While wine companies focus on their competition, they typically look at other wine companies, but many may be overlooking a serious threat to the industry's future growth.

The fastest growing category of alcoholic beverages by far is so-called malternatives or RTD's (Ready to drink), malt-based, mostly carbonated beverages aimed at young drinkers; they're called alcopops pejoratively by critics.

The drinks, which have about the same alcohol level as beer, take advantage of tax breaks for low-alcohol malt beverages and can be sold in many places where wine can't. Overseas, the beverages are generally mixes of spirits and flavors rather than being based on malt.

Though similar in manufacturing to malt liquors, the new drinks not promoted as such because those beverages have the wrong image as the choice of a hard-drinking urban underclass.

The new beverages can be advertised on television, which many critics regard as a way around restrictions on TV advertising of spirits: Many bear the brand names of popular spirits like Smirnoff Ice, Skyy Blue and Bacardi Silver.

Fast Growth

They also have the serious marketing muscle of major beer and spirits companies behind them and that power is paying off. According to UK beverage research firm Canadean, 87 million 9-liter cases were sold in the US in 2001, and 132 million are expected to sell this year.

More conservative is New York-based Beverage Marketing Corp., which expects sales to approach 100 million cases this year, up from 70 in 2001. Even so, senior vice president Gary Hemphill says the growth might not be as much as expected considering the number of major new entrants in the market and the high level they're spending on marketing. The malternatives now represent 3 percent of the overall US beer market, he notes.

Malternative beverages led all beverage categories in 2001 with a year-to-year dollar sales increase of 133 percent, an increase in sales from $119 million in 2000 to $277 million in 2001 according to trade magazine Beer Marketer's Insights.

Last year, Diageo/Guinness's Smirnoff Ice and Mark Anthony's Mike's Hard Lemonade split two-thirds of sales, with Smirnoff Ice alone selling 22 million cases.

Many other entrants have entered the market this year, including Anheuser-Busch with Bacardi Silver backed by a $60 million campaign and Miller Brewing with Skyy Blue spending $40 million. Some observers think the industry may spend $350 million promoting the brands this year. Smirnoff Ice is now in first place, though Miller has been more aggressive with four entries in the field.

The drinks are seen as salvation for beer companies facing flat and drooping sales. Last year, the traditional market was up only 1 percent, and Miller, which has introduced four hot malternatives, suffered a 2 percent drop in volume last year. In March, it was merged with South African Breweries plc to form SABMiller plc.

The malternatives are clearly aimed at a young market, young adults who've grown up on sweet, carbonated beverages. This focus has led critics like the Center for Science in the Public Interest to accuse the companies of targeting underage drinkers, including ads on television programs that appeal to teenagers.

The industry naturally denies that charge, but there's no question that it's going aggressively after the 21-35-year-old crowd, an important target for wine companies as well. One casualty of the malternatives has been wine coolers, which are typically sweeter and losing popularity.

Observers speculate whether the products have long-term prospects, or are just fads. Supporters claim that the malternatives have been going strong for 20 years in Australia, and have a long history in Europe as well.

Major Players

The following is a description of the major players and their products.

Anheuser-Busch, Inc.

Bacardi Silver

Bacardi Silver was developed by Anheuser-Busch, the world's largest brewer, and Bacardi U.S.A., importer of the world's No. 1 distilled spirit. Produced, marketed and distributed by Anheuser-Busch, Bacardi Silver is a clear malt beverage made with the flavors of Bacardi rum and citrus that features a crisp, refreshing taste. Bacardi rum is a component in the flavor of Bacardi Silver.

Bacardi Silver is available in six- and 12-packs of clear, high-shouldered 12-oz. bottles. The frosted applied plastic label features the Bacardi Silver and Bacardi bat trademarks.

Bacardi Silver has a marketing budget of nearly $60 million that includes advertising and media, sales promotional items and merchandising. Media support includes national television, print, radio, outdoor and Internet advertising produced. In addition, a full line of point-of-sale and promotional items will support the brand including cooler stickers, shelf wobblers, table tents, metal signs, mirrors and wall projectors that beam the image of the Bacardi Silver trademarks.

The brand's suggested pricing is at a premium to other flavored malt beverages. It is distributed nationally. Bacardi Silver contains 5 percent alcohol by volume and is bottled at Anheuser-Busch's brewery in Baldwinsville, N.Y.

Like many of the other malternatives, Anheuser-Busch has launched a flashy website for Bacardi Silver (www.bacardisilver.com). The site is designed as a hip, boutique hotel where visitors can "check in" at the front desk and visit a number of themed clubs. Visitors to the site can listen to music, watch Bacardi Silver commercials and learn about the latest trends in fashion.

"Doc" Otis Hard Lemon Malt Beverage

Introduced nationally in May 2000, "Doc" Otis Hard Lemon Malt Beverage is made with real lemon juice and is pleasantly sweet with just the right amount of tartness to appeal to adults. The alcohol content of "Doc" Otis is 5 percent by volume, the same as Budweiser, the world's best-selling beer.

Tequiza

The nationwide rollout of Tequiza in 1999 was one of Anheuser-Busch's most successful new product introductions ever. Tequiza was the first American-made malt beverage combining lager beer with real blue agave nectar and a natural flavor of lime and real Mexican tequila. Tequiza surpassed established brands to become one of the four best-selling high-end beers in supermarkets, a category including micro, import and specialty segments

Coors Brewing Co.

Zima & Vibe

Coors Brewing Co. introduced Vibe, a fruit-infused malt beverage in May. The Colorado-based brewer already makes Zima, one of the earliest major malternatives, but its sales peaked in 1994 at 1.24 million barrels. In 2001, under 500,000 barrels were sold. Described as Zima's "wild cousin," Coors will launch Vibe which is packaged in red and black 12-oz. long-neck glass bottles and geared toward male consumers. Zima is geared toward female consumers. Vibe contains fruit flavor and 5 percent alcohol by volume.

