit that and you can share what that is and how that works within your channel strategy. Panizza: Yes, I'm very passionate about this. First, I love beer and water. I like to enjoy the quality of our products as the brew master thought it should be done. What is PerfectDraft? It's a home appliance that enables draft beer at home. This is an at-home pub experience — that's the ultimate experience. We connected this technology of draft machines with our e-commerce direct-to-consumer platform, and that helped us to solve some of the big challenges in the supply chain. These are returnable kegs that are good for the environment; this is what consumers want, and this is also part of our on-trade pub tradition, the kegs. E-commerce and our direct-to-consumer platforms are helping us to solve the “returnability” of the keg. That was a big milestone for us because now we can offer a return on a product, which helps us to expand our portfolio. Now you can find the PerfectDraft in more than 40 different beer brands and styles, and have the perfect experience at home. This is a business that is growing very fast. The response has been very strong in the U.K. and France, and there is a waiting list of consumers that are expecting to have this draft machine at home. This is still on the experiential side. We talk about convenience, with the example of Brazil, 30-minute cold delivery, now we have this in 12 markets. We also are developing a platform that not only helps our consumers on the convenience side, but also helps us on the category development side. Once a consumer has this draft machine at home, and we have this wide portfolio, this becomes a very interesting way for our brands to connect with consumers. Sampling, innovation, and expanding the category into more styles and different types of beer – that is very important for the overall growth of the beer category. Honaman: Thank you for hitting that. I'd love for you to share the lessons learned in terms of launching this over the last two-plus years, and have you share with us what that looks like. Pablo, can you leave us with some of the bottom line messages and the key things you've learned over the last couple of years? Panizza: Sure, the first one is acknowledging that we don't have the answers. I talked with my team that it would be easier if we could copy someone, but unfortunately we cannot. Because we are developing, and the essence of direct-to-consumer is connecting an industry or category to the consumers. That has very different ways, depending on what consumers need, the pain points that a consumer has with the different products or categories, and the different types of consumer journeys that this category has. We don't have the answers; we took this approach of innovation by being very agile. That means small budgets, lean teams, leveraging as much as we can in terms of partners for technology. Again, back to the example I was mentioning before how AWS is supporting many of our e-commerce businesses, it's a way of going fast to market, but also being scalable for the future. We know that some of this won't work, and we actually invalidate many of these initiatives we are testing in our innovation lab. Once they start to get traction and we scale, we start to convert into more of a direct-to-consumer ecosystem. We need to have people fully dedicated and have different ways of working, trying with the focus of really understanding and validating the consumers’ needs. Once this gets traction, moving to the next stage of starting to get the synergies, and connecting the different parts of the ecosystem. The second one is, what is unique? I go back to my point, I’ve always said, "I'm not building a retailer. Me and my team, what we are going to do is connect direct-to-consumer, our brewing business, with our base of consumers globally." That means that we have something that is different for us. For example, we brew. Based on the fact that we have breweries and we have the brands, we are able to develop kegs for in-home consumption. Then, adding the technology on the machines, and the technology of e-commerce to redirect to consumers, we were able to sell the PerfectDraft. This is something that is not just a traditional e-commerce platform – it’s not a retailer, it's something that is different. It is bringing the brewing capacity and capabilities, and bringing the direct-to-consumer and technology capabilities all together to create something new. That's what I mean when I say, “play in your niche,” use your core strength. Another core strength is the example of the courier platform. Our category’s already very fragmented, and has a massive reach. Beer was already available very close to each consumer, so we didn't have to create the full supply chain to move inventory from the brewers to the consumer. The beer was already there. What we had to do is understand what the strength was of the category, the wide availability of what consumers needed that was convenient. Then we connected with the stores and consumers through our couriers and delivery platforms. These are two examples of trying to leverage the strength of the industry, adding the technology, the consumer-centric view, in order to design something that is new and complementary to the existing value proposition. The last one is to build efficiently by identifying and leveraging the tech infrastructure that makes sense for your business setup. I already commented on this. Sometimes we see an approach of maybe too