Troubles ahead for Smirnoff Ice ?
RTD products in the US could spell trouble for Smirnoff Ice and
other flavoured malt beverages in the long term. But with three
months of consultation ahead, Diageo is hopeful of changing the
minds of the regulators.
Smirnoff Ice, the premixed drink produced by the UK's Diageo group, could see an upheaval in its sales in the US as a result of new regulations governing the ready-to-drink (RTD) sector.
The United States Alcohol & Tobacco Tax & Trade Bureau (TTB) last week published proposed new regulations on the formulation, labelling and advertising of RTD products or, as it calls them, flavoured malt beverages (FMBs).
These proposed regulations provide for a public comment period of 90 days, and the final regulations are not expected to become binding for a significant period of time, but Diageo said that its Smirnoff Ice brand could be affected in the long term by the proposed changes.
These include limiting the alcohol contribution from flavours and other ingredients containing alcohol to 0.5 per cent alcohol by volume, and a possible requirement that the majority of the alcohol in an FMB be derived from the malt base. The proposals include additional regulations on labelling and advertising for FMBs, although they do specifically authorise the use of distilled spirit brand names on malt beverages.
Unlike its UK counterpart, Smirnoff Ice in the US is a malt-based drink with the same flavour as the vodka-based version but with a far lower abv. Only the name is the truly the same. Of course, Smirnoff Ice will not the only product likely to be affected by the new regulations - there is a growing number of FMBs in the US, including such products as Bacardi Silver and Skky Blue.
Diageo said that the proposals marked a change in US policy under which FMBs have been produced, marketed and sold for the past 30 years. In that time, FMBs have experienced strong growth, and the British group is clearly of the opinion that this is simply change for change's sake. Diageo will use the 90-day comment period to provide input on the proposed regulations, it added.
Diageo sells 34 RTD/FMB products in 39 countries worldwide. In the six months to 31 December 2002, Diageo's sales of RTDs were £800 million (€1.2bn). Smirnoff Ice is sold in 34 countries globally, with annual sales of £600 million.
