Non-alcoholic beverage crossover partnerships have created “rapid depth” for beverage-alcohol producers in recent years, according to Bump Williams Consulting’s (BWC) latest monthly report.
“The big players continue to get bigger, deeper and broader across the U.S.,” founder Bump Williams wrote. “One has to wonder that, with increasing size and connections to a singular parent that can provide so much across the categories, how might this influence/inform how distributors and retailers operate when it comes to focus and execution?”
So far, Coca-Cola is the most active and largest non-alc purveyor in the bev-alc space. Its partnership with Molson Coors is its most prolific, producing Topo Chico Hard Seltzer, Topo Chico Spirited, Simply Spiked and Peace Hard Tea. In addition, Coca-Cola has partnerships with Constellation Brands (Fresca Mixed), Brown-Forman (Jack & Coke) and Pernod Ricard (Absolut & Sprite, in Europe).
Through its bev-alc subsidiary Red Tree Beverages, Coca-Cola sells Minute Maid Wine Cocktails, which are produced by LeVecke and distributed primarily by Republic National Distributing Company (RNDC).
Similar to Coca-Cola, AriZona Beverage Company has licensed its brands to or collaborated with bev-alc producers (Arnold Palmer Spiked, Molson Coors; AriZona Sun Rise Hard Seltzer, Heineken USA), but last year struck out on its own with AriZona Hard Iced Tea.
PepsiCo’s bev-alc strategy diverged from other non-alc producers; like many of its competitors, it licensed some of its biggest non-alc brands to bev-alc producers to create alcoholic versions (Hard MTN Dew with Boston Beer; Lipton Hard Iced Tea with FIFCO USA), but planned to create its own nationwide bev-alc wholesale network in Blue Cloud Distributing. However, news broke last week that Blue Cloud, which had set up shop in 18 states, would shutter and both products would shift to their parent companies’ distribution networks.
Blue Cloud created a fissure between Boston Beer and many of its wholesaler partners, who wanted Hard MTN Dew to flow through their warehouses.
“Clearly Pepsi ran into some struggles with the creation, expansion and viability of Blue Cloud, but the exercise alone demonstrates that there is interest out there in that middle tier,” Williams wrote. “Will companies like Pepsi, Coca-Cola or even Amazon ever figure out how to crack that code and find a legitimate way to enter the beverage-alcohol distribution business?
“For massive companies where distribution and logistics are so finely tuned in other aspects of their business, you have to wonder if this threat of outsiders sniffing around the middle tier has gone away completely or has simply gone into the shadows for the time being while focus is put elsewhere on product development and marketing,” he continued.
Although Blue Cloud drew much of wholesalers’ ire, the overall notion of bev-alc-branded alcoholic beverages made many in the industry nervous for a combination of factors. Non-alc beverage producers can pay slotting fees to access retail shelves, while bev-alc producers cannot. Many in the middle tier questioned how retailers could remain uninfluenced by fees PepsiCo paid for its non-alc portfolio when considering pitches from Blue Cloud.
Others were concerned about consumer confusion over which products contain alcohol and which do not, prompting Virginia to pass a law that crossover products had to be merchandised separately at retail.
Still, bearing a big brand name goes far with consumers and retailers, Williams wrote.
“While performance across all of these brands is varied in terms of success, the fact of the matter is that the product names alone bring with them trust, reputation, expectations and a familiar consumer base … all of which can help with lowering the barriers to trial that other new launches may find themselves struggling with,” he wrote.
“It is also worth mentioning that while performance may be more mixed than a resounding success among these branded entries, the information that companies like Coca-Cola, Pepsi and AriZona have learned along the way with regard to distribution networks, retail Landscape, marketing/promotions, shelf sets/positioning, consumer behavior and trial and repeat on the alcohol side of the beverage world has likely been invaluable,” Williams continued.
A host of bev-alc producers of all sizes have struck partnerships with non-alc brands to create alcoholic versions of seltzer, tea and juice. In other cases, spirits brands have paired with beer producers to create spirits-branded flavored malt beverages (FMB) to flow through beer distributors.
Although these partnerships typically take the form of joint ventures or licensing agreements, outright mergers and acquisitions have happened as well. Energy drink maker Monster Beverage acquired the CANarchy Craft Brewery Collective (since renamed Monster Brewing Company) in early 2022, and has leaned on CANarchy’s facilities and distribution relationships to create The Beast Unleashed FMB and Nasty Beast Hard Tea.
At the time of the deal, Monster’s leadership team said Monster-branded bev-alc products were off the table in order not to confuse underage Monster fans, but both product lines rely on Monster’s unmistakable imagery.
In the 52 weeks ending January 28, Monster’s non-CANarchy brand families sold $108.1 million at multi-outlet grocery, retail and convenience stores, according to market research firm Circana, outselling the company’s craft beers, which drew in $89.2 million in the same period.
“There is now a proven history that beverage alcohol consumers are accepting of a ‘hard version of a familiar beverage and that those participating beverage companies can find success in multiple worlds without taking a substantial hit on their core consumer base,” Williams wrote. “It is at this point that you now have to think about what the next steps look like for all of the beverage companies out there, alcoholic or otherwise.
“Will we see more industry titans formally entering beverage alcohol like Monster?” he continued. “Will we see continued R&D and partnerships while keeping business completely siloed from each other like Coca-Cola and now Pepsi? Will we see new players enter the game that have yet to make their interests known? Although beer and beverage alcohol as a whole may not be on a rapid growth trajectory that would make for a can’t miss proposition, there are still clearly ways to find incremental success on an individual brand basis.”