much of a tech development at the beginning, and that plays against the speed and agility when maybe in the initial stages of some of these pieces is less about the technology, it's more about the value proposition. It's more about the operating system to get the service level that consumers expect, and technologies are supported for that. As we move from the initial stage into a mature stage, we are adding more provider technology, customizing more, but always with this mindset of trying to leverage the different partners. We have many others on the marketing side, the attribution, the customer acquisition, CRM, data. For each of the different functional areas of direct-to-consumer, we are trying to find the right partner that can help us move faster and be more flexible in the approach, until we really hit what consumers are expecting. What is the operational model that works, delivers a viable unit economics, and the model that can scale? Then we go at full speed to try to lift the growth of the segment. Guffanti: That was an unbelievable discussion. We covered a lot of ground and based on the response from our audience, we hit on a lot of hot button issues. Let's jump into the Q&A. I actually have a question for both of you. I'm thinking on behalf of the CGT audience – which spans many different categories, types of manufacturers, sizes of manufacturers, and so on – it would be helpful for them to understand how they should approach their DTC strategy. What should the expectations be? What should the primary goals and objectives be? You mentioned a few during the webinar: Is it to make money? Gain profitability? Gain resiliency? Should they be thinking about it in terms of consumer centricity, getting closer to the consumer? Should they be thinking about it as a learning lab? So, embarking on this innovation and then using those learnings to other parts of the business. What's the best way to get buy-in, proof of concept, and all that, within the organizations? Panizza: If I would have had that answer when I started our consumer journey, my life would have been easier, I can tell you that. I think it's a great question, and actually, it's a bit of both. This framework that we are thinking of, or are using to think direct-to-consumer as the four circles, the intersection of four circles that we have to solve. This is what it needs to be a profitable business. Profitability is not only the unit economics that can be an enabler to make it viable, but this should add value for the company. The follow-up question on that is what is adding value? That's where direct-to-consumer has many different ways of adding value. This could go from, of course, making a profitable e-commerce or retail business, which is one part. We know that this can create category development. So, for the different industries, by having a better consumer experience, for example, we know that that drives better innovation, that helps to develop the brands, and also helps the core business. In our case this would be brewing. For example, when someone goes to a brew pub and has an amazing experience – has great food, the beers are brewed at the brew pub, they can talk with the brew master, try some of the innovations – that's creating brand equity. Consumers love this experience, so they will then love the brands, which helps to grow the category overall. When we talk about value creations, it's not only about the value of the retail or e-commerce business, that's just one part, to understand the broader value creation for the different units. The other part is that we need to solve consumer problems. That's when I see some of the story and learn from other cases as well, that maybe we have to try to solve the business problem first, not the consumer problem. Then you would see, in many cases, that we saw we actually weren’t differentiating from the market. The question would be why a consumer would choose this direct-to-consumer platform if there are 10 others that are doing the same, or better. The fact that the company, the industry, wants to go direct-to-consumer doesn't necessarily mean that the consumers want the direct-to-consumer platform. That differentiation is the key aspect. So, how can we connect the capabilities we have as an industry with what consumers need in order to build something that is different. When I see the three examples we discussed today, the 30-minute cold delivery of beer. The retail stores focus on the beer occasions, the brew paths, and then the PerfectDrafts are for the in-home draft experience. These are all different from what the consumer would find in the market. They will have different brands, they will have a wider assortment, they will have great execution, and for beer that is a critical thing. They will have the right prices; they will have the convenience. All this together is something different than what the market has. The last part that I personally am extremely passionate about is that I believe that this can be very transformational for society as well. Think about a business like Mexico, where we have 9,000 families that are running their own business at a small scale because somehow we are empowering them with the capability and the knowledge to get there. Then we have mentoring programs, we have female entrepreneurs in Modelorama, we set up a mentoring program to help them to run the business. We are really trying to drive economic growth in society. So, when we try to get these things together, value creation