Why AB InBev's Nonalcoholic Drink Acquisition Is Buzzworthy

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Credit: Hiball Energy

As sales of big beer brands continue to slide, Anheuser-Busch InBev on Thursday moved further into nonalcoholic drinks. The world's largest brewer scooped up U.S. organic energy drink maker Hiball in a deal that's expected to close in the third quarter. It's a small acquisition; San Francisco-based Hiball only has 20 employees. But the deal is still buzzworthy for signaling that AB InBev is moving beyond beer. Here's what you need to know:

What exactly does Hiball make?
Organic energy drinks and "sparkling energy waters" under the Hiball name, as well as a brand of organic sparkling juices and sparkling waters called Alta Pall (which means "high ball" in Italian). Hiball founder Todd Berardi began selling the drinks out of the back of his car in San Francisco in 2005, according to the brand. He later married the brand's graphic designer, Alyssa Warnock.

Why was AB InBev interested?
AB InBev wants to jump on the growing organic/natural trend. Hiball uses an "organic-certified energy blend, consisting of caffeine, guarana, and ginseng," according to a press release. Of note: In 2015, AB InBev acquired Canadian organic beer maker Mill Street Brewery.

Is this the brewer's first move into nonalcoholic drinks?
No. AB InBev sells carbonated soft drinks and other nonalcoholic drinks in Latin America, where it is also a large PepsiCo bottler. The brewer's nonalcoholic business is less developed in the U.S., but has become a priority of late. Last year it struck a deal with Starbucks to make, bottle and distribute the ready-to-drink Teavana tea line. The brewer used to distribute the Monster energy drink brand in parts of the U.S., before Coca-Cola took it over.

Why now?
On a call with reporters today, AB InBev U.S. President and CEO João Castro Neves was asked if the acquisition was a hedge against beer woes. It "has nothing to do with that," he said. But there is no denying that Big Beer has been in big trouble, including AB InBev's biggest brand, Bud Light, which was nearing double-digit percentage sales declines in the four weeks ending ending July 1, Beer Business Daily recently reported, citing Nielsen figures. Of course Hiball is way too small to make up for that. It had sales of about $40 million in the past 12 months, The Wall Street Journal reported. But the brewer has the distribution network to make it a lot bigger, and the financial resources to make more acquisitions. "Basically [we] just got started with Teavana and Hiball; it's very, very early days -- really much more about growth potential," Neves told Beer Business Daily.

What does this mean for Coca-Cola and PepsiCo?
The brewer's burgeoning interest in nonalcoholic drinks could fuel long-running rumors of an AB InBev acquisition of one of the big drinks giants. Such a merger would be "a massive deal that would be very difficult and there doesn't seem to be a lot of appetite by Coke to be acquired," said Beverage Digest Editor Duane Stanford. But "AB InBev has pulled off some pretty big acquisitions in the past, so obviously so you can never say never."

How is AB InBev doing with Teavana?
Bottles of the ready-to-drink tea began shipping in February, "with all four flavors already ranking in the top ten in the premium single serve ready-to-drink tea category in our active markets," Starbucks executives stated on an April earnings call.

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