Alcopops Lose Their Fizz The decline of the flavored malt beverage segment offers consumer marketers a lesson in overindulgence.
(Business 2.0) – When "malternatives" bubbled onto the scene in 2001, beverage companies everywhere could almost taste the sweet opportunities. A new category sprang up nearly overnight: 87 million cases of the stuff sold in 2002.
But today the market for flavored malt beverages, or "alcopops," is struggling, with 2003 sales down 14.6 percent, according to Information Resources. Individual brands (including the best-sellers) fare even worse: Sales of Bacardi Silver plunged 62.4 percent last year, Skyy Blue's dropped 58.1 percent, and market leader Smirnoff Ice's slid 33 percent. Others, like Diageo's Captain Morgan Gold, have disappeared altogether. United Kingdom-based Diageo took a £24 million write-off last year--about $42 million at today's exchange rates--to deep-six the product. Miller Brewing abandoned three of its four malternative brands, forcing a $40 million write-off in fiscal 2003 due to "excess production" of Sauza Diablo and Stolichnaya Citrona. Only its drooping Skyy brand remains.
Like so many hangovers, the alcopop craze's was the result of doing too much too fast. After a few early entrants found success, copycats flooded the largely untested niche with competitors, hoping that the new releases would also fare well. But the latecomers discovered that the market was already too saturated to support the ramped-up production. According to Eric Shepard, editor of Beer Marketer's Insights, "Some of these companies would have been better off staying out of malternatives."
The Binge Begins
Why did so many companies rush into the market? The explanation lies in a long-standing business challenge for the beer industry. For more than a decade, brewing companies have tried to court non-beer fans (mainly women and new, young drinkers), primarily with malt-based substitutes. In the early 1990s, Miller launched the ill-fated Clear Beer brand, which looked like club soda but tasted like a mixture of seltzer and beer, and Coors released Zima, which is now declining in sales. A few pioneers such as Mike's Hard Lemonade carved out viable early niches by decade's end.
Spirits companies like Diageo and Bacardi had a different motivation. Hard-liquor brands can't advertise on television and, in many states, aren't sold in grocery or convenience stores. So alcopops let the spirits makers sell softer, sugary alternatives through entirely new venues, boosting awareness of the parent brands.
The alcopop boom took off with Diageo's U.S. launch of Smirnoff Ice, which was hailed as an upscale option and tasted like carbonated, boozy lemonade. Backed by a $40 million ad campaign, the product was an instant hit, selling 22 million cases in 2001. A frenzy followed, with brewing companies partnering with spirits brands to release more than 50 malternatives backed by ad spending of drunken-sailor proportions. According to TNS Media Intelligence/CMR, Smirnoff Ice spent $56 million in 2002, pushing its two-year total to a whopping $96 million. Anheuser-Busch's Bacardi Silver blew through $32 million in 2002. Mike's Hard Lemonade: $9 million.
But they didn't get much for their money. In 2002, alcopops represented about 17 percent of all beer advertising but only 3 percent of total revenue. Sales weren't high enough to justify spending millions to woo notoriously fickle 20-something consumers. (Forty-one percent of malternative drinkers are between the ages of 21 and 27.) "It's a young market that switches between different beers and flavored malt beverages," says Fred Gambke of United States Beverage, which handles sales and marketing for small brewers. Many consumers moved from one alcopop to the next, often only to return to old standbys like cocktails and beer.
Fickleness aside, both Diageo and Miller insist that there's still a profitable core group of young drinkers who want malternatives. "There was a huge burst in the market," says Laura Emory, brand manager for Miller's Skyy Blue. "But people tried flavors early on and decided what they wanted to stay with. There's a real interest in new products and new ideas."
A Muddled Formula
Unfortunately, all those new ideas led to consumer bewilderment. "There wasn't time for the market to grow or enough differentiation in what was coming out," Gambke says. Fifteen brands featured the word "hard," six had the word "lemonade" or "lemon," and five were cranberry-flavored.
Because products like Bacardi Silver and Skyy Blue are branded with hard-liquor names, many drinkers wondered whether the malternatives were actually made with vodka, rum, and other spirits. The answer: No, though similar products in the United Kingdom and other countries often are. Each malternative is made from a beer base, with about the same alcohol content as its sudsy cousins. After the initial curiosity, most consumers moved on. "They came, they grazed, they left," says Jeff Doty of United States Beverage.
Malternatives succeeded in not tasting like beer or liquor, but many drinkers found the flavors, in a word, blech. They complained of the syrupy taste of Jack Daniel's Original Hard Cola before it was yanked from Miller's lineup. (Spirits partner Brown-Forman will now produce it alone.) And with its vaguely medicinal taste, Captain Morgan Gold "failed to meet the expectations of consumers," admits Diageo spokesman Gary Galanis.
For clues on how the alcopop craze will shake out, the industry should examine its own history of trying to cash in on fads, which by definition are rarely the stuff of lasting strategy. Wine coolers were the short-lived trend of the '80s. Back then, dozens of cooler brands crammed the shelves. Today, just two major producers--Seagram's and Bartles & Jaymes--remain. Next came "ice" and "dry" beer, and now low-carb brews like Michelob Ultra. (In fact, in an absurd twist of one fad aping the next, Miller is now marketing the fledgling Skyy Sport as a low-carb option.)
Experts say that of the 50 malternatives on the market today, about five will probably survive--not unlike what happened with wine coolers. The 40 or so latecomers will have to deal with the financial impact of their mad dash to catch up, but brands that entered early are well-positioned to win out. Smirnoff is pushing a new Twisted V line with various fruit flavors, and Mike's just launched Mike's Hard Lime and Mike's Light. So in coming years, don't be surprised to see a lonely malternative or two sitting quietly on the supermarket shelf. Just look next to the wine coolers.