Mad For Malternatives
SALES OF ALTERNATIVE MALT BEVERAGES ARE EXPLODING. WILL THE TREND LAST?
By now, you think you’ve seen it all. You watched dry beer turn as parched as the Dust Bowl. Packaged draft turned into a one-trick pony. Ice beer melted almost as fast as a snow ball in Palm Beach. Clear beer was invisible to consumers from the very get-go. Micros, despite popping up by the hundreds, got so micro they disappeared altogether.
Smirnoff Ice sold about 22 million 2.25-gallon cases last year, giving life to the flavored, spirits-branded malt beverage segment.
Hold onto your hats because here come malternatives. The flavored malt beverage category, including hard lemonades, malt-based coolers and a new breed of spirits-branded alternative malt beverages, grew 26% last year, according to Morgan Stanley Forecasting. Sales this year are expected to more than double, compared to 12% growth for imported beer and only about 1% for domestic beer.
Smirnoff Ice, in its first full year of distribution, sold about 22 million 2.25-gallon cases, single-handedly creating a new segment within the category. This spring, another half dozen major new brands have been introduced, increasing the competition and raising the stakes. Can the market support them? Will the trend last, or be a fleeting fad, just the latest gimmick in the industry’s bag of tricks to try to boost sales?
Five years ago, when the first wave of alternative malt beverages swept ashore from places like Australia and the U.K., major brewers here looked on cautiously from the sidelines. Hard lemonade and fruit-flavored malt brews suddenly became the rage with nearly 60 new entries in the space of a year, most from small producers.
Coors, which had already introduced Zima, the first “malternative,” in 1993, took a pass. Miller Brewing tested the waters with a lemon brew, but decided not to get wet. Anheuser-Busch dabbled with a couple of test products and eventually settled on Doc Otis lemon brew.
The introduction and instant success of Smirnoff Ice, however, has created a whole new ballgame. Attaching a spirits brand name to a malt-based beverage has given spirits companies and brewers a new way to market to consumers. So much so that these new products may quickly create their own segment of what was already a growing category.
Facing flat sales despite an influx of new legal drinking age consumers, the beer industry has been quick to take advantage of the trend to flavors this time around. In February, Anheuser-Busch launched Bacardi Silver in partnership with Bacardi, one of the world’s largest spirits brands.
Miller quickly followed with the March launch of Skyy Blue in partnership with Skyy Spirits. Then in quick succession, Miller announced an alliance with Allied-Domecq to produce Stolichnaya Citrona and Sauza Diablo, and another partnership with Brown-Forman to make a yet-to-be-named Jack Daniel’s malternative. Stoli Citrona and Sauza Diablo both bow this month with a national rollout in June. The Jack Daniel’s-flavored product will be available this summer.
Finlandia is testing a flavored malt beverage in Australia and Puerto Rico this summer, and may introduce it here by the end of this year or early next. Others are sure to follow.
Coors, with 10 years already invested in the Zima brand, is taking a different tack. Leveraging the Zima brand name, Coors is launching Vibe this month in selected markets including Atlanta, Boston, Cleveland, Columbus, Houston, Denver, San Diego and Pittsburgh. Roll-out to additional markets will be gradual.
Timing Is Right
Whether the market can withstand this onslaught of brands in so short a time remains to be seen, but the timing seems right. Zima, in fact, was probably ahead of its time.
The fact is that every generation has had its alternative beverage for young entry-level drinkers not yet accustomed to the taste of beer, wine or spirits.
This spring saw the launch of Bacardi Silver, a partnership between Anheuser-Busch and Bacardi USA, and Skyy Blue, an alliance between Miller Brewing and Skyy Spirits.
“There has always been the consumer who looks for flavored beverage alcohol,” said Marlene Coulis, director of new products for Anheuser-Busch, “someone who doesn’t like the taste of beer and doesn’t want to move to spirits.”
Distillers, brewers and vintners have been adding flavors and fruits to their products for centuries to make them more palatable. Liqueurs and cordials, for example, were created to disguise the harsh taste of alcohol.
