A Shot & a Beer

New Anheuser-Busch unit introduces two new spirits

ST. LOUIS -- There's no telling when convenience store retailersor any off-premise retail channel, for that mattermight see the latest innovation from Anheuser-Busch Cos. come to the store shelf. But let there be no doubt about it, North America's largest brewer is making a run at the spirits industry.

With the unveiling of Jekyll & Hyde spirits and from wholly owned subsidiary Long Tail Libations Inc., A-B has joined other sweet spirits, such as Goldschlager, Ouzo and Jagermeister, on the backbar in bars and restaurants in four test markets. With [image-nocss] Jekyll & Hyde, we are going to focus strictly on-premise with our brand in our test markets, Mic Zavarella, director of innovation at Long Tail Libations, told CSP Daily News. We see this as an on-premise brand, where we can get out and build this brand's image and equity on premise and then seek out volume in other places.

According to Marianne Radley, manager of innovation at Long Tail, Jekyll is a 60-proof, deep-scarlet-red liquid that's got a wild-berry flavor to it. Hyde is 80 proof. It's jet black in color and has a spicy, herbal flavor and it's got an all-over burn when you're consuming it. The real treat comes from mixing the two spirits, however. When you marry the two together in a layered shot, it offers a licorice, herbal flavor first, which is then washed down by the sweeter berry flavor. It's a real treat.

Certainly sounds innovative, and that's the goal of the new company, according to Zavarella. Long Tail Libations gives us an opportunity to really focus on the non-beer side of innovation, he said. Long Tail Libations is solely focused on marketing Jekyll & Hyde, so it gives us some delineation between the beer company and what we do on a day-to-day basis.

Of course, it's not a complete surprise that A-B has formed a spirits subsidiary. [Anheuser-Busch] has talked about non-malt-based innovation (e.g., wine- and spirits-based) in their future, beverage stock analyst Bill Pecoriello of Morgan Stanley said this past summer. But with Monday's announcement that A-B had created Long Tail to develop, test and market distilled spirits, the question most raised was whether the beer-brewing giant had made the move too late.

If they want to be in the spirits or other alcoholic beverages business, this effort seems to be too little, too late, Paul Flood, sector manager at pension fund TIAA-CREF, told Reuters. TIAA-CREF owns 5 million shares of the beer company. If you want to be involved in this market in a meaningful way, you are better off buying brands or merging with a company, rather than experimenting.

However, AG Edwards analyst Christopher Growe said in a research note that A-B's move could be the first step toward doing just those things as the company tests the waters to see if a long-term presence in spirits is feasible. If Long Tail is a success, he added, an acquisition into spirits could be in the offing.

Zavarella would not speculate on whether that was the case.

Ultimately, the move comes as beer has slowly lost market share to wine and spirits, and analysts and stockholders have called on the major brewers to create some true innovation in beer to turn the tide. These are concerns A-B is addressing head on with the introduction of Long Tail Libations. While noting that beer is 60% of all alcohol use occasions here in the United States, Zavarella added, This endeavor gives us an opportunity to go and seek share in other areas. We're very comfortable with our market share and with the state of beer in general, and this gives us an opportunity to go and try new things.

Jekyll & Hyde are currently being tested in 10 or fewer sites in Columbia, Mo.; Denver; Las Vegas; and Orlando, Fla.