Malternative Maximization

No matter how you measure it, when it comes to the consumption of adult beverages there’s no doubt that in this country beer is king. Yet, even though Americans consumed more than 2.8 billion cases of beer last year, there are a significant number of adult consumers who just don’t care for it. They like most aspects of the beer lifestyle — portability, single-serve packages, consistency of quality and flavor and brand image identification. But they belong to a generation that grew up on sweetly flavored soft drinks and fruit juices and they just don’t like the taste of beer. For them, flavored malt beverages — whether hard lemonades, the latest spirits brand-inspired concoctions or some other variation on the theme — are an ideal choice. bacardi03SixPack

The orange-flavored Bacardi Silver O3, also launched this year, extends the Bacardi Silver brand.

As most retailers can attest, there has been a tremendous amount of activity in the malternative business in the last year and a half as Smirnoff Ice and Mike’s Hard Lemonade continued on their growth track, and rollouts of a wide array of products with both familiar and newly coined names continued. According to first quarter data from IRI InfoScan Reviews, the category is still going strong. In a presentation to an audience of retailers, supermarket executives and beverage industry representatives at the recent FMI Show in Chicago, IRI vice president, analytic product management Valerie Skala, noted that malternatives are currently the most exciting and explosive category in beverage retailing. Based on recent supermarket sales data she pointed to Smirnoff Ice, Bacardi Silver and Skyy Blue as brands to watch. In her talk she also noted the importance of introducing new brands to stimulate category growth.

What many malternative beverages offer is the best of both worlds — something new that is instantly familiar.

Creating The Market

When attempting to assess the continued viability of the malternative business, perhaps it would be helpful to look at a couple of earlier trends that had the industry all atwitter.

Smirnoff3B

Smirnoff Ice Triple Black debuted earlier this year as a premium line extension to the successful Smirnoff Ice.

At the time wine coolers exploded onto the scene in the mid-1980s there was, as periodically occurs, a tremendous surplus of inexpensive California wine available, which helped this low-priced mix of wine, fruit juices and flavorings become an overnight sensation. In 1987, the category’s peak year, Americans consumed more than 53 million 9-liter cases and wine coolers claimed a 22% share of the total wine market. The cooler business had gotten so big, so fast that numerous experts put forth the theory that finally the industry had found the products that were going to turn America into a real “wine drinking” nation. But 10 years later, in 1997, there were only three brands to speak of and the category had dropped to a mere 5.5 million cases and a 2.65% share of wine consumption. By the end of last year, volume had fallen as low as 1.4 million cases and a 0.6% share of the total wine market.

In the mid-1990s the new excitement was all about microbrews and specialty beers. As everyone and his uncle tried to jump aboard that bandwagon, a number of good brands overextended themselves and a lot of investors lost money. But there were lessons to be learned from both experiences and they may help answer some of the current questions about malternatives. 6803PRD01

Skyy Blue remains one of the popular brands in the flavored malt space.

The lesson from wine coolers seems to be that those who get into the game early in a big way and make the most noise (Bartles & Jaymes and Seagram’s) are likely to reap the benefits of any future the category may have. From the micro/craft beer experience, we’ve learned that the American consumer shows little evidence of sticker shock when asked to pay top dollar for a product with perceived attributes (quality, brand name, image) that make a higher price worth it.

But like with any overnight success, there was much trial and error on the way. The first flavored malt beverage to make any kind of impact on the scene was Zima, which Coors unveiled in 1993. (This was around the same time that Miller test marketed a clear beer that seemed to have potential but couldn’t find an audience.) Zima, which was initially backed with a huge multi-media ad campaign, peaked the year after its introduction when it hit 16 million cases. Volume dropped as low as 5.8 million in 1997, climbed back to 8.4 million cases in 2000 before beginning to slide back down to 5.2 million last year.

The next innovation in flavored malt beverages came with the influx of hard lemonades. Hooper’s Hooch, a brand big in Australia, hit U.S. shores in 1996 and was followed by a wave of similar brands. The big winner in that segment has undoubtedly been Mike’s Hard Lemonade, a brand which according to Adams Beverage Group research has moved from 1.1 million cases in 1999 to 11.5 million in 2002. Mike’s, which has used both print and television campaigns to establish a strong identity, has continued to grow on an annual basis while all the other brands (Hooper’s Hooch, Two Dogs, Doc Otis, Rick’s Spiked Lemonade and Jed’s Hard Lemonade) were down last year.

The Brand Wave

The thing that really launched the new wave of flavored malt beverages and set them apart from earlier attempts, was the citrus-based flavor profile combined with an already recognized name and a greatly increased level of sophistication. Whereas hard lemonade has a down home folksy connotation, names like Smirnoff Ice, Bacardi Silver and Skyy Blue came with years of well-established brand imagery.

RedBottle CitrusBottle
Recently introduced Seagram’s Smooth, in Citrus and Red (a mixed berry blend with cranberry notes), is said to be less sweet than other top-selling flavored malt beverages.

