A-B Enters the Spirits Game

Sluggish beer sales trigger diversification

Anheuser-Busch Cos Inc. said on Monday that it is entering the spirits market, a long anticipated move that has been spurned by sluggish beer sales and lower margins.

Long Tail Libations, a wholly owned subsidiary of A-B, has begun test marketing in four U.S. cities of ”Jekyll & Hyde” — a product composed of two liqueurs in separate bottles meant to be poured together. The product targets consumers in the 21 to 27 years age group.

But one investor called the effort “too little too late” and a branding consultant said the going could be tough in the spirits category, where well-established brands are generally upping their marketing spending.

The subsidiary has started testing new liqueur product in about 40 retail locations in Orlando, Florida; Columbia, Missouri; Denver; and Las Vegas. The test marketing began on Nov. 1, A-B said.

“Consumers today are looking for more variety in their alcohol drinking experience, and this allows us to meet those consumer needs,” Mic Zavarella, director of innovation at Long Tail Libations, told Reuters in a telephone interview.

The product comprises two liqueur bottles. Jekyll is a sweet, scarlet-red spirit tasting of wild berries while Hyde is an herbal-tasting black spirit that floats on top when poured over Jekyll. The two products are meant to be served together, although consumers can drink them separately, the company said.

“It seems like a specialty product. The product, without tasting it, seems a little weird,” said Alan Siegel, chief executive of Siegel & Gale, a strategic branding firm. “The liqueur category is so jammed already. It is very difficult to be successful. There is so much money being spent on established brands.”

An acquisition could be the next step for Anheuser-Busch, wrote AG Edwards analyst Christopher Growe in a report released on Monday, but he added that the company is likely to move slowly.

“In my opinion 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,” said Paul Flood, sector manager at pension fund TIAA-CREF, which owns 5 million shares of the beer company.

Flood said the company would be better off joining or acquiring a wine and spirits company like Constellation Brands Inc. or privately held Bacardi.

“If they want to be in the spirits or other alcoholic beverages business, this effort seems to be too little too late,” Flood said.