This summer, brewing giant SABMiller bellied up to the bar and bought itself a brand new brand: it paid $215 million for Sparks, a fairly new caffeinated drink that swept out of the West Coast to become, in 2005, the nation’s third-largest flavored malt beverage.
Isn’t that too high a price to pay for a possible flash-in-the-pan brand in a category that fell 6.1 percent last year?
Most major brewers don’t seem to think so. In fact, while well-known mass domestic premiums like Miller and Budweiser have seen wounded sales over the past few years, brewers continue to rely on a steady flow of new flavored malt beverages to stanch the bleeding. The strategy seems to be working. So far this year, while sales of domestic premium beer have been falling – they’re off almost 2 percent – sales of flavored malt beverages, also known as malternatives, grew by roughly the same amount, to $167 million for the year to date period ending July 16.
Although that’s slower than the stratospheric growth rate experienced when malternatives first hit the market, the trend has stabilized on an upward curve. In the first month of the summer, malternative sales rose nearly 5 percent.
For brewers, and retailers, that represents a fast lane in the slowdown in premium beer sales, much like the Autobahn ridden by high-end craft and import beers of late.
“When you look at what’s going on in the beer industry it’s really craft brews and malternatives that grew in the last 52 weeks. What’s flagging is the domestic brew,” said Fred Gambke, senior vice president of national accounts and sales development for United States Beverage, the U.S. distributor for Seagram’s Coolers.
So in the face of declining domestic sales, malternatives have become a pleasant diversion for both consumers and producers. While craft and imported beers have been capturing domestic brewers’ once-loyal customers, malternatives have become a forward-deployed launching pad, ready to seize and exploit shifts in consumer tastes and fads that bridge the gap between the beer and the back of the bar, like ready-to-drink cocktails and fast-mixed energy drink and vodkas. And for retailers who don’t make their own drinks and are looking for a weapon in the battle against poor domestic sales, malternatives are a fine arrow in the quiver.
The Flavor Trade-Up
So what are malternatives? Like beer, flavored malt beverages are brewed from toasted barley, or malt. After making a neutral malt base, brewers add a variety of flavors, ranging from iced teas and ciders to ready-to-drink cocktails.
“A lot of our drinkers have had it up to here with beer,” explained Brian Chu, vice president and general manager of the Twisted Tea Brewing Co., an iced tea-flavored malternative, “For them Twisted Tea is a great alternative, especially on a hot day when you want something refreshing that doesn’t fill you up – like beer.”
Although taste may be consumers’ foremost consideration, for retailers, a main advantage for FMB’s is that they don’t have the same depressed selling price as most mass domestic beers, which have fought through years of withering price competition.
While a 6-pack of 12 oz. Budweiser or Miller bottles, for example, may cost retailers $4 and sell for $5.49 plus deposits, many malternatives retail for 30 or 40 percent more, commanding slightly better margins. And while their drinkers aren’t necessarily the well-heeled, better educated types who are often though of as seeking out craft or imports, that doesn’t mean they can’t afford the product.
“Usually our drinkers are a little bit more established. They are to a point in their life where paying a few bucks extra for a 6-pack isn’t a problem,” Chu said.
For retailers, the same 6-pack of Twisted Tea, for example, can cost $5.25 plus deposits and sells for anywhere from $7 to $7.50, a 30 percent profit, Chu said. That’s roughly the same profit as craft or import beers and nearly a quarter more per 6-pack than many mass domestics brews.
While most package stores are leery about adding new products to their already stuffed displays, the margins available mean that most are more than willing to take on a premium malternative product with a more advantageous price point.
“If I’m a convenience store owner, I’m not into any low-end price driven product; It’s just too hard to compete anymore,” said Troy Valdez, president of B2 Beverage Co., which makes Kalima Hawaiian Hard Creamer, a line of creamand tropical-fruit flavored malt beverages. “On the other hand, if you have a premium product that is at a premium price, it seems even retailers are looking for that,” Valdez added.
Mark Selner, beer buyer for Surdyk’s, a Minneapolis- based liquor store that bills itself as the Midwest’s largest, certainly agrees. Selner says malternatives are popular with customers who want something different than beer, but who often find harder spirits or wine too confusing.
“You sell a lot of them to people who are buying for a party. It’s a lot of: ‘Let’s get this in case some people don’t want beer,’” Selner said.
There is a problem with malternatives, as their fast-turning flavor profiles often start out strong, then fizzle out after a short experimentation period.
“The next wave didn’t always become the next best wave,” he admits.
Still, Selner doesn’t foresee the Minneapolis store cutting back on its malternative section any time soon. So far this year, Surdyk’s has already introduced several new malternatives, including Budweiser’s Peels line of fruit-flavored malt beverages, Diageo’s Parrot Bay rum flavored malt beverage, and Mike’s Hard Lemonade’s margarita flavored premium malt cocktail, the Mike- A-Rita. The selections usually find a niche in the store, Selner explained, and an advantage to the fast-changing flavor selection means that those that don’t can usually be quickly replaced by a new version.
“It’s like wine. You have to have the $3 bottle and the $100 bottle, you have to cover the whole board,” he said.
A “Hard” Midlife Crisis
Kevin McLaughlin, vice president of marketing for Mike’s Hard Lemonade, sees a less advantageous parallel between the FMB industry and the craft brewing craze: Constantly changing flavors, and in some cases new functionality, like caffeinated malt beverages, have become almost a mantra for the industry, and that can reap confusion.
“Right now it’s all about variety,” McLaughlin said. But, he wonders, with so many brands doing so many things, are producers adding to their brand’s popularity with consumers, or diluting the brand’s image with a basket of meaningless gimmicks.
