A new category of alcoholic beverages is starting to show signs it is a fad rather than a trend, jeopardizing the advertising spending windfall expected by Madison Avenue.
Sales in the category, composed of malt beverages that are 5 percent alcohol and are known variously as malternatives, flavored malts, alcopops or clear malts, peaked earlier this summer, analysts say.
And two of the recent entrants have already scaled back their national advertising budgets.
The malt beverages were once sold only under stand-alone brand names like Zima and Mike's Hard Lemonade. But the introduction of Smirnoff Ice by the liquor marketer that owns Smirnoff vodka, Diageo, set off a stampede by others to incorporate the brand names of distilled spirits in malternatives.
In the last 18 months, Smirnoff Ice was joined by a half-dozen drink-alikes, bearing names like Bacardi Silver, Captain Morgan Gold, Sauza Diablo, Skyy Blue and Stolichnaya Citrona. Another, Jack Daniel's Original Hard Cola, began its national advertising campaign only last week.
The piling on is typical in American marketing, particularly in fields with little or no sales growth like beer and distilled spirits. Advertising agencies had welcomed the newcomers because it was estimated that brewers and distillers would spend as much as $350 million this year to generate brand awareness and stimulate trial of the malternatives.
Indeed, as the new entrants poured into the category, ad spending by beer makers in major media rose 11.5 percent in the first half of this year, compared with the first half of last year. By contrast, ad spending by all marketers in major media in the first half fell 0.2 percent from the corresponding period last year, according to CMR, a division of Taylor Nelson Sofres.
In the first six months of this year, Anheuser-Busch spent US$25.6 million to advertise Bacardi Silver, which it sells with Bacardi. Diageo spent US$9.4 million on Captain Morgan Gold and US$26 million on Smirnoff Ice. The Miller Brewing Co division of SABMiller spent US$24.4 million on Skyy Blue, sold with the Skyy Spirits division of Campari, along with Sauza Diablo and Stolichnaya Citrona, which are sold with Allied Domecq.
But the indications are that a shakeout is already taking place.
Brief climax
In a report issued Monday, William Pecoriello, the beverage analyst at Morgan Stanley in New York, estimated that sales of malternatives "peaked in July" at just a little more than 3.5 percent of total beer industry volume. He bluntly described many of the new products as "nonstarters," citing by name Captain Morgan Gold, which he called "a huge disappointment"; Sauzo Diablo; and Stolichnaya Citrona.
Executives of Anheuser-Busch, whose Bacardi Silver is neck-and-neck in the category with Miller's Skyy Blue for second place behind Smirnoff Ice, agreed that the market might have topped out.
Dave Peacock, vice president for high-end brands at Anheuser-Busch in St. Louis, pointed out that "everything else that came out since" Smirnoff Ice, Bacardi Silver and Skyy Blue "hasn't performed really well."
But Anheuser-Busch remains committed to the category. "Even if it's peaked, we feel there's opportunity to grow our share," Peacock said, adding that the company is pleased with its product's performance. "There will be national advertising this fall for Bacardi Silver and national television next year." The agency for Bacardi Silver is Momentum in St. Louis, part of the McCann-Erickson World Group division of the Interpublic Group of Companies.
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