More recent generations have seen their own alternatives. The ’60s offered sangria and Boone’s Farm. Popular beverages in the ’70s were sweet rosé wines like Lancer’s. The ’80s brought us wine coolers. Then came Zima, hard lemonades, ciders and teas. And every generation has had its favorite sweet mixed drinks — rum and cola, rye and ginger, Tom Collins, daiquiris, sours, margaritas — the list goes on.
The new generation of entry level drinkers is unusual in that it has grown up on an incredible variety of flavors in a wide range of food and beverage products. These consumers are used to a tremendous number of choices, from flavor varieties of a single product like oatmeal to the wide range of products in each category that are available to them. In the past decade, consumers have seen an explosion of new products in the beverage aisle, from flavored teas to energy drinks.
“Across a lot of categories, consumers, especially those from 21 to 27, are demanding a lot of flavors in food and beverages,” said Ann Stickler, director of strategy and new business development at Miller. “I think these products are exciting, unlike just another beer. People are looking for different flavors.”
This generation also is more sophisticated than its predecessors. Fueled with information in an ever-shrinking world, these consumers are very brand-conscious and aren’t afraid to spend money on brands they perceive to offer quality and image. The new breed of malternatives does just that.
Young consumers today have shown strong preference for superpremium and even ultrapremium brands and a willingness to pay for them. So, when brands like Smirnoff, Skyy, Stolichnaya, Bacardi, Sauza and more attach themselves to a new beverage product, consumers sit up and take notice. Consumers are well aware of these brands, and more will likely become aware as a result of malternatives.
Miller Brewing and Allied Domecq have joined forces to create Stoli Citrona and Sauza Diablo, both of them bowing this month.
It also doesn’t hurt that both the spirits companies and brewers behind these new products are spending heavily to raise that awareness. Smirnoff spent an estimated $50 million last year to market Smirnoff Ice, which equates to about $2.39 a case. Guinness/UDV plans to spend twice that on the brand this year to make sure the product is more than just a fad.
Anheuser-Busch is spending an estimated $50 to $60 million this year on Bacardi Silver. Miller is spending an estimated $40 million on Skyy Blue, and budgets for Stoli Citrona and Sauza Diablo likely will be comparable on a pro-rated basis.
“Compared to our $10 million on Skyy Vodka, Miller’s $40 million on Skyy Blue is like quadrupling our ad budget,” said Gerard Ruvo, senior vice president of sales at Skyy Spirits.
In other words, everyone wins — assuming consumers like the products.
What spirits-branded malternatives also offer that most malternatives haven’t to date (with the possible exception of Zima) is a sophisticated image. Coolers and hard lemonades are positioned more as refreshment for regular folks when a beer might not be appropriate or desired because of its taste. The new malternatives appeal more to those who aspire to today’s cocktail culture, but want something a little less potent than spirits.
“We want to make sure the product and the package carries a higher level of sophistication than beer,” A-B’s Coulis said of Bacardi Silver. “It’s priced higher than our beer brands, and everything we do reflects that. Our p-o-s is more upscale. There are fewer items and they’re higher quality.”
Ads also portray these brands as a social lubricant like beer, but on a more sophisticated level. Packaging plays a significant role to raise awareness among consumers so they know what to ask for when they try them at bars and restaurants. Skyy Blue’s package, for example, mimics Skyy Vodka’s upscale cobalt blue bottle. And initial focus for all the new brands will be in on-premise accounts where consumers often first “discover” new brands.
While brands will be pushing sampling on-premise, display in off-premise is important. Brands will be encouraging retailers to use classy new point-of-sale materials to build displays. Promotion plans for most of the new brands hadn’t yet been set earlier this spring, but strong support is anticipated.
Zima, from Coors Brewing, has revamped its product as well as launching Vibe in selected markets this month.
Zima is responding to the competition and the new consumer interest in the category by revamping the product. New ads and a $1 million under-the-cap promotion tied to CBS’ “Survivor 4” in April and May signaled the changes. A slightly different formulation will appear in new smooth glass bottles in metallic six-pack carriers with new graphics and a sleeker, more modern logo by June.
While the new products appear to be poised to take the market by storm, it won’t all be smooth sailing. The brands face opposition not only from competition, but from consumer advocacy groups as well.
