Malternatives Adjust, Move Forward

By Ray Latif

Faced with last year’s crippling FDA ban on the addition of caffeine to alcoholic beverages, a number of malternative brands were left for dead as many assumed that the drinks, stripped of their energy, would lose their allure and crumble as quickly as Superman wearing a crown of Kryptonite.  However, malternatives proved that they are not only alive and well, but soaring their way to the cash register through the undeniable popularity of the beverages as well as a greater emphasis on innovation from brands within the space.

Nevertheless, state and federal regulators continue to take aim at the beverages, claiming that malternatives’ high alcohol content, sweet flavor profile and colorful packaging encourage binge drinking and underage use.

Based on sales data over the past year, it’s clear that the FDA’s ban has done little to affect consumption of malternative drinks. Flavored malt beverages accounted for nearly $1 billion in sales over the last 52 weeks, up 6.7 percent over the same period last year, according to Symphony/IRI data. And in the face of consistent and vociferous criticism from state and federal regulators – concerned that the high alcohol beverages are often abused by those both above and below the legal drinking age – the malternative category is thriving.

Two of the most popular malternative brands, Four Loko and Mike’s Hard Lemonade, combined for over $460 million in sales over the past year and are expanding their reach to a variety of demographics with new products and flavors. At the same time, longstanding beer brands, including Pabst Blue Ribbon and Mississippi Brewing Company, are leaping into the category with “me too” types of drinks. Pabst debuted a new fruit flavored 12 percent ABV product called Blast by Colt 45 in April, while Mississippi Brewing recently launched Arnold Palmer Hard, an alcoholic version of AriZona’s Arnold Palmer iced tea and lemonade combo line.

As the category continues to grow and expand, three key trends have emerged as brand producers look to spur greater consumption and profits.

1. Glass packaging. Though a majority of malternative brands have embraced the large format can, a package popular among younger consumers and the one most often sold in convenience stores, a number of companies have added a glass bottle option as a way to introduce their products to a wider range of demographics and gain entry into new retail channels such as grocery and mass markets. Leading the way are United Brands, which released new 12 oz. glass bottles for its JOOSE malt beverage line in January, and Phusion Projects which recently added a new 8 percent ABV line of 11.2 oz. glass bottles to its line of Four Loko products.

2. Variety packs. Following the success of the format seen in the craft beer industry, variety packs are becoming increasingly utilized by malternative producers, North American Breweries (NAB) introduced its new Seagram’s Smooth line with both 12- and 24-count variety packs containing each of the line’s four flavors. Similarly, Four Loko’s new glass bottle line debuted with 12-bottle variety packs featuring all three flavors.

3. New lemonade flavors. Though Mike’s Hard Lemonade is the undisputed leader in lemonade flavored malternative beverages, a number of companies within the space have added lemonade flavors to their portfolio of beverages within the past year. Lemonade itself is a beverage on the rise, and its infusion into malternatives appears to be a natural progression. Jeremiah Weed, NAB’s Seagram Smooth, and Phusion’s new Poco Loko line have all included lemonade flavors to their
brand line-ups. Not to be outdone, Mike’s has introduced Mike’s Harder, a new higher alcohol line of its lemonade drinks.

Despite vast financial success within the category, malternative brands still face intense scrutiny from government regulators and elected leaders. In October, Phusion Products agreed to re-label and repackage its 23.5 cans of Four Loko in order to resolve Federal Trade Commission (FTC) charges of deceptive advertising. The FTC alleged that Phusion misrepresented Four Loko by claiming that the beverage contained an amount of alcohol equivalent to one or two regular 12 oz. beers. According to the FTC, “one can of Four Loko contains as much alcohol as four to five 12 oz. cans of regular beer and is not safe to drink on a single occasion.”

To resolve the charges, Phusion will be required to include alcoholic content disclosures on the labels of its products that contain more alcohol than 2 ½ regular beers. Additionally, the company will have to use resealable containers for any products that have more alcohol than the equivalent of 2 ½ regular beers.

Additionally, the attorneys general of 35 states recently asked the FTC to impose even more stringent marketing guidelines on malternatives.  Suggested guidelines include prohibiting the sale of flavored malt beverages in containers exceeding 12 ounces and limiting the number of alcohol servings per can to two standard drink. According to the AGs, label disclosure and a resealable package do not eliminate binge-drinking risks.

Nevertheless, it wouldn’t be surprising to see malternatives continue to flourish in spite of greater regulation. In pushing the category this close to the $1 billion mark, the companies in the space have shown a remarkable ability to adapt and evolve in order to protect their booming businesses.