Are new malternative brews a good fit for drug stores?

Drug Store News,  May 20, 2002  by Dan Ackerman

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If you've been keeping up on news coming out of the alcoholic beverage category over the past year or so, the rise of alternative malt beverages is worth watching. Dubbed "malternatives," by PR types, these alcoholic concoctions are a far cry from the Colt 45 style drinks typically associated with the "malt" name.

While the business has been favorable in drug, it is one of the more promotional areas of the(store-for those stores in the business. The new malt beverages, while still a small piece of that business, tend to have higher margins that can offset the impact of price-cutting tactics in the overall beer category. In drug stores, the category -malt beverages are tracked on with alcoholic cider drinks in the beer category-was up 12.5 percent in chain drug stores last year, according to data from Information Resources Inc., reaching more than $785 million in the 5 weeks ended Dec. 30.

Overall, malternatives already have captured 4 percent of the beer category-not a major player yet, but enough to catch the eyes of savvy retailers everywhere, including drug chains. Diageo North America (Guinness parent) chief executive officer Paul Clinton recent told The New York Times that, "Our belief is that the category can be 9 percent of the total beer market. This is not a flash in the pan."

The drug store beer cooler is a rarity in places such as New York City, but in other regions, beer and wine can be big sellers. Rite Aid stores sell beer in markets where it is allowed, and Longs has a vibrant business in beer and particularly wine in its California stores.

But with limited cooler space, should drug stores devote square footage to new malternative products? This would take display space away from traditional beer and could threaten to cannibalize sales. Although, given the higher margins in this segment-in the high 20s to 30s, Anheuser-Busch executives have told Drug Store News-this is a trade-off most retailers would be willing to make.

For their part, some drug chains seem to be taking a wait and see attitude. One major chain declined to talk about the role of maltenatives in their merchandising mix, saying only that "Malt beverages are a very small segment of the category."

IRI, in a recent study on malternatives, said, "for supermarkets and drug stores, volun sales of new malternative beverages, such as Smirnoff Ice and Mike's Hard Lemonade grew 81 percent during the 24 weeks ended Jan. 13 versus the same period last year." This is compared with a paltry 1 percent for the entire alcoholic beverage category.

Every major brewer has taken a shot at the malternative market. Industry leader Anheuser Busch is using the Bacardi brand name to push Bacardi Silver, citrus-flavored malt beverage. No. 2 brewer Miller is teaming with Skyy Spirits on SKYY Blue, and Diageo is using its Smirnoff, brand name for Smirnoff Ice.

Other than SKYY Blue, most of the products do not actually contain the distilled spirits they're named after.

Smirnoff Ice was the first of the current alternative malt beverages to make a big splash, racking up $615 million in sales last year. But are these products a guaranteed hit for drug retailers? Despite their buzz-heavy status, the prognosis is mixed.

Malternatives are drawing the ire of industry watchdogs for their youth appeal. And one look at the advertising for these products makes it evident that the mom-heavy demographic of chain drug stores is not the target market.

The other fear is that malternatives are just a fad, doomed to burn brightly, but not long. The parallels to the wine cooler craze of the '80s are hard to miss. In fact, one needs only look back on what was perhaps the first mainstream malternative, Zima, to see how a beverage fad can bite the hand that feeds it.

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