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04.2005

Massachusetts Beverage Business

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Article By: Lew Bryson

Alcopops, malternatives, "FMBs', hard drinks: whatever you call them - and what you do call them probably identifies your slot in the alcohol beverage business - these sweet, beer-strength drinks have had an amazing and fast-moving career. From odd and abortive beginnings in the '6Os and '7Os - StingRay, Hop'n'Gator, Red Baron, and if you don't remember these, it's probably for the best - to Zima, the first solid entry in the field, it was the hard lemonades that really got the category hot in the mid-199Os.

Anything that wasn't obviously beer got swept into the category: flavored malts, ciders, coolers, hard lemonades (and teas and root beers and so on), a whole gamut of beer-strength potions that tasted like anything but beer. And they were hot, the darlings of trend-setters, with catchy, edgy ads that made the most of their fashionable appeal. Malternatives were riding high for a few years, despite a couple spectacular failures among products that were rushed to market (the Captain Morgan and Sauza attempts come to mind). Almost every new flavor seemed to boost them higher. It was eerily reminiscent of the dot.com boom; almost anything could get on the shelf, no matter how bizarre.

Now their prospects are on the rocks. Ask anyone in the volatile, trend-driven, on-premise trade. "The alternatives? Not selling at all," responds Patrick Droesch, Vice-President of Beverages at Brinker International, parent company of Chili's, On the Border, and Romano's Macaroni Grill. "Smirnoff Ice continues to decline. We still carry it in our stores, but it could be only for the rest of the year."

Tim Johnson, the director of purchasing and beverage operations at Champps Entertainment, Inc., agrees. "They have dropped off considerably," he said. "We still offer two or three of them. The Smirnoffs are out there, pushing flavor of the month. We don't emphasize it. We do require Smirnoff Ice, but not what flavor. That's a local choice. In a couple spots they're doing well. But the South? The Northeast? Nothing. It just never caught fire."

Despite these negative trends, reports of the malternative's demise may be a bit premature. "It's actually a moving target," said Eric Shepard of Beer Marketer's Insights. "Malternatives are slightly on the rise again with the introduction of new flavors: the Smirnoff Twisted V line, and some of the new Mike's Hard flavors are doing well. But as a whole, the category is being propped up by these new introductions. The new brands are off-setting the erosion of the old brands." Shepard indicated that the category was not rising anywhere near as steeply as it had, but modest increases are a completely different story from steady declines - just ask anyone who sells brown spirits.

The core malternatives - Smirnoff Ice, Mike's Hard, Bacardi Silver, and the much-maligned pioneer, Zima - are showing double-digit drops on the last annual numbers, anywhere from 16 to 46% down from the previous year's sales. The broad swath of imitators is also down.

The pattern seems to be a familiar one. An innovative new brand comes along and catches fire due to its novelty and smart promotion. Imitators (or re-positioned precursors, like Zima and Two Dogs) spring up and ride the wave. But the hot trend dies of its own hotness as trend-setters look for the next new thing and somewhere, some priest of heat denounces the trend as over, and why did anyone ever think that was cool? The trend declines swiftly, and wholesalers are left with aging pallets of the last new thing.

It would seem to be that familiar pattern, except for the sparks of the new flavors Shepard noted. Why are these brands, which are all too obviously the same thing only different, catching the eye of the drinkers? "The new brand thing is a pendulum," Shepard said. "A lot of ice beers and dry beers came out in the early 199Os, then things shifted back to the core brands. Now it's new brands again. It's a reaction to what producers think consumers are looking for. And.people may have gotten bored with beer, too. The marketers pick that up."

After covering this industry for ten years, the cynical side of me thinks that maybe it's the marketers who have gotten bored with beer. They drive the cycle of product innovation to keep things moving, churning new labels through at a frantic pace.

