Red Tree Beverages, Coca-Cola’s “firewalled, wholly owned” subsidiary to explore beverage-alcohol, has no intention of getting into the distribution business, Red Tree president Jenny Dowdy said yesterday during Beer Marketer’s Insights fall seminar.
“One thing I want to be very clear about is that Red Tree will not distribute alcohol in the United States, nor will Coca-Cola,” she said. “The creation of Red Tree was really just a way to formalize the way that we operate. It just underscores that we operate as a distinct entity from our non-alc business.”
Dowdy reassured the audience, which contained a large contingent of beer wholesalers, that Coca-Cola has no plans to follow in the footsteps of PepsiCo, which has been rolling out Blue Cloud Distributing. So far, Blue Cloud’s portfolio consists of alcoholic versions of Pepsi brands, including Boston Beer-produced Hard MTN Dew and FIFCO-produced Lipton Hard Iced Tea.
The upstart distribution network has rankled middle-tier feathers nationwide. Blue Cloud has also faced hurdles getting to market, with some states denying licenses. And this summer, the Virginia Alcoholic Beverage Control Authority ruled that Boston Beer violated the state’s Beer Act by using Blue Cloud to distribute Hard MTN Dew, rather than its existing beer distributor network in the state. The ruling was in response to a complaint filed by Premium Distributors and Blue Ridge Beverage Company.
“Red Tree Beverages was created to honor the regulatory complexities that exist,” Dowdy said. “We will adhere to the existing three-tier system, utilizing independent distributors for our products. We believe that independent distributors are the experts, and thus they’re best equipped to work with the communities that they serve.”
Dowdy echoed sentiments shared by Dan White, Coca-Cola, North America chief of new revenue streams, during a fireside chat last month with National Beer Wholesalers Association president and CEO Craig Purser during the trade group’s annual convention.
Coca-Cola launched Red Tree this summer as an umbrella over its bev-alc partnerships. The company has licensing agreements with Molson Coors (Topo Chico Hard Seltzer, Simply Spiked, Peace Hard Tea), Constellation Brands (Fresca Mixed) and Brown-Forman (Jack & Coke) to produce alcoholic versions of its most popular non-alc brands. Those products flow through the distribution networks of the respective bev-alc partners.
“We look at each proposition that we have uniquely and decide who’s the best relationship to partner with in order to launch that brand,” Dowdy said.
So far, Red Tree has most frequently partnered with Molson Coors, which developed its first crossover offering, Topo Chico Hard Seltzer.
“Topo Chico Hard Seltzer continues to grow share and is currently the No. 3 hard seltzer in value share,” Dowdy said.
The brand launched in 2021 and has since expanded to include margarita, ranch water and agua fresca flavors, as well as spirits-based canned cocktails.
Simply Spiked, the alcoholic version of Coca-Cola’s popular juice brand, is “the No. 2 hard lemonade in value share,” Dowdy said. Jack & Coke, which rolled out in Mexico before launching in the U.S., “is the No. 1 dark distilled spirits ready-to-drink beverage,” she said.
Red Tree abides by three principles when building and managing RTD brands:
- All bev-alc brands “are distinct” from their non-alc counterparts in “trademarks, visual identities, brand names and marketing strategies;”
- A completely separate marketing team works on bev-alc product, which “ensures compliance” and helps “to guarantee that there are no slotting fees and other practices that do not occur in the alcohol space;”
- And all alcoholic products are “clearly” marked as such, with a standard label and messaging rolling out next year to make sure that the presence of alcohol in each beverage is “more clearly identifiable.”
The partnership with Red Tree has helped Molson Coors tap into a previously unmet drinker need, chief commercial officer Michelle St. Jacques said during her fireside chat at the conference.
“Amongst 21- to 27-year-olds, they spend 88% more in flavor than the generation before them,” she said. “We need to make sure that as an industry, we’re really building an approach on how you win in the flavor space. For us at Molson Coors that’s been about building a diversified portfolio.”
For many of these crossover RTD brands, the insight was hiding in plain sight, as consumers were already using the non-alc versions to mix their own drinks. This made the Simply Spiked partnership “a no-brainer,” St. Jacques said, adding the brand is now the fifth-largest in flavored alcoholic beverage.
“That one is for the people who want real juice, for the people who want full flavor, which is really different than a Topo Chico, or it’s really different than some of our hard tea offerings,” he said. “It’s about really understanding what your consumers are looking for and building a portfolio that can win across.”
For Red Tree, Coca-Cola’s soda brands are a “natural” fit for crossover, Dowdy said. The company’s Absolut Vodka and Sprite RTD, made in collaboration with Pernod Ricard, will launch in Europe next year.
Elsewhere in the Coca-Cola empire, Monster, in which Coke owns a minority stake, has launched its own bev-alc offerings (The Beast Unleashed FMB and Nasty Beast hard tea), in addition to its 2022 acquisition of CANarchy. Dowdy said Red Tree has “no plans at this time” to collaborate with Monster.
Last year, Beverage Digest reported Coca-Cola agreed to share profits from its crossover alcoholic beverages with its independent U.S. bottling network. Unlike Pepsi, Coca-Cola does not own that part of its supply chain. Dowdy said the bottling partners “are supportive and have been excited about the success that we’ve seen,” but did not mention profit-sharing.
“A question I get asked a lot is what’s next, and it’s to continue experimenting,” she said. “We will continue to learn from the consumer and take their lead. We are very pleased with the success that we’ve seen so far.”