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A-B considers getting into the hard liquor business

By AP/KWMU

St. Louis, MO – With beer sales flat, St. Louis-based Anheuser-Busch is hinting it might get into the liquor industry.

In fact, the brewer recently has made small steps towards such a move. Tourists on a recent walking tour of Anheuser-Busch's brewery in the Soulard neighborhood passed by Clydesdale horses and giant fermentation vats before ending at the well-known finale, free Budweiser on tap. But they got something extra at the bar: Free malt liquor shots.

The bartender said Anheuser-Busch Cos. Inc. was testing out a new line of fruit-flavored shots to be mixed with beer. The drinks highlight a larger change for the nation's biggest brewer, which is selling hard spirits along with its well-known brands of golden Pilsners like Budweiser and Bud Light.

"The loss of beer volume to wine and hard liquor has accelerated in recent years," company president August Busch IV told a liquor industry group earlier this month. "And if this trend continues, we at Anheuser-Busch will have to reevaluate our business model going forward in terms of expanding beyond beer and broadening our position within the total alcohol industry," Busch told the National Conference of State Liquor Administrators, according to a transcript of the speech.

Anheuser-Busch is simply trying to remain relevant with consumers that are constantly searching for interesting products, said Benj Stein, whose beer industry newsletter reported Busch's comments last month.

"They're looking at the future, a future where the consumer wants innovation and wants variety," Stein said.

Anheuser-Busch changed its thinking after beer sales went flat in 2005, forcing the company into a price war with competitors like Milwaukee-based Miller Brewing Co., said Patrick Schumann, an analyst with Edward Jones in St. Louis.

In November, Anheuser-Busch founded a subsidiary called Long Tail Libations Inc. to develop and market spirits. The venture's first product is "Jekyll & Hyde" two bottles of different distilled liquors that are intended to be mixed into a single drink.

Last summer, Anheuser-Busch released "Tilt," a raspberry-flavored malt beverage with caffeine and herbal additives like ginseng. The drink has an alcohol content ranging from 4-6.6%, depending on state laws.

Schumann said future expansion into hard liquor will likely be done through partnerships with other distillers instead of Anheuser-Busch making its own drinks. This would let the brewer cash in on growing liquor sales while avoiding the risk of sinking investment into new infrastructure, Schumann said.

Partnerships also let Anheuser-Busch capitalize its national distribution chain, Schumann said. The brewer would probably charge a fee or set up revenue-sharing agreements to let companies distribute spirits through the system, he said.

A likely target for future deals or an all-out acquisition is Bacardi, the company Anheuser-Busch already works with to produce its Bacardi Silver line of flavored drinks, Schumann said.

Schumann emphasizes that beer will remain Anheuser-Busch's mainstay. The foray in to hard drinks could just provide some cushion if the beer market gets tougher, he said. "Lessening their exposure to the volatility of the domestic beer industry could be a positive, longer term, for their business," he said.

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