for the company, we try to get real differentiation to solve new consumer problems, add value and create a better society, and connect the industry needs, in terms of insight, innovation, better communication. Together that is extremely powerful. That's a very interesting vision for direct-to-consumer in many companies. Guffanti: Thank you, Pablo. Justin, in your perspective too, at AWS. Are you seeing similar objectives and approaches from your customers who are coming to you and saying, "I think we need to get into the DTC game," and your answer is probably, "Why?" Right? Honaman: Right. Someone had written golden words. I don't know that I could really say it as well as Pablo did. I'll just add a couple of things. Where I see it working, is where the leadership of the organization has decided we are going to get into direct-to-consumer as a channel, as an opportunity to grow our business. Then have an initiative that had support from top-down, around it. Where I've seen it not work is when it's someone's project on the side, lacking leadership involvement and investment. Most importantly, not having the customer centricity that you've heard for the last 54 minutes from Pablo. That's where that effort wanders and wanes, and doesn't see the value of delivery. But again, top-down is a mandate. Bringing on the right partners and skilled people to help execute is also important. As you heard from Pablo, it's not just in one market. I mean, the alcoholic beverage business in North America? Different model of go-to-market than Brazil, Europe, etc. Guffanti: Thank you. I want to shift to more of a rubber meets the road kind of question. Speaking of delivering a great consumer experience, how is ABI thinking about how to optimize that last mile as that becomes an increasingly important factor? Panizza: That's a great question, and connects with what Justin asked about unit economics. One of the big enablers in our experience for e-commerce growth is twofold. One is the service level. If we don't have the right service level, consumer adoption drops massively. When we hit the right service level in terms of what consumers are expecting, we see an amazing acquisition, cost declines, and higher retention rates. This is critical. But there's always a flip side of the service level, which is the cost of the last mile. We have learned two or three things: One, technology plays a big role here. Redefining the supply chain by using technology to enable a more efficient supply chain has been a journey for us, but we are seeing amazing results. I don't have the numbers here in my hand, I don't want to estimate, but I can guarantee that the scale of the number of couriers of delivery men we are connecting with retailers and with consumers, all together is a very complex ecosystem. We have around 3,000 retail locations that are delivering products, plus thousands of delivery men and women that are going to a store to pick up and deliver to the final consumer. All this is enabled by technology. The four sides of the ecosystem: the couriers, the retailers, the consumer, and the company. The CPGs are what is enabling the efficiency to make the last mile viable. If we would have gone for a traditional e-commerce model that is more of a centralized warehouse – the two things I was mentioning at the beginning – the service level would have been next-day, two-day, three-day delivery. Consumers are expecting 30-minute delivery from us. The cost of the operation wouldn't have made this less attractive, and therefore direct-to-consumer would have been more of a sampling, niche, or merchandising product as opposed to truly consumer-centric. What we are trying to do is connect both – the service level and the viability of the unit economics – which requires that we involve the different stages of the supply chain. That's where the magic happens because that's where we get the retailers in as well. This fragmented and amazing network of customers that we have globally, are the enablers for us to solve what consumers want, but also in a viable way from the service level and the unit economics. We talk about profit, consumer centricity, but there's something that is very important in our point-of-view, in direct-to-consumer, which is quality. We are obsessed about the quality – the quality of the technology, the performance of our platforms, the quality of our service to the consumers. Now we're standard today, and the complexity of the ecosystem is very high. Our order rating is about 4.8, consumers are very happy and our service level is very high as well. That's because the technology's enabling a decentralized model that has worked in a very efficient way. Guffanti: It's clear ABI has really stepped up its game and thought through this from every angle. Our audience can learn a lot from what you just said, thank you very much. You mentioned that last word, quality. It's apparent that that spills out over everything that you guys have accomplished. I also picked up on your passion, as well. I know I can speak for Justin as well when I say I'm thankful for you to give us your insight and tell the story, really amazing stuff. I want to thank Pablo and Justin once again for sharing your expertise and your story with us. I also want to thank our audience for taking time out of your day, I hope you found the conversation worthwhile. I hope everyone has a great, wonderful day. Be safe, and be well. Thank you.

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