A Hard Act To Follow

September 1, 2006
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A Hard Act To Follow
By SARAH THEODORE
Mike's Hard Lemonade takes the malt category to a new level
When Mike’s Hard Lemonade entered the U.S. market in 1999, it was one of the pioneers of today’s flavored malt beverage category. Since then, the market for FMBs has inspired some big-name competition, some of which came and went in a hurry. But the Mike’s brand managed to hold on to a leadership position, and now the company is out to create another new category, the malt cocktail, with the launch of the Mike-arita and Mike’s Hard Frozen Lemonade.
Mike’s was created by Anthony von Mandl, owner of parent company Mark Anthony Brands, although he prefers the title “Chief Lemon Squeezer.” In addition to Mike’s, von Mandl’s business includes a beer and wine distributorship and a winery in Canada.
“I’ve always been in the beverage alcohol business,” he says. “It’s a business that’s always fascinated me and it’s the only thing I’ve ever done.”
The Mike’s brand, he says, was the result of watching the wine cooler market take off during the ’80s, and trying to find a similar product that men would feel comfortable drinking — in public, that is.
“Coolers, at their peak, sold well over 60 million cases and that was only basically to women and certainly not on-premise, only off-premise,” von Mandl says. “Men had to be in the closet, so to speak, to drink a wine cooler. But I always believed there was a demand ... I just didn’t realize how long it would take to come up with a compelling brand.”
The brand he ultimately developed had an irreverent personality, which von Mandl describes as “comfortable and not aspirational” — its marketing, for example, features a talking bottle. Over the years, the company has expanded from Lemonade to a stable of flavors such as Cranberry Lemonade, Lime, Berry and Crisp Apple.
“We take some of the basic American things like lemonade and we add alcohol to it, we put cranberries in it,” he says. “We do things with a quirky way but they’re things everyone can relate to. That’s the essence of the brand.”
The company took the malt category a step further this year with the launch of the Mike-arita and Mike’s Hard Frozen Lemonade. While some competitive flavored malt beverages carry the names of spirits brands, the Mike-arita and Mike’s Hard Frozen Lemonade are malt-based products that actually cross over into spirits territory in packaging and positioning as well.
The development of the new brands began several years ago, with the creation of a new, proprietary malt-alcohol base that was closer in character to vodka than it was to beer. “We set out with the target of producing a neutral alcohol base that would be colorless, odorless and flavorless, out of beer,” von Mandl says.
Mike-arita is a Margarita-flavored product that is 9.9 percent alcohol by volume (compared with about 5 percent for the traditional Mike’s line). Mike’s Hard Frozen Lemonade is 11.9 percent alcohol by volume and is designed as a blender drink. As opposed to the original Mike’s line, which is packaged in 12-ounce bottles, the new products are available in 750-ml. and 1.75-liter bottles, similar to spirits packaging. Mike-arita also is available in an 8-ounce four-pack.
With the addition of the new products, the group at Mike’s has taken to calling their category “progressive adult beverages” these days rather than flavored malt beverages.
“Mike-arita and Mike’s Hard Frozen Lemonade are incredibly exciting projects because we’ve created an entirely new category,” von Mandl says. “When we looked at it, we realized that we had this building block that we could use to do different things. It’s very exciting because the access points we have at retail [as a malt-based product] are something like eight-fold more than spirits.”
The company believes the new brands, as well as the continued success of the original Mike’s line, have it poised for growth, and last year it moved its headquarters from Denver to Seattle to be closer to Mark Anthony’s base in Vancouver. The company has a nearly brand new executive team in the United States and is in the process of renovating an “industrial-chic” office space in Seattle’s Pioneer Square.
Plans for the new sales and marketing team include gaining distribution in more retail channels and adding new, more visible marketing. The Mike’s brand currently is the leader in grocery outlets, but has relatively little distribution in other channels such as convenience stores.
“Companies go through life stages, and we’re sort of embarking on another stage of very significant growth,” von Mandl says. “I would expect that as we drive distribution, our business will double.
“It’s really because we, and I personally, believe so much in the upside. Although Mike’s is available in every state and you can find us in every town, we’re not in every account. We know that if Mike’s Hard Lemonade were everywhere Budweiser is sold, our business would more than double.”
Lab tested and approved
Research and development is one of the most important parts of the Mike’s business, von Mandl says, although he adds that the company takes its time introducing new products.
“We’ve never acquired anything; this company has been completely built organically,” he says. “We’re doing a lot of research in a number of different areas. Most of the things probably will never see the light of day. But we’re trying to see where we can go, what directions we can go and ultimately we’ll see what consumers might get excited about.
“We launch very few brands,” he adds. “We’re not a company that believes in throwing things up against the wall and seeing if they stick ... our philosophy is that we don’t want things that become ‘also-rans.’ We’re really looking at building an enduring brand.”