“Right now I think there are so many different brands doing so many different things, not everybody’s brand is standing for something. To have a successful brand, it does have to stand for something,” he said.
But that doesn’t mean McLaughlin sees all malternatives winding up in the dustbin of history. He sees a few FMB brands weathering the present storm, leading the category to an even steeper growth curve, the way craft and import beers have climbed back on top of the pecking order.
Earlier this year, Mike’s Hard Lemonade introduced the Mike-a-rita, which has twice as much alcohol – 10 percent – as its flagship brand, Mike’s Hard Lemonade. So far the market’s reaction has been positive. Overall sales were up 6.7 percent in the 13 weeks leading up to July 16, McLaughlin said.
“In a world where time is precious, convenience is another area where consumers are looking for value,” he said.
Toasting your inner Bubba
The Twisted Tea Brewing Co. is taking a slightly different tack with its branding campaign. Since 2001, Twisted Tea’s natural ice tea flavor has made it slightly more popular with men than other flavored malt beverages, Chu said. Still, as with any flavored malt beverage, Twisted Tea has fought to keep it’s male demographic happy.
Recently, to help reaffirm it’s masculinity, it went long with Tony Siragusa, a boisterous former Pro Bowl defensive tackle for the Baltimore Ravens, as its on-air celebrity endorser. Siragusa has since begun promoting Twisted Tea on Fox Nflas well as with a nationwide advertising campaign with the tagline “Real Tea, real hard, real smooth.”
“Tony Siragusa looks like an everyday guy. Guys think, ‘if that guy can drink a Twisted Tea, I can,” Chu said.
So far, the company hasn’t received data on the effectiveness of its new brand campaign, but Chu said sales for the past 52 weeks ending July 16 were up 39 percent over the previous year.
“If you can get 39 percent year-over-year growth in an industry that has been pretty flat, it’s a pretty big boost,” Chu said.
The effort, however, shows the extent to which malternatives struggle to attract and retain male drinkers. For many male consumers, flavored malt drinks just aren’t macho enough to break open at any old barbecue.
“The category constantly fights to hold onto its male demographic,” McLaughlin said.
Mike’s Hard Lemonade has had to push the acceptability of its malternative, as well. This year, for its nationwide advertising campaign, the Seattle-based company went with a series of humorous radio ads in which a hopeless romantic tries to seduce women, including a skeptical dating coach. The ad delivers the unisex message without offending women the way some beer commercials do.
“Our strategy is about speaking to men ages 25 to 34, but at the same time we don’t want to alienate women,” McLaughlin said.
But other producers don’t shy away from FMBs’ popularity with women; instead, they flaunt it. Taking product placement and sleek new packaging to a new level, these flavored malt beverages seek to capitalize in a world where image is everything.
So when Australia’s Star Beverages LLC looked for a product it could bring to the US market after a failed vodka product, it saw a huge gap between what female consumers wanted and what was available from U.S. producers.
Last year, the company launched , a line of green apple, wild passion fruit and raspberry malternatives with the slogan “Star Ice: Ice Me Down Under.” The beverages, which came in specially-designed, slim 10 oz. bottles, flaunted their colors and fruit flavors with souped-up packaging.
Star Ice also took an even bigger gamble, negotiating to bring on LaToya Jackson as pitchwoman and part-owner in the company. When Jackson purchased a stake in the company, Star Beverages got the drink included in celebrity gift bags for the Golden Globes and the dedication of the new $40 million Palms Hotel pool in Las Vegas, Nev. That led to spots being done with celebrity news shows.
“We’re all about the celebrity bling bling thing,” said Joey Sulfaro, president and founder of Star Beverages LLC.
Brewed domestically, Star Ice has found a following in Nevada, Lousiania and Pennsylvania, where it is brewed. Last month, the company launched distribution in Connecticut, Rhode Island and Minnesota.
Jeff Smith is banking on another advantage malternatives have: their ability to incorporate other trends manifesting themselves elsewhere in the beverage industry. When a friend introduced him to pre-party cocktails of the Red Bull-andvodka variety, Smith sensed a market among twenty- and thirty-somethings who wanted a drink that brought up their energy and allowed them to drink at the same time.
While other malternatives may stop at a pretty face or refreshing taste, Smith, who is 26, says Catalyst, Sparks, and other caffeinated malt beverages appeal to a younger generation that needs a drink to help keep them awake, not put them to sleep.
It’s a tricky road, no doubt, as Anheuser- Busch found last year with its ill-fated BE and one that Rockstar is still trying to navigate with 21. But Smith still thinks there’s opportunity in the energy malternative segment.
“We’re just adding to that phenomenon and really trying to take advantage of something new in the marketplace where beer has left off,” he said.
Smith says Catalyst solves the problem of always having too much alcohol or too many energy drinks left over.
“It’s more convenient for the consumer, it’s more convenient for the bar and it’s pre-mixed into something you can buy for a lot less than vodka and 35 cans of Red Bull separately,” Smith said.
Special care was made to make the bottle opaque and the taste relatively light to make it seem more masculine.
“To me a clear bottle and a clear beverage screams out (the now struggling brand) Zima. Catalyst lends itself to a second bottle because it doesn’t leave you with a sugar hangover,” he said. Smith says Catalyst blends a light citrus taste and a neutral malt base together in a 12 oz. aluminum bottle that sells for $7.99 a 4-pack or $1.99 each, the same as an energy drink.
He hopes to have the product ready for distribution this month, but he already sees more opportunity for flavored malt beverages. With premium packaging and added functionality, Smith doesn’t see why every major spirits manufacturer or brewer can’t have a successful malternative supporting their traditional product lines.
“We don’t see this as the end of the party,” he said. “We see it as the beginning.”