Bud Bordeaux? Anheuser-Busch gripped by the grape

Brewer eyes fast-growth wine category, though experts say it's a bad fit

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jmullman@crain.com

continuing to suffer from the barley blues, Anheuser-Busch might be eyeing the greenery over in the grape arbor, according to analysts who believe the beer giant is considering dabbling in wine.

"According to our industry contacts, A-B is actively meeting with wine-industry experts to better understand the category," UBS Investment Research Analyst Kaumil Gajrawala wrote in a recent note to clients.

A-B's interest in the category is easy enough to understand: Wine has grown to 16.6% of U.S. alcohol consump tion in 2005 from 15.8% in 2000, according to the Distilled Spirits Council of the U.S. Though beer has a much larger share of the alcohol market-51.6% last year-that's steadily eroded from 55.5% in 2000.

Wine, moreover, has a natural appeal to the upscale drinkers A-B has targeted with mixed results. Its recent product offerings include Budweiser Select and seasonal draft brews.

And, of course, incoming CEO August Busch IV has repeatedly stressed to A-B distributors that beer is losing ground to wine and spirits, leaving many convinced that the brewer is on the verge of a major acquisition or joint venture with a big name such as Absolut or Bacardi.

An A-B spokesman declined to comment.

But alcohol-marketing experts caution that, despite its obvious appeal, the wine business does not appear to be a good fit for A-B.

A-B's dominance in beer-it controls about 49% of the U.S. market-is owed mostly to its powerful network of distributors, who specialize in moving huge quantities of brews that are essentially bulk commodities. Wine, with its emphasis on using romance to sell to individuals, involves the opposite approach. "It's a hand-sell business compared to a big-box business," said beverage-marketing consultant Brian Sudano. "If you're good at one, you generally aren't good at the other."

Unlike beer, where a single brand such as Bud Light can garner nearly 20% of the market, wine is highly fragmented, with the largest brands barely registering a point or two of market share.

Then there's the baggage A-B-so thoroughly identified with downscale beer-would bring to any wine brand it purchased. Other brewers that have made successful forays into wine-such as Guinness and Red Stripe parent Diageo-generally have been associated with upscale beer brands.

Still, A-B's powerful distributor network would be an advantage if the brewer acquired large, midmarket brands of similar scale to Yellow Tail or Gallo. "They haven't acquitted themselves with boutique beer, so there's no way they can sell boutique wines," said veteran alcohol marketer Arthur Shapiro, who once led Seagram's spirits division. "But if they find the wine brands that are more associated with sales by the truckload, there's no reason their distributors can't excel at moving it."
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