Johnson City, Tenn. — On a quiet street corner, a sign marks the birthplace of a beverage behemoth: Here, in 1954, the Tri-City Beverage Corporation bottled its first case of Mountain Dew.
The soda was originally colorless and lemon-lime flavored, and its inventors used it as a mixer with bourbon. “Mountain dew” is also a nickname for moonshine, which farmers sometimes process from leftover crops. The label on early soda bottles promised that it was “specially blended in the traditional mountain style.”
By the time PepsiCo bought the company in 1964 and eventually created a global youth-oriented brand marketed by extreme sports athletes, the soft drink had left its Appalachian roots behind.
In a way, Mountain Dew came full circle last year when PepsiCo pivoted the brand to a new alcoholic beverage: Hard Mtn Dew. At the one stop wine and spirits frequented by East Tennessee State University students, the new 24-ounce cans are prominently displayed. Charles Gordon Jr., owner of Tri-City Beverages, said that although the brew bears little resemblance to its progenitor, its alcoholic content is “exactly what Mountain Dew is about”.
Hard Mountain Dew reflects a major change in the alcohol industry, which for the past century primarily produced beverages classified as beer, wine or spirits. In recent years, those lines have blurred, and a fourth category of ready-to-drink beverages has emerged—hard seltzer and other flavored malt beverages, wine coolers, and packaged cocktails. While these products differ in the primary ingredients and how the alcohol is processed, all are generally flavored and packaged for casual consumption.
It’s not the first time that a new type of alcoholic beverage has exploded in popularity, but some of the earlier fads were tied to single products like Zima, Smirnoff Ice, or Four Loko. “It’s really only become a major category in the last three to four years,” said Nadine Sarwat, a beverage analyst at Bernstein Research.
Sales of hard seltzer and ready-to-drink canned cocktails were estimated at nearly $10 billion in 2021 by the Grand View research firm, which expects them to grow by double digits in the coming years. And in a major change, PepsiCo and Coca-Cola have introduced alcoholic products to the US market. In February, energy drink maker Monster Beverage launched its first line of alcoholic beverages called The Beast Unleashed.
But as alcohol-related deaths in the US reach a record high, regulators and public health experts are raising concerns that the new category of drinks and the expanding industry could change the way people buy and drink alcohol. Some also expressed concern that the convenience of the new products could reverse a long-term decline in alcohol consumption by young people. And recent studies show that consuming even one alcoholic drink a day increases a person’s risk of cancer and heart disease.
Coca-Cola and Monster Beverage declined repeated requests for comment, and PepsiCo referred questions about its branded products to independent companies that had licenses to manufacture and market them.
Pamela Trangenstein, a scientist in the Alcohol Research Group at the Public Health Institute in California, recently supervised a study at college football games. She described a sea of empty white paw-hard seltzer cans covering the floor of a student section in a stadium.
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“The carbonation and sugar content can make it taste like you’re not drinking alcohol,” she said.
a tempting opportunity
The drinking habits of Americans are changing with the times. Bonnie Herzog, a Goldman Sachs managing director who analyzes the beverage industry, said the popular practice of avoiding calories and carbs has been eroding beer’s market share for years. At the same time, alcohol companies are vying to win back people under 30, who are consuming less alcohol than previous generations at that age. And the coronavirus pandemic supercharged sales of portable products as consumers sought beverages they could drink at home.
“Health and wellness, diversity, convenience — that’s the appeal,” Ms. Herzog said.
Hard Mountain Dew is an example of these trends. It’s sugar- and caffeine-free, and connects consumers to a brand they’ve known for years. Although the new product is 5 percent alcohol by volume, a 24-oz. can contains the equivalent of two standard drinks. Fans who got an early taste loved it. One online reviewer wrote, “I drank hard Mountain Dew and felt like I was staring at God.”
Ms. Herzog said major alcohol producers such as Anheuser-Busch InBev and Diageo have invested heavily in the category, but this moment has presented traditional soda makers with an attractive new market. Furthermore, according to beverage industry consultant Kevin Asato, manufacturers and distributors make more profit in the case of alcoholic beverages than non-alcoholic beverages.
In 2018, Coca-Cola dipped a toe into the market by introducing Lemon-Dou in Japan, the first hard drink among its brands since the 1980s. In 2020, the company teamed up with Molson Coors Brewing Company to make Topo Chico Hard Seltzers. And last year, Coca-Cola inked agreements to produce Fresca Mixed Cocktails, Simply Spiked Lemonade, and Canned Jack & Coke.
On an earnings call on February 14, James Quincy, Coca-Cola’s chief executive officer, cited its “early alcohol experiments” such as Jack & Coke, which is set for sale in California late next month, as a key driver for the company. As a way to become “the total beverage company – everywhere”.
