Anheuser-Busch Enters Distribution Agreement With Margaritaville Spirits

Anheuser-Busch Cos. (BUD) is going to distribute Jimmy Buffett's liquor. The company announced it reached an agreement with the singer's Margaritaville Spirits Co. to distribute Margaritaville Tequila in Massachusetts. This isn't the first time the big St. Louis company is serving up more than a Bud.

It's been test marketing several different spirits products in an effort to boost its stagnating revenues. As the VP of business operations said:

While our core brands remain our primary focus, we recognize that our industry is defined by change and look at all sources of industry volume for potential growth opportunities.

Details of the deal weren't offered, but earlier this year the brewing giant signed with the singer to develop LandShark Lager through an Anheuser division, Margaritaville Brewing Co. This new liquor is simply a natural extension of the original agreement.

BUD has to look outside the beer business since it's sales over the last 10 years, on average, have been growing by 5.5% a year. The stock has been relatively flat for the last 5 years, with a dip in 2005 and then a recovery. Another possible revenue source: a vodka drink named Pomacai for which the brewer has applied for a federal trademark. Whether the drink actually comes to market is yet to be announced.

Two years ago, BUD started Long Tail Libations, Inc. to develop and market distilled spirits. One product, a liquer called Jekyll & Hyde, has been test marketed in 50 U.S. spots. It's also distributing a vodka like product, Ku Soju, made from sweet potatoes by a South Korean company, in seven markets.

BUD is trying to go where the consumers are. Wines and spirits have been taking market share from the beer industry. Over the last 12 years, wine and spirits have picked up 5 points in the U.S. markets. But to be significant, BUD will have to sell a lot of liquor. Last year beer sales for BUD were $15.72 billion. This year, analysts are predicting close to $16.5 billion.

This a company steeped in tradition. The Busch family has been running the company since it was founded. It makes and sells beer. Now it's looking outside its core competency and testing the waters. All great companies have to evolve. Some just take longer than others.

BUD 1-yr chart

Disclosure: none

Comments

[Malkiel:]

Margaritaville, like Seagram's VO, is one of those perfectly smooth and perfectly priced liquors of its type that will become the universally distributed standard in the US market. And given how the tequila market is undergoing the same throes of hype and overpricing that the vodka market is experiencing, Busch has threaded the needle and chosen well.
[full disclosure: I own no shares of Anheuser and only a couple of bottles of Margaritaville...]

2007 Jun 07 10:08 AM