The biggest concern is whether these products mislead consumers into believing they contain a distilled spirit rather than malt-based alcohol. The Bureau of Alcohol, Tobacco and Firearms is taking a close look at the way in which these products are labeled and marketed.
Words on labels such as “flavored malt beverage made with natural flavors containing vodka” won’t be allowed under new rules issued by ATF because they suggest to consumers that the products actually contain distilled spirits. Though taking the words “vodka” or “rum” off the package may have some impact on sales, spirits brand names are still going to drive interest and sales. And consumers are still likely to be confused, assuming that a name like Smirnoff, Bacardi or Sauza means the product actually contains vodka, rum or tequila.
Seagram’s Coolers has launched a couple of new flavors and has recently settled in with United States Beverage, the company that also markets Hooper’s Hooch (below), which also recently introduced orange and berry flavors.
The other concern voiced by industry watchdogs is the fact that like beer, these products can be advertised on television. That is giving spirits companies a way around the network-television ban on liquor advertising. Promoting spirits-branded malternatives will encourage young consumers to step up to spirits brands, opponents say.
Marketers are taking the criticism seriously and taking responsible action. Guinness/UDV has promised that at least 70% of the target audience of any media it buys must be legal drinking age or older. And it has devoted a substantial portion of its media budget to a responsible drinking campaign.
Miller and Allied-Domecq noted that they would take pains to address ATF and advocacy group concerns about labeling and marketing before their products are introduced.
Hard lemonades also stirred up a storm of controversy when they hit the market. Marketers were accused of promoting the “alco-pops” to underage consumers. That storm blew over, however, and it’s likely this latest will, too.
Got Lemons, Make Lemonade
For their part, hard lemonades continue to make inroads and are helping the category increase its volume and share. After the initial influx of brands several years ago, the category has settled down with survivors like Mike’s Hard Lemonade from Mike’s Hard Beverages getting stronger.
Two Dogs was acquired by Pernod Ricard recently, giving that spirits company an entree into the malternatives category. The brand should benefit from its new parent company’s size.
A-B’s Doc Otis dropped “Otis” to become just “Doc’s” this spring. Humor-based ads and a product-based spot to raise awareness of what the product is are part of $19 million in support this year. A sailboat-themed program this summer reinforces appropriateness of outdoor usage as well as how refreshing and drinkable the product is.
United States Beverage has become a major player in the malternatives category, having picked up Hooper’s Hooch, Rick’s and Seagram’s Coolers. Hooch introduced orange and berry flavors this spring, giving consumers even more choices.
“Look at what the product is inside the bottle,” said Jerry Greenstein, vice president of marketing. “Smirnoff Ice is a lemon-citrus flavor, just like Hooch or Mike’s. So is Bacardi Silver and Skyy Blue. Lemonades reignited this category, but flavors will differentiate products in the category.”
The company is betting that the wide range of flavors among its three brands will help all of them grow. To help promote its new flavors, Hooch is supporting them with a “Play Hard” sweepstakes promotion offering consumers chances to win a trip to Italy and motor scooters among other prizes.
Now that there are even more products in the category that address a wider variety of usage occasions, growth may be even stronger.
“If you look at international trends and how the category has done in the U.K. and Australia, you’ll see 10 years of growth, and it continues to grow,” Stickler said. “We don’t have the sense that it’s a fad at all, so we intend to get out there with strong brands, brands that carve out the most unique spots.”
Industry experts, in fact, suggest the category could grow to represent anywhere from 5% to 7% of beer industry sales. The category also appeals almost equally to men and women, which opens up new opportunities for marketers, but also poses new challenges.
“It requires a new way of looking at and advertising the brand,” Stickler said.
Skyy Blue, for example, is playing up the visual appeal of its packaging and buying space in women’s magazines as well as men’s.
Coors has given Zima a more masculine look and targets advertising to men, but has tried to make them appealing to women as well. Vibe, on the other hand, targets male consumers even more directly.
Best of all, however, so far the products seem to be bringing new drinkers and incremental sales to the malt beverage industry.
“What’s great is that it’s almost all incremental to the beer business,” Stickler said. “Only about 40% of sales is coming from beer drinkers.”
Should you hop on the bandwagon? Tastes do change. But even if malternatives eventually lose their luster with consumers, it ought to be a heck of a ride. *