By licensing its soft drink brands to established liquor manufacturers for sale through existing distributors, Coca-Cola bypassed the regulatory firewall separating liquor producers, distributors and retailers. This three-tier system has characterized the American wine industry since the repeal of Prohibition and aims to prevent any one company from vertically integrating and suppressing its competitors.
In contrast, PepsiCo has so far linked fewer of its brands to new alcoholic beverages – only Hard MTN Dew and Lipton Hard Iced Tea – but has shown a greater willingness to disrupt the status quo.
The company established a wholly owned subsidiary, Blue Cloud Distribution, to have more control over sales and marketing and keep a larger share of the profits. The venture involved hiring more than 250 employees, obtaining separate state licenses to distribute liquor, and a fleet of trucks.
To comply with the three-tier system, PepsiCo licensed the Mountain Dew brand to Boston Beer Company and provided it with Mountain Dew flavoring. In this way, PepsiCo is independent of production and can control distribution instead.
Not all states have approved the system. Last spring, regulators in Kentucky and Georgia denied Blue Cloud distributor licenses, ruling that Blue Cloud had blurred the lines between manufacturer and distributor. Indiana regulators denied Blue Cloud a comparable license last month.
Jeff Birnbaum, a spokesman for Blue Cloud, explained that according to a three-tier system, Hard MTN Dew and Lipton Hard Iced Tea are both manufactured and marketed by separate companies.
Local beer distributors have also attempted to fend off new competition. In October, beer wholesalers in Nevada and Virginia filed complaints with regulators to revoke Blue Cloud’s license.
And in December, independent beer distributors appealed to federal regulators, asking the Treasury Department’s Bureau of Alcohol and Tobacco Taxes to investigate whether retailers are giving soft drink companies more favorable treatment for their alcoholic products. Distributors argued that soda companies routinely pay so-called slotting fees to retailers for prominent placement of their products, but doing so for alcoholic beverages would violate the three-tier system.
They also provided photos of “inappropriate placement” of Hard Mount Dew in stores, shown next to children’s juice boxes and toy cars.
Mr Birnbaum, a spokesman for Blue Cloud, said the company did not direct retailers how to display their drinks, but urged them to avoid confusing alcoholic and non-alcoholic products and to fix inappropriate placement . They also stated that Hard MTN Dew is priced in line with other malt-based ready-to-drink alcoholic beverages, and “boldly states on its label that it is intended for persons 21 and over.”
Mary Ryan, administrator of the Liquor Tax and Trade Bureau, said her office has not found evidence of any violations. The bureau is accepting public comments until March 9 on whether it should revise the rules that assess retailers’ independence, among others.
Beverage analyst Ms Sarwat expressed skepticism that the three-tier regulatory system would be abandoned by the strategy employed by Blue Cloud and PepsiCo – but she did not rule out their impact.
“Any time Pepsi or Coke do anything, given how deep their pockets are, it’s going to be watched closely,” she said.
effects on health
According to the latest estimates, excessive drinking kills more than 140,000 Americans each year, far more than deaths from drug overdoses or firearms.
Wine experts openly note the growing ranks of “cool-curious” young people, and beverage companies are trying to tap that group with a plethora of new nonalcoholic products, including zero-proof wines and nonalcoholic beverages. – Contains alcoholic aperitivos. But some public health experts have expressed concern that the widening variety of alcoholic beverages could reverse those trends.
According to Matt Rossheim, associate professor at the University of North Texas Health Science Center, the long-term effects on drinking habits won’t be known for years. “In public health, it’s constantly this game of Whac-A-Mole, because the industry is so quick to innovate and launch things, and then it takes us years to figure out what happened,” he said. Said.
Of the few government surveys that measure drinking behavior, none collect detailed data on new alcoholic beverages, said Marisa Esser, who leads the alcohol program at the Centers for Disease Control and Prevention.
The Monitoring the Future survey, which measures substance use among American students in eighth, 10th and 12th grades, will include questions about hard seltzer and ready-to-drink cocktails for the first time this fall.
Because these types of drinks are cheap, packaged in single-serve containers and sold in places like gas stations and convenience stores, they are likely to attract younger people, Mr. Rossheim suggested.
Industry executives acknowledge the marketing advantage that springboards have from familiar brands. On an earnings call in November, Rodney Sachs, chief executive of Monster Beverage, revealed that the new line of products would include “Mean Green,” “White Haze,” “Peach Perfect” and “Scary Berries”—all “based on Monster.” Well-known and popular flavor profiles.
And women are a distinguished consumer. Katherine Keyes, a professor of epidemiology at Columbia University, said the push into hard soda appeared to target female drinkers, whose alcohol consumption has been catching up to men’s in recent years. “A low-calorie, flavored alcoholic beverage has been their tried-and-true method for attracting a female market,” she said.
Still, these options shouldn’t be marketed as healthy alternatives, experts said.
“The harm from alcohol doesn’t come primarily from calories,” said Bill Kerr, a senior scientist in the Public Health Institute’s Alcohol Research Program. “They come from alcohol.”