And lest you think I'm only talking about malternatives, it's the same case in craft-brewing, where the extreme double IPAs and imperial pilsners are captivating the fevered minds of beer geeks and brewers alike. Rest assured, somewhere out there someone is brewing a triple IPA . . . and looking over their shoulder to watch for a quadruple. Who knows where it will lead; I just heard a sales director for a craft brewery say today, "I know one of these days I'm going to wind up trying to sell a beer made from, I don't know, the water they cooked the hot dogs in. 'Meat beer, it's new!'."

Low carb beers would seem to have been a genuine innovation, something different. The huge growth in low carb beers, like the ground-breaking Michelob Ultra, put the bona fides on that one, at least for a while. "There is no question that Michelob Ultra hit a home run," said Johnson. "Aspen Edge was too late, and then there was a lot of talk about was the name right for a low-carb beer?"

Colleen Brennan, the Beverage Manager for the O'Charley's chain, agreed. "They're still selling, Ultra particularly," she said. But she noted that Ultra's success didn't come without a price. "It did cannibalize Michelob sales somewhat, there was a trade-off."

The waters got muddied pretty quickly, too. What was a low carb beer? Was it new? Not according to SAB/Miller, who quickly countered Ultra's swift growth with a simple statement: all light beer is low carb, take a look at Miller Lite's low carb number. It didn't help when Bud Light ads seemingly agreed with Miller, and urged customers to choose on taste, not carbs. All of a sudden, Ultra and company didn't look so innovative any more.

Innovative or not, Brennan sees low carb beers - that say they're low carb - staying in the picture. "I think low-calorie, low-carb is here to stay," she said. "There will be new products next year, it's not going away. But at the end of the day they buy on taste. If you can get light with taste, that's a bonus. Once people realize that most light beers are low-carb, they'll buy on taste."

Like them or not, "energy beers" seem to be innovative, and they are the third "next big thing" to hit the beer market in six years. Beers like Sparks, Moonshot and Anheuser-Busch's new B-to-the-E are beers laced with legal stimulants. Spurred by the popularity of Red Bull and vodka cocktails, these beers are going head-to-head with that idea.

It's not that new an idea. The fellow who taught me bartending back in the early 198Os drank coffee with a slug of Old Grand-Dad: "Catch the buzz, stay awake to enjoy it," he always used to say.

These are not the first caffeinated mainstream beers, either. Iguana Light was a Miller product brought out in the mid-'9Os, flavored with the Brazilian guarana berry, a berry with twice the caffeine of coffee beans and a sly, sideways reputation as an aphrodisiac. Iguana Light was not a success in test markets (so much so that it became a case study in marketing failure), perhaps due to the guarana flavor or perhaps the mindless "I Wanna Iguana" slogan, and it was discontinued. There have also been a number of coffee beers in the craft segment, none of which ever reached a serious niche in sales. And there was "Buzz Beer", a mythical caffeinated beer that comedian Drew Carey made in his garage microbrewery on "The Drew Carey Show".

But a wave of them have hit the market in the past year. B-to-the-E, Moonshot, Mobius, and Sparks are the first, sure to be followed by others. B-to-the-E is 6% beer infused with caffeine, guarana and ginseng, and flavored with blackberry, raspberry and cherry. Moonshot is a more straightforward beer, shot with caffeine, from New Century Ltd., Rhonda Kallman's company, the people who brought us Edison Light beer. Mobius is a bit more New Age, a "European-style lager" embellished with caffeine, taurine, ginseng and thiamine, from a South Carolina entrepreneur named Robert Spencer who thinks that "In a year, we'll be worldwide."

Moonshot came as an inspiration to Rhonda Kallman. "I was tailgating at a Red Hot Chili Peppers concert," she said, "and I'd been drinking Edison Light in the parking lot, and drinking caffeinated sodas, and I felt great. I suddenly thought, 'I should bottle this.' Look at Starbucks, look at Red Bull. People say it all the time: "I need caffeine!" So I called up our consulting brewer, Joe Owades, and he hung up on me! But I called him back and said, 'I'm serious, I really want to do this!'" Moonshot is a straightforward light lager with a dose of natural caffeine.

