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Malternative mania: Liquor and beer companies team up for new generation of RTD beverages. (Category Snapshot).

Article Excerpt
It may have appeared to be a peculiar marriage, but unions between spirits companies and brewers are producing some interesting offspring: malternatives.

According to Bill Pecoriello, analyst with Morgan Stanley, New York, spirits companies were losing share to brewers for years. In an effort to shore up some of those losses, spirits companies have teamed with brewers, making everyone a potential winner.

"From Anheuser-Busch's standpoint, it's unclear whether [malternatives are] going to be a long-term proposition or a short-term fad. But it's a major factor in the short term," says Pecoriello. "They have to participate in case it does take off. Even if it's a fad, they can't ignore a trial spike. You'd rather cannibalize yourself than have the profit going to others."

A new breed

This new breed of malt-based beverages is not too dissimilar from the wine cooler craze of the 1980s. The big difference is the spirits companies, the brands they're extending and the deep pockets they bring with them.

The spirits companies, it would seem, can't lose. They're building brand equity for core brands, and they're breaking into new outlets. They're also growing sales. Not only are malternatives given the same latitude as beer for sales and marketing, they're also inexpensive to make and profitable to sell.

According to Pecoriello, "It should grow the profit pool of the alcohol market. They're sold at a 50 percent premium over premium light beers and two-thirds of the consumption is coming out of beer consumption and one-third of the consumption is coming from wine and spirits. But the margins and profit is much higher on Smirnoff Ice than on Smirnoff vodka."

For the brewer partners, they get their split of the profits, and they're getting more...