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. “I’m trying to get some sweetness to come through and some tartness to come through.”
She 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.
In 16 months since the split, Beam has acquired Pinnacle vodka and Cooley Distillery, an Irish whiskey company. It’s also ginned up advertising by 11 percent, to $399 million during 2012, including a 20 percent increase during the holiday-heavy fourth quarter.
At the same time, it’s expanding existing brands such as 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-spin results as encouraging. From an initial split price of $44.75, Beam shares have risen nearly 40 percent, slightly ahead of the S&P 500, closing Friday at $61.50. Company performance also beat Morningstar’s Consumer Defensive Index, which includes food, beverage, household and personal care products.
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.”
Beam CEO Matt Shattock told investors last month they should expect to see continued sales growth in brands like Jim Beam as the brand adds flavors.
“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.
The challenge, he said, “is to continue to be on the front end of those trends, to bring interesting, relevant and, frankly, very good-tasting products to consumers.”
Julian Cohen, vice president of global insights and innovation at Beam, said the company evaluates a variety of factors to start the product-development process, drawing on food and fashion trends as well as consumer lifestyle research.
“We look at consumers’ needs and what they do to fulfill those needs and then the occasions, where, when, who they drink with, and what brands can play in that and what drink types play in that,” he said.
When the company has settled on an idea, it’s passed on to research scientists who develop flavors to specifications.
Enter Beam’s Global Innovation Center, where researchers may experiment with 100 versions of a single product in the hope that one or two might make it to store shelves.
At the new building, which opened in October, Beam can conduct on-site testing of its bottles and packaging, simulate store and bar displays, and make carbonated beverage prototypes. The building also allows closer collaboration between disciplines like production, global operations, quality and engineering.
The center is part of a $30 million investment in its Clermont campus, which opened in 1933, at the end of Prohibition. To help tell its story, Beam added a replica of the Beam still house from the 1930s, which serves as a jumping-off point for tours of the mashing, distilling, bottling and aging done on site.
Yost said her citrus margarita will go through a few tastings with the marketing department before one is chosen for early consumer testing, perhaps in a few weeks.
MaryKay Bolles, vice president of global research and development, said that while Yost is working on her prototype, Beam’s marketing team is working on how the product will be positioned in the market and what it will look like, from the bottle design to the label and the cap.
Early on, the company also conducts “stability testing,” to ensure that the liquor’s flavor will hold up under stresses like heat, light and time. Beam products are expected to retain their flavor for at least one year.
Once the bottles and case packages have been designed, Beam will ensure they’re durable _ using machines to simulate any dropping or shaking that might happen during transit.
Beam’s first consumer test may be based on a few dozen samples and be done with bartenders or a specific consumer group. Early tests are qualitative, trying to assess what the target consumer would like.
“If I recruit you for a consumer test, I’ll ask if you even like the smell: ‘Is it too intense, is this too sweet for you?’ “ Yost said.
After that, chemists work up a formula that can be mass-produced, from a few hundred samples to thousands of cases, and, equally important, profitable.
The second consumer test, consisting of a few hundred samples, may comprise one or two final versions of the product and seek to make small refinements, such as look of the bottle.
Researchers are “constantly playing,” Bolles said, acknowledging that what winds up on shelves is a tiny piece of the original consideration set.
The goal, she said, is “being nimble and being able to capitalize on ideas when you see them,” because “being first to market is important.”