- The Washington Times - Wednesday, June 21, 2006

ST. LOUIS (AP) — Tourists on a recent walking tour of Anheuser-Busch’s brewery 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 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 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 re-evaluate our business model going forward in terms of expanding beyond beer and broadening our position within the total alcohol industry,” Mr. Busch said at the National Conference of State Liquor Administrators.

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

“They’re looking at the future, a future where the consumer wants innovation and wants variety,” Mr. 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’s Miller Brewing, said Patrick Schumann, an Edward Jones analyst.

In November, Anheuser-Busch founded a subsidiary called Long Tail Libations 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 percent to 6.6 percent, depending on state laws.

Mr. Schumann said future expansion into hard liquor likely will 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.

Partnerships also let Anheuser-Busch capitalize its national distribution chain, he said.

The brewer probably would 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 acquisition — is Bacardi, the company Anheuser-Busch already helps produce its Bacardi Silver line of flavored drinks, Mr. Schumann said. He emphasized that beer will remain Anheuser-Busch’s mainstay.

The foray into hard drinks could 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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