A-B Getting into Liquor Quicker?

Brewer mulls expansion into spirit world

ST. LOUIS -- Anheuser-Busch Cos., battling industry market-share losses to purveyors of wine and liquor, is hinting that it will make an effort to enter the liquor industry, reported the Wall Street Journal.

The beer industry since 1995 has lost five points of U.S. market share to wine and spirits. In remarks made this month, August Busch IV, president of A-B's U.S. beer operations, told a national gathering of state liquor administrators in Boston, if this trend continues, we at Anheuser-Busch will have to re-evaluate our business model going forward [image-nocss] in terms of expanding beyond beer and broadening our position within the total alcohol industry.

A-B has made some tentative moves into the liquor business, said the report. Last year it formed a separate division, Long Tail Libations Inc., to develop, test and market distilled spirits. Its first product, Jekyll & Hyde, a liqueur, is being test marketed in a handful of places. Over the past few years, the St. Louis-based brewer also has joined forces with Bacardi Ltd. to produce flavored malt beveragesmalternativesunder the Bacardi Silver label.

Busch's remarks represent the boldest statements yet of Anheuser's intentions, the Journal said. I think a lot of people were surprised by it, Lynn M. Walding, president of the National Conference of State Liquor Administrators and administrator of the Iowa Alcoholic Beverages Division, who was present at Mr. Busch's speech, told the newspaper. While [A-B] has been testing the mixed-drink market as of late, Mr. Busch's remarks suggest that greater inroads into the spirits category can be expected in the not-too-distant future.

Busch's remarks show how the company has been pushed to make changes as it faces flat growth and consolidation in the beer industry along with increasing competition from spirits, wine and even nonalcoholic drinks like Red Bull, the report said. A-B has agreed to allow its distributors, most of which are exclusive, to carry non-Anheuser, nonalcoholic products. It also has struck a number of deals with smaller craft brewers and import brands.

This is a company that has had a my way or the highway' approach to doing business, Stifel Nicolaus analyst Mark Swartzberg told the paper. Now, he said, it is showing a warmer and fuzzier side by courting alliances.

In his remarks to the NCSLA, Busch tipped his hat to the well-coordinated lobbying campaign by the spirits industry to reverse a 25-year slide in U.S. liquor consumption. Their efforts have resulted in greater access for their products through things like Sunday sales and availability in supermarkets.

The Journal speculated that one possibility for A-B to enter the liquor market is through a joint venture or partnership. Anheuser already has its relationship with Bacardi, which recently acquired the upscale Grey Goose vodka line. Another frequently mentioned possibility is Louisville, Ky.-based Brown-Forman Corp., maker of Jack Daniel's whiskey. A more likely scenario to some on Wall Street would involve alliances to distribute liquor through Anheuser's large network of more than 570 independent wholesalers, said the report. Anheuser executives have made a point recently of saying that they haven't taken full advantage of their distribution systemthe fleet of trucks that crisscrosses the country every day delivering products to bars, restaurants, convenience stores and the like.

Over some period of time you're going to have the Anheuser-Busch network of distributors and their affiliates, where law allows, selling spirits, said Swartzberg.

A-B has shown an increased willingness of late to engage in alliances, the report said. Just last month the company struck a deal with California energy drink maker Hansen Natural Corp. that allows Monster and other Hansen products to be distributed through A-B.