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.
Adding Functionality
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.”