The company has a new R&D center and an in-house product development team. Less visible to consumers is the investment the company has made in production quality control and standards testing, but von Mandl says it is one of the most significant parts of the brand’s evolution. He says the company invests heavily into not only its own lab but in the facilities of its contract brewing partners.
New taste preferences
Von Mandl believes the flavored malt beverage category still holds a great deal of untapped potential, due in large part to a fundamental shift that has taken place in consumer taste preferences.
“We reflect the kinds of changes that have happened in America over the past 20 years in terms of the consumer landscape, of what people eat and drink,” von Mandl says. “We have gone from hamburgers, fries and chicken to the choices we have today from sushi to Italian to Thai — this incredibly broad selection that people have in their everyday vocabulary of things they eat and drink.”
But while there are many more flavor choices in foods and non-alcohol beverages, “that really hasn’t hit the beverage alcohol category, except in spirits,” says Vice President of Marketing Kevin McLaughlin. The company’s goal is to provide the kind of variety to the alcohol beverage segment that consumers now enjoy in other categories.
Interestingly, the company’s research indicates that rather than taking sales away from beer, the flavored malt beverage category provides incremental value. “Based on our research, 67 percent of the volume is incremental, so it’s pretty phenomenal,” McLaughlin says.
“If you’re throwing a party, what are people likely to drink?” von Mandl says. “It used to be, 10 years ago, you’d go out and buy beer and maybe some wine coolers. Today it’s become a lot more sophisticated. If you can go into the beer aisle and also pick up a Mike-arita and some Mike’s Frozen Hard Lemonade, you’re still going to buy the beer but you now have created a much more exciting occasion.”
Talk to the bottle
Another new move this year is more aggressive advertising from the company, which in the past has taken a more low-profile approach.
“We sold our first 10 million cases of Mike’s without spending one penny in advertising,” von Mandl says. “It was completely a discovery brand.”
But the size of the brand today calls for more advertising, and the company shot television commercials for Mike-arita in Mexico featuring the brand’s “talking bottle” and Mexican consumers. The company also launched a new version of its Web site, designed to reinforce the irreverent humor of its marketing. Consumers can “talk to the bottle” via e-mail messages and listen to a “Sounds of Mike’s” page featuring songs and prank phone calls performed by the talking bottle.
“Our media investment has been significantly more,” von Mandl says. “In terms of marketing the brand, we like to do that in a very guerrilla way. We will never try to compete with big beer. We’re more akin to craft breweries.”
One of the areas in which the Mike’s brand has evolved during the past several years is its packaging. The six-pack carriers have been designed with a more premium, consistent look that creates a billboard effect when placed side by side. “We’re getting a lot better at the detail and making certain we have a brand that really screams on the shelf,” von Mandl says.
Packaging for the new spirits-inspired Mike-arita and Mike’s Hard Frozen Lemonade bottles includes a 1.75-liter bottle with a handle and a tapered 8-ounce bottle with a solid base for the Mike-arita. Also innovative is the core line’s 12-pack carrier with an expandable handle for easier carrying.
On the docket for the coming year is more new packaging that von Mandl says is “dramatically new and different.”
“We’re doing some innovative work in glass right now, and that’s something that the market will see early in the new year,” he says. “Those things are very major investments and take a lot of time and effort.”
On the lighter side
Not to be lost in the shuffle of all things new, Mike’s Light Hard Lemonade, a newly reformulated version of an existing product, is one of the company’s leading varieties this year. In fact, the product is the fastest-growing brand in the flavored malt beverage category, according to Information Resources Inc., with a 40 percent year-to-date sales increase over last year. Overall, Mike’s brands are up 8 percent, the company says.
“That was an extremely difficult product to formulate,” von Mandl says. “It’s very difficult to try to take the sugar out and replace it. In the end, it took us a few years to get to the point where we now think it’s great.”
A common theme at Mike’s is a premium image, and the company is adamant about maintaining premium positioning and pricing. It says the average age of its consumers is 32 years old, with higher income and education levels, similar to import or craft beer consumers. Its products, it says, should be priced accordingly.
“We believe people should realize full value from our products,” McLaughlin says. “We don’t believe we should be discounting. We firmly believe we should be aggressive with our pricing, as should other people [in the category].”
As for the future of flavored malt beverages — or progressive adult beverages in Mike’s-speak — von Mandl says “the dam has broken” and consumers will continue to explore new flavors and be receptive to new concepts.
“I think more than ever, people are drinking what they like,” he says. “It’s not surprising they’re drinking Corona or craft beers, it’s not surprising they’re drinking Mike’s Hard Lemonade because they’re drinking brands they can relate to and brands that deliver the kind of taste that suits their new frame [of mind] and their new choice of occasion.”

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