Flavored malt beverages need a father figure.
Malternatives – the citrusy, fruit-driven spin on low-alcohol, fermented malt – spent much of the 1990s rockin’ out. There was ice this and twisted that.
Then 2002 came and something changed. Interest faded, sales stalled, and flavored malt beverages started to look a lot like everything else in the brewing category: awkward, ungainly and eclipsed by a growing a wave of craft brew, imports and super-premium spirits.
“The category definitely is not what it was,” counseled Pat McGauley, Anheuser-Busch’s vice president for innovation.
So where does brew’s one-time enfant terrible turn to recapture his mojo?
Flavored malt beverages (FMB’s) seems to have sought out distilled spirits in every home liquor cabinet and upscale bar it can find. Led by Anheuser-Busch, which has teamed up with Bacardi Beverage to roll out a mojito-inspired flavored malt beverage, brewers have come up with a casino’s worth of cocktail-inspired malternatives. Clearly hoping to capitalize on the public’s uncertainty behind the bar, flavored malt beverage makers have thrown on an apron and begun muddling up a storm.
“Consumers want to create the bar experience at home, but prefer the convenience of simply opening a bottle to mixing a series of ingredients,” said Roman Shuster, analyst at Euromonitor, a Chicago-based research firm.
The last five years have been an awkward adolescence for FMB’s. Stoli Citrus, Skyy Blue and several other fresh faces have debuted and dried up.
According to Information Resources Inc., which tracks food and beverage purchases at supermarkets, convenience stores and mass merchandisers, excluding Wal-Mart, total case sales for flavored malt beverage brands fell 9 percent to 7.2 million cases during the first eight months of the year. Price resiliency helped float revenue somewhat: total dollar sales, according to IRI, are off by only 5 percent to $213 million during the same period.
“They’re just not as popular as they were,” conceded Brian Ksiazek, manager of the Beverage Superstore in Suwanee, Ga., just north of Atlanta. Like many package stores, Beverage Superstore still dedicates a significant amount of its 10,000 square feet to malt-based coolers such as Smirnoff Twisted V and Mike’s Hard Lemonade, but Kziazek said sales are much more cyclical and impulse driven than they were five years ago.
“Whatever is popular in the bar, it definitely helps if you have a flavor to match it,” Ksiazek said. “If I don’t have something, inevitably that’s the one consumers want, that’s pretty much the way it works, so I try to carry everything,” he added.
The sophomore slump isn’t just a problem for brewers, many of which have complex agreements and hedges in spirits or import beer. With their fashionable flavors and lower alcohol content than distilled spirits, flavored malt beverages sell for a higher price and occupy an important niche between super-premium spirits and the cutthroat world of mass domestic brew. A six-pack of 12 oz. Bacardi Silver Mojito generally retails for $7.99, several dollars more than your average domestic brew, generating higher profit and requiring fewer turns for the same amount of work.
“There absolutely is a margin play,” McGauley said.
Zsoka McDonald, media director at Diageo North America, owner of Smirnoff Ice, the category’s leader, notes another thing is happening as well. Because flavored malt beverages are generally between 4 percent and 5 percent alcohol by volume, with a much different flavor profile than either spirits or beer, they are appealing to a different consumer and not cannibalizing sales elsewhere in a store’s beer cooler.
“Space is a big concern for our retailers,” McDonald said. “Our research shows that at least two-thirds of (these) progressive adult beverage sales are incremental to beer. People are buying beer, but they are picking this up as well,” she added.
Where Cocktails Come to Play
The influence of spirits on flavored malt beverages goes back as far as Zima. The first malternatives, and category stalwarts like Smirnoff Ice, are still sweeter spins on a vodka tonic or a G and T. But as demand for super premium spirits and ultra-chic cocktails has shot up, the number and variety of flavored malt beverages options has exploded.
Diageo’s portfolio alone includes Smirnoff Twisted Watermelon, Twisted Raspberry, Wild Grape, Green Apple; Captain Morgan Parrot Bay Wave Runner; Smirnoff Ice Arctic Berry; and this year the company began testing Smirnoff Source, a malt based beverage combining pure spring water and roughly the same amount of calories as light beer.
Not to be outdone, Bacardi offers Bacardi Silver Raz, Silver Strawberry, Silver Mojito, Silver Peach and Silver 03, an orange and citrus flavored malt beverage.
“We try to keep the category refreshed and keep it updated with not just new flavors, but the flavors everybody is talking about. This category really thirsts for what’s new and what’s next, that’s why you see so many new flavor launches and so many flavor extensions,” McGauley said.
All the refreshment can lead to a fair amount of copying. Earlier this year Diageo launched Smirnoff Raw Tea following Boston Beer Co.’s success with its line of fruit tea-flavored malternatives. This month, Anheuser-Busch will launch Bacardi Silver Pomegranate Mojito, its own spin on pomegranate following Diageo’s April launch of Smirnoff Ice Pomegranate Fusion.
Although the field can become crowded at times, Diageo’s McDonald said it is important to build bridges to audiences now, while their preferences and loyalties are still up in the air. In many cases, those markets are important or underserved markets who aren’t having their expectations met by either mainstream beer or spirits labels.
“We have found that the Progressive Adult Beverages appeal to some of the fastest growing segments of the population: hispanics, African Americans, and 25- to 29-year-olds. These populations are growing, so establishing market share now can mean significantly more sales down the road,” McDonald said.
