Pabst finds a partner for spirits launch: Four Loko-maker Phusion Projects

Pabst Brewing Co., the owner of heritage beer brands such as PBR, Schlitz and Old Milwaukee, is getting into the spirits business.

The privately owned company on Tuesday said it launched a whiskey brand under its Small Town banner called Not Your Father's Bourbon in Wisconsin and Illinois with plans to push the brand nationwide in early 2018.

The 43 percent alcohol-by-volume, contract-distilled bourbon contains a "touch of Madagascar vanilla" and carries a suggested retail price of $29.99 for a 750-ml bottle. Pabst said in a news release the spirit was "crafted for veteran and novice bourbon drinkers alike." Adding vanilla, it said, is "an exciting spin on the centuries-old spirit for a new generation of whiskey drinkers and cocktail connoisseurs."

The move to diversify its beer-centric portfolio comes amid a down year for Pabst and its Not Your Father's flavored beverage franchise. Case volume company-wide is down 2.1 percent and sales dollars have slipped 1.3 percent year-to-date through Nov. 4, according to Nielsen all-outlet data. Not Your Father's, maker of hard root beer, ginger ale and other hard sodas, has been particularly battered, off 55 percent in sales dollars on a 53.7 percent drop in volume.

Pabst's foray into spirits also comes amid broader pressure on the beer market, which continues to shed share to wine and spirits, particularly among younger legal-age drinkers. The beer industry has lost some 35 million barrels of beer, or 11 billion servings, to wine and spirits over the last 20 years, Heineken USA President Ronald den Elzen said in an October speech. Over that period, beer’s share of the total alcohol beverage market has shrunk to 50 percent, down from 62 percent, den Elzen said.

Other brewers already are dabbling in distilled spirits, including Michigan's New Holland, Delaware's Dogfish Head, Oregon's Rogue Ales & Spirits and Indiana's Three Floyds.

Among big brewers, only Constellation Brands has a significant presence in the industry, but Anheuser-Busch InBev, through its craft acquisitions, is eyeing an entry. The company in July applied for an Oregon distillery license for its 10 Barrel Brewing craft brewery. Its Devils Backbone brewery in Virginia also has expressed interest in distilling.

Prior to being bought by InBev, Anheuser-Busch flirted with spirits, creating a unit called Long Tail Libations that tested a shooter product for bars and clubs called Jekyll & Hyde. It also struck a deal a decade ago to distribute a line of spirits in the Northeast.

Pabst contract brews its beers and plans to do the same with its spirits division, which is dubbed Small Town Craft Spirits, according to the industry publication Brewbound, which first reported the news. The whiskey is being produced by Minhas Distillery, a contract- and private label-manufacturer in Monroe, Wis.

It has also outsourced marketing, sales and distribution rights of the brown spirit to Chicago-based Innovative Wine & Spirits, Brewbound reported.

According to company filings with the Illinois Secretary of State, Innovative Wine & Spirits is owned by Phusion Projects, the maker of the high-gravity flavored malt beverage Four Loko. Phusion jumped into the spirits space this year with its "Four Loko Shots" brand, an attempt to move its brands more into on-premise accounts, the company told Crain's Chicago Business in a July report.

A spokesman for Small Town Craft Spirits said he was not able to provide more information.

Chris Furnari, the Boston-based editor of Brewbound, said in an interview that beer companies are seeking ways to diversify their portfolios amid the current turbulence in the market. But, he said, he's "struggling to wrap my head around this one because it doesn't feel like they're all-in on it."

"I understand the rationale behind wanting to leverage the brand equity they've already built with Small Town," Furnari said. But the fact that Pabst is outsourcing the production, sales, marketing and distribution of the brand "doesn't tell me they're dedicated or super serious about investing in the space."