A hallmark of American culture since our earliest days is our love of whatever is new and different. And that love has fueled some interesting cultural phenomena from the hula hoop to the pet rock to the Osbournes. Sometimes the newest idea doesn’t get beyond being the latest fad and sometimes becomes a generational touchstone that sets off new trends.
The adult beverage industry has certainly had its share of the new and different, the brief fad and the long-lasting trend. In the late 1980s the industry was abuzz with wine coolers.
Now, there’s a buzz about flavored malt beverages. And whether they are a trend or a fad, there’s no doubt that malternatives have made a place for themselves in a marketplace crowded with choices. From recent sales reports it seems clear that at least some of these brands have a future.
“We in the on-premise business hate anything we have to sell in a bottle because of the space it takes up,” says Tim Johnson, director of purchasing and beverage operations for Champps Entertainment. “Cooler space behind the bar is at such a premium that the last thing we want to do is introduce a new category into the equation. But that said, our guests and what they desire overrides all of that.”
The question is: Is there a market for these things? “You bet there is,” says Johnson. “With the dollars being spent on advertising and with the power of the brand names involved, how can there not be?”
“People want them, so we have to carry them, It’s as simple as that. We mandate that each unit must carry malternative beverages, but I don’t say which ones. It’s not for me to sit here in my ivory tower and tell the unit manager which ones are going to work in that market. Unless we’re running a promotion, and we have with Smirnoff, with Skyy and with Bacardi, in which case it goes throughout the chain.”
Johnson also mentioned that this excitement was reminiscent of the hullabaloo in the early days of wine coolers, which also included large budgets for television advertising.
CREATING THE MARKET
When coolers exploded onto the scene there was, as periodically occurs, a tremendous surplus of inexpensive California wine. This mix of wine, fruit juices and flavorings became 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 quickly that numerous experts believed that the products were going to turn America into a real “wine drinking” nation.
But ten 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 about microbrews and specialty beers. As many jumped 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.
The lesson from wine coolers seems to be that those who get into the game early 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 innovations in the 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. 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, is the big winner in that segment. 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
What 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 behind them.
Coming out of the box first, 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, in the off-premise business, 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.
“We do about 20% of our business in the on-premise sector, which is about what traditional beers do, so obviously on-premise is important business for us,” says Tom Rose, vice president of customer marketing for Diageo’s Guinness USA, of Smirnoff Ice. “In that area we’re doing two-to-one volume in the bar vs. the dining room in restaurants. The bar environment is where we want to be and it’s where the 21-to-29-year old is spending time.”
Operators seem to agree with Rose’s comments about the age demographic that is most interested in these new brands.
“The audience we have for these is women and young people under thirty,” says Tracy Finklang, corporate beverage manager for Rock Bottom Restaurants. “They’re great for those who want to hold a bottle but still want something slightly sweet.”
And that description of the on-premise customer for malternatives probably sums it up best. They are ideal products for people who order a beer because they like everything about it–the single service aspect, the long-neck bottle, the consistency from drink to drink except the taste.
What’s somewhat surprising from Finklang’s comments is not who the audience is, but that there is an audience at all in Rock Bottom units which are known for their beer service.
Rock Bottom mandates three brands– Smirnoff Ice, Woodchuck Cider and Mike’s Hard Lemonade in every unit, include the units with breweries, she explains. In the Chicago market, Zima joins the lists in all the Old Chicago restaurants.
“Over the long term I don’t know if the category has staying power so much as a few brands do,” she continues. “I think the ones that got out there first will be the ones that stick around or new ones, like Bacardi O3 that are different enough.”
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.
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 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.
Of course, just placing the name of a well-known spirits brand on the bottle was 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.
And other well-known names have also turned up in this arena. US Beverage company, which also markets Seagram’s Coolers, recently debuted Seagram’s Smooth flavored malt beverage in two flavors citrus and red, a berry flavored version — claiming to have less sweetness and lighter carbonation than the leading RTDs. And while the initial primary emphasis on this brand will be off-premise, the company has also been exploring on-premise opportunities with a number of chains.
The continued growth and success of the category remains to be seen and certainly this summer season will be very important.
“From what I’ve seen, I think they’re doing okay, but the business is coming from a cannibalization of other drinks,” says Tim Johnson of Champps. “They’ve taken sales from beers and possibly from some of the lighter distilled spirits drinks. I don’t think they’ve brought us any additional business.”
“Like the wine coolers, it’s a business driven by the advertising and I think ultimately, like the wine coolers, it will end up with altogether five or six brands.”
“I’ve given authorization for three Bacardi Silver, Skyy Blue and Smirnoff Ice,” says Stan Novack, vice president, concept development, HMS Host. “But from our perspective, they’re almost a distraction. My customer base is not the 21-to-29 year-old. Our demographic tends to start at 35-to-38-year-olds.
“With that in mind we’re spending much more time focusing on imported beers, both bottles and draft. They can generate significantly more volume and profit for us. Frankly, if I’m going to sell a Skyy product, I’d much rather that it was a drink made with vodka. It’s going to bring more to the bottom line.”
And so while not all operators are firm believers in the category as whole, virtually everyone seems to agree that these malternative beverages have established a viable place for themselves. And in all likelihood we’ll be talking about some of them for years to come.