Prepared Foods August 23, 2005, enewsletter

Anheuser-Busch Cos. will launch a raspberry-flavored, caffeinated malt beverage -- the second time in less than a year the nation's largest brewer has produced a drink aimed at younger people who shun beer.

The new drink, Tilt, will have a "bold berry flavor" and will not resemble beer except for its malt base, said Pat McGauley, vice president of innovation and new products at St. Louis-based Anheuser-Busch.

Tilt will be a niche product, McGauley said. It will be aimed at people ages 21 to 27 who are looking for a "transition" beverage for the period between the end of their workday and the start of their night out, said McGauley and Mic Zavarella, Anheuser-Busch director of innovation.

Tilt's target audience "is looking for these different types of products," McGauley said during a teleconference with reporters.

Many of those younger drinkers have been turning away from beer in recent years.

Since 2000, beer's share of the overall alcohol beverage market has eroded, while the share held by wine and spirits has gained ground, according to New York-based consulting firm Beverage Marketing Corp.

Much of beer's decline is tied to inroads that sellers of vodka, tequila and other spirits have made with consumers in their 20s. Propelled by aggressive marketing, a new generation of drinkers is showing a growing preference for sweeter drinks, such as martinis and other cocktails made with fruit-flavored spirits.

U.S. beer volume sales declined 1.2% during the first six months of 2005, compared with the same period in 2004, according to trade publication Beer Marketer's Insights. Anheuser-Busch's volume dropped 3.2% during the first half of 2005, while Milwaukee-based Miller Brewing Co.'s volume declined 1.8%.

The loss of market share by brewers to the spirits industry led Anheuser-Busch last November to launch B-to-the-E, a beer infused with caffeine, ginseng and fruit flavors.

While Tilt and B-to-the-E both contain berries, ginseng and caffeine, the two drinks have significant differences, McGauley said.

B-to-the-E tastes like a beer with fruit flavors, McGauley said, while Tilt has a stronger berry taste with little connection to beer.

Also, B-to-the-E is sold mainly at clubs and taverns, where it is frequently used as a mixer with other drinks, Zavarella said. Tilt, which will be packaged in 16oz. cans and marketed primarily as a drink to be consumed at home, he said. In fact, Tilt targets male drinkers who are expected to consume the beverage off-premise and after work as opposed to co-ed drinkers who consume B-to-the-E late at night at on-premise locations like bars and night clubs.

"I think there will be very little overlap" between the two drinks, Zavarella noted.

Each 16-oz. serving of Tilt -- packaged in sleek, aluminum cans -- contains either 6.6%, 6% or 4% alcohol by volume, depending on state law. Cans will be sold individually.

Each 16oz. serving contains about 70mg of caffeine, which is about 27% more caffeine than in a 12oz. can of Mountain Dew. The roll-out will be gradual, with nationwide distribution reached by October.

While Anheuser-Busch is considering other alternative drinks, Miller has been more cautious about investing in that segment.

Miller, the nation's second-largest brewer, spent $16 million to launch Skyy Blue, Stolichnaya Citrona, Sauza Diablo and Jack Daniel's Original Hard Cola in 2002. However, demand for flavored malt beverages was fading as Miller's drinks hit the market.

Miller dropped Stolichnaya Citrona, Sauza Diablo and Jack Daniel's Original Hard Cola in 2004, and it recently began phasing out production of Skyy Blue.

However, Miller has been test marketing Brutal Fruit, a fruit-flavored malt beverage imported from South Africa. The drink was launched in 2002 in South Africa by SABMiller Plc, Miller's corporate parent.

B-to-the-E and Tilt are aimed at attracting drinkers who like energy drinks such as Red Bull while also picking up consumers who enjoy flavored malt beverages, or malternatives, said Brian Morgan, U.S. research analyst at the Chicago office of London-based consumer market research company Euromonitor International.

Energy drinks in particular have found a receptive audience among young drinkers who mix them with spirits such as vodka.

"A-B is trying to create a high-growth hybrid category," Morgan said. "If it catches on as a popular drink mixer and becomes seen as a high-profile brand, (Tilt) definitely could see some short-term gains."

However, he doubted the sustainability of this kind of drink, given that it remains a malt-based beverage. "The problem is that young people are turning away from beer," Morgan said. "This product does not really solve that problem."

Tilt and B-to-the-E may follow the path of malternatives, which saw rapid growth before peaking in 2002, he added.

Though still lucrative, malternatives have declined steadily in sales for the last two years, buoyed only by new flavors. This decline will continue through 2009, according to Euromonitor projections.