A-B Acquires Cutwater Spirits

Dear Client:

In just a hair over two years’ existence, San Diego spirits and RTD brand, Cutwater Spirits, is selling to Anheuser-Busch. Naturally, terms are undisclosed.

Cutwater Spirits was founded by Ballast Point founders/vets, including Yuseff Cherney and Earl Kight, shortly after they left Constellation, to whom they’d sold their beer brand in late 2015 for $1 billion.

Of course, they didn’t exactly have to start from scratch: The spirits weren’t part of the sale to Constellation, and basically rebranded to Cutwater in 2016.

Since then, Cutwater has made a name for itself, via its 16 spirits (including whiskey, vodka, gin and rum) — but especially in the RTD canned cocktail market. They have 14 different spirit-based canned products, many of them award winning, like their Vodka Mule and Spicy Bloody Mary. They also have a line of 99-calorie, zero carb vodka sodas.

Sports venues are a popular and growing occasion for these RTDs, and A-B can certainly open more doors for Cutwater there.

But we wondered: With no real spirits infrastructure, where would Cutwater “live” in the A-B organization?

And having already entered some 34 states – only 4 or 5 of which they’re with A-B distributors in – what will A-B offer distribs in this deal? (Their current footprint includes the likes of Young’s Market, Breakthru, Manhattan Beverage and many other non-aligned houses.)

Read on.

A SLOW BUILD UNDER A-B’S NEW BUSINESS BRANCH. It’s an interesting deal: As A-B’s VP of sales, Brendan Whitworth, explained it to us: “This partnership is part of our Beyond Beer strategy, but it will not be part of our current Beyond Beer organization. … Cutwater is its own entity, killing it by themselves. We’ll help them kill it even more. We’re trying to support and enable where we can, and where it makes sense.”

In fact, Cutwater is one of a handful of brands – including Babe wines and HiBall non-alc energy drinks – to be incubated by their emerging brands division, dubbed “New Business.”

That division is led in part by Marina Hahn, New Business co-founder. (Interestingly, Marina also has former ties to Constellation as well, having been around for the founding of Svedka vodka. So she knows a thing or two about incubating brands.)

WHAT’S CUTWATER GET OUTTA IT? Marina told us she was “excited for the potential to really nurture and grow this business so that it dominates” the still-nascent RTD category.

Where she says that A-B differs from other companies in incubating business: “We keep the team really tight,” she says, as she and Brendan, who work together on this team, “will be all over this business in ways that will be helpful, but not intrusive.” They have a team dedicated to helping with anything from strategy, to sales and marketing; “whatever gaps” are in their business.

That’s great, says chief sales and marketing officer, Earl Kight: “I’m an OK salesperson, I’m a horrible marketer,” he told us post announcement. But A-B is “really good at marketing.

“I’ve got, like three marketing people; one guy just mails stuff for me,” says Earl, who is known for his humor.

Beyond that, of course A-B will help with things like chain relationships and execution.

But a huge opportunity includes getting the RTD product into more sports venues.

“It’s such a great format for large venues, stadiums, sporting events,” says Yuseff. “A-B folks have a lot of partnerships” there, and there are venues Cutwater has been “struggling to get into.”

But it’s been a no-brainer for many concessionaires, says Earl, who have found that cans provide “ease of execution, controlled ABV, controlled inventory… and they can still make a solid margin on it.”

HOW LONG WILL FOUNDERS STAY ON? Asked if they signed anything stipulating how long they’ll stay on with the brand, Earl joked that he lobbied for a 25-year noncompete. Official announcements ensure that the founders plan to stay on; Marina stipulated that there are indeed “no plans for them to transition off at this time.”

Cutwater founder Yuseff agreed with those sentiments, calling their new team much different from prior partnerships.

As for the question of distributor alignment: The answer seems to be eventually, but not immediately.

SLOW DISTRIBUTOR INTEGRATION. “I think for now, to minimize disruption … especially in core markets, our near-term plan is to not adjust route to market,” Brendan told us. “That said, our overall preference … is to be with A-B wholesalers” in the longer term.

But they won’t be making it at A-B.

Indeed, the Cutwater facility is a 50,000 square foot destination in Miramar, which includes a 250- seat tasting room, complete with restaurant and tours.

BECOMING A GLOBAL SPIRITS COMPANY FROM ORIGINAL MIRAMAR LOCATION. “We already had equipment on order prior to this deal being on works to expand production, and we’ve got a few tricks up our sleeve to get even more production outta what we have here with minimal added equipment,” said Yuseff. As it stands they’re setup to become what Earl calls “an emerging global spirits company.”

Marina echoed that sentiment, calling their current space an unparalleled “spiritual home” and embodiment of the brand. As a consumer touchpoint, “that’s a huge advantage to distinguish them from any other spirits company as we build this thing into powerful lifestyle brand.”

So how long has this deal been in the works? Under a year, was all we could get.

They “met at a bar,” Cutwater founders and Marina joked.

Until tomorrow,

Jenn, Jordan, and Harry

“Let not thy will roar, when thy power can but whisper.

  • Dr. Thomas Fuller

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