The Treasury Department could take some of the fizz out of the “malternatives” segment by seeking to reclassify the beverages as spirits rather than beer, a move that could have ramifications for how companies market the products.
Last week, the department’s Alcohol and Tobacco Tax and Trade Bureau (TTB) announced that: “The rapid growth of this product sector has brought it to the attention of both federal and state regulators” and that despite possessing similar alcohol volume to beer, many of the malternative products derived nearly all of their alcohol from flavorings containing distilled spirits. The TTB says it is seeking public comment on proposed regulations for malt beverages.
A change in its classification could result in higher taxes for manufactures, as well as limit the marketing options for malternatives since liquor brands are prohibited from advertising on TV. And since the segment had already been waning in popularity at the end of 2002, a reclassification could push some marketers and to look at abandoning products.
“This is a fading category,” said Tom Pirko, president of Santa Clara, CA-based consultancy Bevmark. “Marketers like SAB Miller thought it was going to generate seven to 10 percent of sales and it just hasn’t happened. Consumers haven’t shown any real inclination for it, and while the big guys like Smirnoff and Bacardi have enough market share to continue, any additional rulings are going to have other manufacturers wondering if [malternatives are] worth it.”
At its height, the malternatives segment generated $600 million in sales, with marketers devoting more than $70 million to advertising, according to New York City-based Competitive Media Reporting.
With beer sales flat, the major brewers turned to malternatives, often partnering with liquor manufacturers. Miller Brewing and Allied Domecq struck up a $50 million development and marketing pact last spring and Anheuser-Busch teamed with Bacardi USA to produce Bacardi Silver. Guinness UDV continues to lead the segment with Smirnoff Ice.
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