And while spirits growth is based on the young and the affluent consumers splurging on premium brands on-premise and at bars, brewers see another, different potential in ready-to-drink FMBs. Their growth is based on convenience and taste and isn’t locked in to a young, party-going demographic.
“We see trading up throughout all of our categories, but pre-made cocktails are all about satisfying a need,” A-B’s McGauley said. “Cocktails are what people are drinking in bars, they are what is trendy now, but not everyone wants to go to the bar. A lot of people have kids and have mortgages and they’re not going to stay out all night. What they really want is to recreate that experience they had when they were young and going to the bar, but with something that tastes good and tastes authentic.”
For that reason Bacardi’s Silver flavors, like the mojito, are aimed at a more broad population. The targeted audience is 21 to 49 years of age, more coed than one would expect and average to above average in household income, McGauley said.
“They may not be drinking these all of the time; they are going in and out of (the category), based on what the situation is,” McGauley said.
The Mojito has no Bacardi rum in it, but comes in 12 and 24 oz. bottles as well as 12 oz. slim cans. A six pack of 12 oz. bottles generally retails for $7.99, about the same as a premium brand import or microbrew.
The brand’s applied plastic label and transparent glass are important to showing off its milky white appearance and recreating that feeling of an freshly, muddled mojito, McGauley said.
“You can win consumers over with convenience, but there are a lot of hurdles to keeping them and sooner or later it comes down to delivering on taste and the taste definitely has to be there,” McGauley said.
Diageo also sees flavored malt beverages as a vehicle for fashionable new cocktails to reach a wider audience. The company, which saw double-digit growth in its Smirnoff Vodka brand for the year ending June 30, is expanding its flavored Smirnoff Twisted V and Captain Morgan Parrot Bay lines, modeled after the group’s flagship vodka and rum brands, but made from a clear malt base.
This summer, Diageo introduced three new flavors – Smirnoff Raw Tea, Smirnoff Ice Pomegranate Fusion and Captain Morgan Parrot Bay Pineapple Colada – to its already large stable of flavored malt beverages.
“Across the food industry people want choices. Take something like yogurt; walk into a supermarket and look at how many different flavors of yogurt there are. People want something new,” McDonald said.
At the Front
At Beverage Superstore, the link between trendy new cocktails and the beer cooler seems to be gaining some traction. Bacardi’s new Silver Mojito in particular has been a hit. The store now orders five or more cases regularly, although Smirnoff’s Twisted V flavors are still the store’s best-selling coolers.
“That Bacardi Mojito has been on fire,” Kziazek said.
Of course placement plays a big role. Over the summer a local distributor encouraged Beverage Superstore to place Bacardi’s Mojito on display close to a register. The move had the desired effect. In no time, sales of the Mojito more than doubled from one or two cases a week to five.
Euromonitor’s Shuster credits beverage makers and retailers with increasing sales of malt-based coolers. Together, distributors and retailers have become more saavy in marketing flavored malt beverages, relying more on brighter packaging and better placement, next to popular beer brands to encourage experimentation without cutting into overall beer sales.
Although overall numbers haven’t been as promising since 2002, many analysts, like retailers still see promise in the flavored malt beverage category. Trends, like the continued shift from densely packed cities to suburbs, has created a favorable environment for ready-to-drink flavored alcoholic beverages.
“Although consumers are substituting a gathering at a friend’s house for a trip to a bar or nightclub, they still want the unique colors or flavors that come in a cocktail,” Shuster said.
Shuster sees the boom or bust growth of flavored malt beverages stabilizing somewhat and value increasing slightly even as volume declines.
Sacramento Slips a Mickey
One fly in the ointment could be states like California. Last month, regulators in the country’s most populous state voted to raise the state’s tax on flavored malt beverages from 20 cents per gallon to $3.30 per gallon, to bring flavored malt beverages more in line with premium spirits.
Brewers say the move is based on a fundamental misunderstanding of how flavored malt beverages are made and how much alcohol they contain. Since they don’t contained distilled spirits, flavored malt beverages generally contain about 4 percent or 5 percent alcohol by volume, closer to a major domestic brew than a cocktail. But because they carry the brand names of distilled spirits, and a much sweeter flavor profile, flavored malt beverages have raised the ire of the anti-drunk driving and childhood production lobby, which has derided the malternatives as “cocktails with training wheels” and “alcopops.”
Lawyers for the industry have said it is too early to say whether the industry will sue to block California’s measure, which is scheduled to take effect in July 2008, but if the higher tax rate were to spread to other states, it would add a difficult hurdle to an already treacherous road back to growth for the category.
Spokespersons for both Anheuser-Busch and Diageo North America declined to comment on the California legislation, referring questions to previously published statements.
Brewers are not taking any time off, however. Diageo is testing its Smirnoff Source product in 15 northeastern states including Michigan, Ohio, West Virginia, New York, Pennsylvania, Maryland, Delaware, Washington, DC, Connecticut, Massachusetts, Rhode Island, Vermont, New Hampshire and Maine. After hearing about consumers mixing tomato juice with beer to make Red Eyes, Anheuser-Busch also is teaming up with Clamato to test Chelada, a spicy tomato-beer cocktail that combines Clamato with either Budweiser or Bud Light.
“There will always be a set of consumers looking for these products. It may not be that they drink them 100 percent of the time, but I think there is always going to be a place for these drinks,” Anheuser’s McGauley said.
“Whatever is popular in the bar, it definitely helps if you have a flavor to match it,”
Brian Ksiazek, manager of the Beverage Superstore, Suwanee, Ga.