Last week we reported that alcohol sin stock Beam Inc. (BEAM) was going to water down its high-quality, exclusive Maker’s Mark bourbon in order to help it meet unexpectedly high demand.
One week later, and as a result of furious backlash that was completely expected (except by the company itself, apparently), Beam Inc. reversed their decision and decided not to dilute their bourbon. How they will meet the rising demand for their bourbon remains to be seen but obviously an increase in pricing is one of the options that makes the most sense.
We’ve seen this kind of “switcheroo” before. (No, “switcheroo” is not a technical term). A business makes a decision at the executive level that everyone thinks is great. Then they realize they were idiots and that if they had just asked ANYONE except for the fat cats seated around the boardroom table, they would have discovered that they were making a boneheaded move. Coke (KO) did it with New Coke. Netflix (NFLX) did it with, well, everything.
So what will happen as a result?
In the long-term, nothing out of the ordinary will happen: Beam is a big enough brand with a solid array of popular products. The company overall shouldn’t see this as more than a blip. Maker’s Mark is one brand of many. However, this is a black mark on the company that will persist for years to come. It will be mentioned in every news story about Maker’s Mark from now until the end of time (we’re still talking about New Coke, after all). Sin Stocks Report remains bullish on alcohol sin stocks in general, including BEAM.
But in the short term, things might get interesting… and it could be a buying opportunity: Although the company has a solid stable of brands, negative news like this tends to push a stock price down slightly… even if it’s just a small downward blip. That is good news for investors who buy while the stock is slightly depressed. But things should turn around because…
- The news needs to work its way out of the news cycle.
- People likely rushed out and bought up what they thought was going to be the last remaining supply of full-strength Maker’s Mark… which could bump up earnings this quarter.
- Beam proved to customers that they are listening and people have responded positively to their apology.
The folks at Beam made a dumb choice by announcing that they will water down their bourbon. But they’ve made the most of a bad situation with their apology and reversal. We believe this will have a positive impact on the company in the medium and long term.