Instant Analysis: Anheuser-Busch InBev SA Makes Big Splash in Hard Soda

What happened?Anheuser-Busch InBev launched Best Damn Brewing Co. on Monday in response to the sudden popularity of hard soda. The brewery's first new product, Best Damn Root Beer, is already on store shelves and will offer 5.5% alcohol by volume. In comparison, Anheuser-Busch's flagship Budweiser beer comes in at 5%.

Does it matter?Hard soda burst on the scene following the unexpected success of Pabst Brewing's Not Your Father's Root Beer, a hard soda produced by Small Town Brewery that Pabst distributes nationally. While the newfound interest in this category has caused brewers of all sizes to rush to market with their own offerings, Not Your Father's owns 80% of the market by sales.

But that could be because it has had the field to itself. That's no longer the case, and while a few smaller breweries like Saranac have introduced hard sodas to complement their beers, it is the mass brewers' entry into the market that will likely displace Small Town's dominance.

In addition to Anheuser-Busch, MillerCoors, the joint venture of SABMillerand Molson Coors, brought to market Henry's hard soda, while craft beer leader Boston Beerjust completed the national rollout of its Coney Island Hard Root Beer. Like several other brewers, Boston plans to introduce other flavors too, including ginger ale and orange cream.

It's too early to tell if this is just a fad or a new niche product. As Anheuser-Busch noted in announcing the launch of Best Damn Brewing, "We've seen a growing consumer interest in sweeter taste profiles, and we jumped at the opportunity to brew an easy-drinking, hard root beer."

That trend toward sweetness got its start when distillers, particularly Pernod Ricard's Absolut and Diageo'sSmirnoff, began adding flavor to their vodkas. That has now permeated other hard liquors like whiskey, where Sazerac's Fireball cinnamon whiskey is the dominant brand--the category commands 12% of all flavored whiskey sales.

But it has also been apparent in the popularity of Boston Beer's line of hard teas and ciders. The craft brewer's Angry Orchard division now carries forward the brewers depletions, or sales made by distributors to retailers, as sales of its Samuel Adams beers lag.

Ultimately, Best Damn Brewing isn't going to move the needle one bit for Anheuser-Busch InBev, which had over $47 billion in revenue in 2014, but it's still important for the company to have a presence in the space. With its massive marketing and distribution network, Anheuser-Busch can ensure its hard soda not only commands top shelf store space but that it may even dominate this new adult beverage segment.

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Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Boston Beer. The Motley Fool recommends Anheuser-Busch InBev NV and Diageo (ADR). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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