Coming out of the box first, and leaving the industry gasping for breath, was Smirnoff Ice. The product finished last year at 22.5 million 2.25 gallon cases. And while that number is small relative to the major domestic beers, it puts Smirnoff Ice ahead of all imports, except Corona and Heineken, and all craft beers, including the category leader Samuel Adams (15 million cases). In most bars and restaurants, malternatives are often priced on par with imports and craft/specialty beers. On the other hand, among off-premise retailers it’s not uncommon to find a case of one of the top imported beers selling for a dollar or two less than a case of Smirnoff Ice.

“Retailers are very eager to get behind brands that deliver superpremium and import margins and meet the consumer’s need for alternative beverages,” said Tom Rose, vice president of customer marketing for Diageo’s Guinness USA, of Smirnoff Ice. “We just think it’s important to give the product visibility. Like traditional beers, the product performs well when it’s displayed.”

Yet regardless of the huge volume being realized by the category leader, many observers of the industry are skeptical of the continued growth and long-term viability.

“It’s a large category,” said John Chappell, senior vice president, marketing, for US Beverages. “What remains unclear is whether it will grow or stay stable or decline slightly. But it’s a sizable category that will be around for a number of years. There are a number of very strongly branded items in the category with strong to decent levels of support. These are brand names that people recognize and that have been around for a long time.”

Stoli.Citrona Sauza.Diablo
After a disappointing launch year, Stoli Citrona and Sauza Diablo are focusing on developing key regional markets.

US Beverages, which recently introduced Seagram’s Smooth in two flavors, is among the newest entrants into this already-crowded field. The advantage that the company brings into the game is years of experience with coolers and hard lemonades and the cachet of the Seagram name. “In one way you could argue that this is a good time to get in,” Chappell continued. “Some brands did not have a strong enough build from the parent brand. We’ve worked very hard on the product and we’re very confident in the quality. It’s less sweet and less carbonated than the two leaders and differentiated enough to have a reason for being.”

Is More Better?

Based on the phenomenal success of Smirnoff Ice, earlier this year Diageo introduced a line extension, Smirnoff Ice Triple Black, designed to help the brand enhance its leadership position in the category. “The original is still outselling its closest competitor, but Smirnoff Ice Triple Black is second or third in a number of locations,” noted Guiness USA’s Rose. “In the five months since its introduction it’s outselling some very reputable imports.”

And the leader was not alone in using the line extension strategy this year. Following the success of Bacardi Silver, which hit 6 million cases in its debut year, Anheuser-Busch and Bacardi launched Bacardi Silver O3. The new product, which draws its name from the three types of orange used in its flavoring, is a logical extension based on the success of Bacardi O, Absolut Mandrin, Grey Goose L’Orange and other orange-flavored spirits brands in recent years.

Although Skyy Spirits has introduced several flavored vodkas in the past year, there has been no announcement to date about a line extension for Skyy Blue, brewed by Miller. With a volume of 7 million cases in its first year, Skyy Blue continues to receive marketing support for both its television commercials and print ads designed to tell the brand story to retailers. Certainly, the familiar blue bottle and brand identification with one of the fastest-growing vodka brands has helped with the product’s initial acceptance.

Leading Flavored Malt Beverages

(000 2.25 Gallon Cases)

Brand Supplier 2000 2001 2002
Smirnoff Ice Diageo 310 19,880 22,450
Mike’s Hard Lemonade Mike’s Hard Beverage 6,800 11,000 11,500
Skyy Blue SAB Miller/Skyy Spirits 7,000
Bacardi Silver Anheuser-Busch/Bacardi 6,000
Zima Coors Brewing 8,400 6,900 5,240
Tequiza Anheuser-Busch 3,600 2,750 2,600
Doc Otis Anheuser Busch 2,500 2,550 2,400
Hooper’s Hooch US Beverage 2,300 2,200 1,500
Two Dogs Next Generation Mktg. 1,060 1,100 950
Rick’s Spiked Lemonade US Beverage 1,000 900 900
Vibe Coors Brewing 690
Jed’s Hard Lemonade Matt Brewing 500 520 450


Source:
Adams Handbook Advance 2003

Of course, just placing the name of a well-known spirits brand on the bottle is no guarantee of success, even with significant ad spending, as marketers of products bearing the Captain Morgan, Stoli and Sauza names discovered.

Allied-Domecq and its brewing partner, Miller, expressed disappointment in the 2002 performance of the Stoli Citrona and Sauza Diablo products, but have expressed an intention to focus on distribution and development of key regional markets for the brands.

As seems obvious from sales figures and conversations with retailers and suppliers, there is definitely a market out there for these products. Many observers however are waiting to see how the all-important summer-selling season plays out before attempting a definitive answer to the fad or trend question. A shakeout is likely, as happened earlier in the cooler and micro/craft beer segments, but it’s also likely that in some form this business is going to be with us for years to come. *

Leave a Reply

Your email address will not be published. Required fields are marked *