B-to-the-E is a reference to powers of 1O, as explained by Bob Lachky, Vice-President of Brand Management and Director of Global Brand Media for Anheuser-Busch. "'B' is the crown 'B' Budweiser symbol," he explained. "The 'E' stands for something extra, the extra being caffeine, guarana and ginseng." Budweiser raised to something Extra? What's that make Budweiser Select? (And just what is Budweiser Select? Low carb? A new light beer? Something else?)

The real question about all these beers (aside from the obvious one of "Are they beers?") is whether this is an idea whose time has come. The Red Bull boom, which shows no signs of slowing down, would seem to indicate that it has a good chance. But the shaky status of the other recent innovators should warn you that if this idea's time has come, it may be a short reign.

The scorched earth, "get in, get out" strategies on these innovations bring up a more serious question that nags around the edge of the issue. Have these categories had a negative effect on the image of the core, premium beer brands, the "real" beers? Do they, by their success and their very presence, imply that something is wrong with beer's image, that beer can't satisfy the 21- to 3O-year-old drinker's wants? Are people really bored with beer?

That question came up when Anheuser-Busch had a press conference for the launch of B-to-the-E. Bob Lachky was asked "Why aren't these young folks just happy drinking beer?"

Given the occasion of the question and answer, it's perhaps understandable that Lachky didn't ask which young folks, and whether they were drinking beer before, but instead proceeded to give the rationale for the new beer-like drink. "They are not," he said, "because there is so much in our culture and our society which speaks to individuality, to experimentation.

"If you studied the sociology of what is going on in our country," he continued, "there is a real move for people wanting to put their stamp on being an individual and you have seen it impact every industry. People used to say, "I am a Budweiser drinker" or "I am whatever." "I drink wine." People don't say that anymore. They say, "Well depending on my mood and depending on the time of day, depending on whether I am after a softball game or if I am out on a date with somebody I am really trying to impress, maybe I'm switching around with what I want to drink."

"It is not that people aren't drinking beer," he emphasized. "Beer is still the highest incidence of alcohol consumption for alcohol beverages versus distilled spirits and wine and that has historically been true for the last 3O, 4O years. But variety and innovation is more of a factor than anything else. The spectrum of drinks that people will come in and out of has changed so drastically in the last five years it is more about individuality and wanting something different and not conforming."

Brennan is not so sure she agrees with that, pinning beer's soft market performance squarely on one thing. "There's a rise in the, I don't know, the cocktail culture," she said. "That's what is hurting beer, all the new cocktails and flavors. That's cut into beer sales more than the malternatives. And, of course, vodka, rum, liquor is naturally low in carbs."

Tim Johnson isn't really worried about an impact on beer's image or sales. "The malternatives were marketed to the 21- to 3O-year-old drinkers, who generally haven't acquired taste buds to handle the more full-flavored beers - I'm talking more about the craft beers, the micro segment. By their nature, the alternatives marketed to that young group, so I don't think they hurt traditional beer's image. The malternatives are entry-level beverage alcohol drinks."

Then he puts it in perspective. "You know, the late baby-boomers, my generation, our first drink was a 7&7," he said with a laugh. "We didn't want to drink Canadian, it was too expensive, and bourbon was just too much, so we took the Seagrams 7 and put some fizz in it. That was our entry drink. The malternatives are that now. That age group tends to be a bit more explorative, anyway."

So the cycle ound. Malternatives, ciders and hard lemonades may be on the downturn, low-carb may still have some life in it, and "boost beers" are what's happening now. "Now" may be the most important word in your purchasing decision lexicon for the foreseeable future, until things turn back to normal.

Or maybe not. To put yet another perspective on the whole malternative picture, take a look at overall category numbers. The third largest malternative in sales isn't Bacardi, Mike's Hard Lemonade or even Zima. It's Bartles & Jaymes, the venerable Gallo brand that hasn't had an advertising campaign in over ten years. Things like that help you keep your cool when things start to change so rapidly.

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