Guinness/UDV/Diageo

Smirnoff Ice

Smirnoff Ice is the most successful of the malternatives. It is brewed using a malt base with a citrus-flavored taste. Its alcohol content is 5 percent by volume, similar to most super-premium and imported beers like Heineken. In the United States, Smirnoff Ice is made without vodka, but the versions sold in many foreign countries including Canada, Brazil, England, Ireland and South Africa does contain Vodka.

Last November, Guinness North America purchased a large brewery in Pennsylvania last operated by Pabst Brewing to expand production of Smirnoff Ice malt beverage. Guinness NA, a subsidiary of Diageo of Great Britain, paid $30 million to buy the Fogelsville brewery in the Lehigh Valley and will spend another $15 million to prepare the facility for Smirnoff Ice production.

"Smirnoff Ice has been a stunning success," said Paul Clinton, president and chief executive of Guinness North America in a release at that time. "This plant will help Guinness meet the ever-rising consumer demand and will expand our ability to deliver Smirnoff Ice more efficiently and conveniently to our customers across North America."

Schaefer earlier spent $46.5 million to build the brewery on 149 acres of farm land in 1972. Stroh Brewery of Detroit acquired Schaefer in 1981. Then in 1999, Stroh sold the facility to Pabst. Pabst closed the plant in September 2001.

Since its launch in the United States in January, Smirnoff Ice has captured 1.8 percent of the 200 million barrel annual beer market, said Benj Steinman of Beer Marketer Insights, an industry newsletter.

In addition to buying the brewery near Fogelsville, Guinness is expanding a plant in Plainfield, Ill., to produce additional Smirnoff Ice. Brewing Smirnoff Ice under contract has significantly boosted business for City Brewery in LaCrosse, Wis., and High Falls Brewing Co. in Rochester, N.Y.

Captain Morgan Gold

Diageo developed malternative, Captain Morgan Gold after the success of its Smirnoff Ice. Captain Morgan Gold offers the taste of Captain Morgan rum with only 5 percent alcohol. It is the offspring of Captain Morgan Original Spiced Rum, Impact Magazine's "Hot Brand" for 11 years running. Diageo is expecting to spend close to $200 million to promote and support both Smirnoff Ice and Captain Morgan Gold in 2002.

Hansen's Natural Corp.

Hard-e

Hansen's Natural Corp. blended its existing energy drink with vodka and malt liquor to create the neon-yellow citrusy, caffeinated alcoholic-infused energy drink Hard-e. With revised packaging and product positioning, Hard-e promises "It's A New Kind A' Buzz."

Hansen's wanted to call its concoction Hard Energy, but the Bureau of Alcohol, Tobacco, and Firearms disallowed that name in compliance with the Federal Alcohol Administration Act of 1935, which bars makers of alcoholic drinks from suggesting that their wares will enhance athletic prowess.

The 5-percent-alcohol Hard-e includes the amino acid taurine, a panel of B vitamins, and ginseng extract. Hard-e Beverage, a division of Hansen's Natural Corp. contracted Gluek Brewing Co. of Cold Spring, Minn. to produce the drink

Halewood International

Caribbean Twist

UK's Halewood International makes Caribbean Twist, a rum-flavored clear malt drink available in six flavors. These festive, color-coordinated 275-ml. and 70-cl. bottles appeal primarily to younger women. Television and poster advertising campaigns helped this newcomer sell six million bottles in 2001.

Mark Anthony Group

Mike's Hard Lemonade

Mike's Hard Iced Tea

Mark Anthony Group (MAG) of Vancouver B.C. is a privately held manufacturer and distributor of premium wines and alcoholic beverages. Its brands include Mike's Hard Lemonade, which was the leading brand in its category before other big players entered the market. MAG's primary markets are the United States and Canada, with revenues in excess of Canadian $350 million per year.

It has added Mike's Hard Iced Tea to its Mike's Hard Lemonade, both with the same alcohol content as the average beer. Mike's focuses its advertising to "guys' guys."

Miller Brewing Company

Skyy Blue

Skyy Blue is a malt beverage with citrus flavor and Skyy vodka, a product of Campari's Skyy Spirits. It was the Milwaukee-based brewer's first national entry into the malternative market.

Miller began brewing Skyy Blue in February. The debut was Miller's biggest product launch in five years and the company committed $40 million in total marketing support for the new brand for 2002. Skyy Blue is brewed with malt grains and fits the guidelines for a malt beverage even though it includes vodka since the Bureau of Alcohol, Tobacco and Firearms allows malt beverages to include a secondary alcohol as flavoring as long as the beverage does not exceed 6 percent alcohol by volume. It is produced at Miller's Tumwater, Wash., and Albany, Ga. breweries.

Stolichnaya Citrona

Miller paired with Allied Domecq Spirits and Wine North America for the creation of Stolichnaya Citrona. This blend of Stolichnaya vodka and crisp citrus and other natural flavors is packaged in replica Russian-inspired Stoli clear bottles with red and gold graphics.

Sauza Diablo

Miller and Allied Domecq also make Sauza Diablo, a flavored malt beverage containing tequila and margarita-inspired citrus flavors.

Jack Daniel's Original Hard Cola

Jack Daniel's Original Hard Cola is a cola-flavored malt beverage produced by Miller with Brown-Forman Beverages Worldwide. Unlike the many clear, citrus-flavored products in the category, Jack Daniel's Original Hard Cola is dark and cola-flavored. It is packaged in 12-oz. long-neck bottles. wbm