Beam keeps search up for next hot flavor

Maria Yost is making margaritas. If everything works out, ladies could be sipping them at book club get-togethers 18 months from now.

Surrounded by test tubes and liquor bottles at Beam Inc.'s Clermont, Ky., lab, the research scientist is working on a prototype flavor for the Skinnygirl brand of alcoholic beverages aimed at calorie-conscious women.

"Right now I've found a flavor I like — this one happens to be a citrus product — and I'm dosing at different levels," Yost said while holding a pipette over 10 test tubes filled with a basic margarita solution.

She also needs to keep the drink below 100 calories per 4-ounce serving, the guidelines for a Skinnygirl margarita.

"Some of them are going to be terrible," she said with a shrug.

It's painstaking but important work at Beam, the nation's No. 2 spirits company based on volume. The maker of Jim Beam, Sauza tequila and Pinnacle vodka has promised that 25 percent of sales will come from new products like the one Yost is working on. It's an ambitious goal, but key to maintaining investor confidence in the new stand-alone company.

Once a conglomerate known as Fortune Brands, Deerfield, Ill.-based Beam spun off its home and security business in October 2011 to focus on spirits, which as a category is growing faster than wine and taking share from beer.

At the same time, it's expanding existing brands like Skinnygirl, once a low-calorie bottled margarita, to flavored vodkas, wine, and other drinks like sangria or white cranberry cosmopolitan.

Still, with 2012 sales of $2.5 billion, Beam is dwarfed by industry-leading Diageo, the London-based maker of Smirnoff, Tanqueray, Captain Morgan and Johnnie Walker and its $14.4 billion in sales.

So far, analysts describe Beam's post-spinoff results as encouraging. From an initial price of $44.75, Beam shares have risen nearly 40 percent, slightly ahead of the S&P 500, closing Friday at $61.50.

Ken Perkins, an analyst with Morningstar, said the more recent flavor experimentation with bourbon and tequila is bolstering consumption among existing drinkers and bringing new consumers into the category. Flavored spirits accounted for 46 percent of the industry's volume growth in 2012, according to the Distilled Spirits Council of the United States.

"I think their innovation strategy is right on," Perkins said. "They know they need to do it to be successful."

"We've talked before about the fact that we brought, for example, more females into the bourbon category," he said. In vodka, he said, "flavor is driving all of the growth." Beam is hopping on the flavored-vodka bandwagon with the newly acquired Pinnacle vodka brand.