The Buzz About the Buzz

Energy drink plus beer equals strong sales (and bad publicity).

From left: Bud Extra, Sparks, and Liquid Core

Anheuser-Busch Companies, Incorporated (BUD)

Industry:

Food and Beverage

Summary:

The Company's operations are comprised of the following principal business segments: domestic beer, international beer, packaging and entertainment.

Primary executive:

August A. Busch, IV,

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I tended bar to help pay for grad school. I learned a lot about beer, and I learned an important lesson from an older guy named Paul who worked weekends with me. Around 11 o’clock on most Friday nights, Paul would get a cup of black coffee and tip a shot of Old Grand-Dad in it. He’d take a sip, smile, and say, “Catch the buzz, stay awake to enjoy it.”

I lost track of Paul over the years, so I never knew if he picked up on the whole Red Bull-and-vodka craze, a younger generation’s version of his late-night party prolonger. But the brewing industry has, with some small but solid success in the higher-priced niche of energy beers. But the rollout of these beers has also sparked a negative reaction by antialcohol institutions, which see these potions as the latest threat to America’s under-21 crowd.

Caffeinated beers have been around for a few years, bouncing from promotion to promotion as companies looked for an effective way to market them. SAB Miller has Sparks, Anheuser-Busch sells Bud Extra (originally labeled a ridiculously unpronounceable Be, which we were told was “B to the E”) and Tilt, and smaller companies have jumped in with brands like Liquid Core, Moonshot, and Rock Star 21, a spin-off from the established Rock Star energy drink.

There have been a few coffee-flavored craft beers with relatively small amounts of caffeine. That’s not the model here. When you open up a Sparks or Tilt, it’s clear from the first citrusy-fruity whiff and thickly sweet flavor that Red Bull was on the formulators’ minds. (Moonshot is the exception, a straight-up light pilsner with the caffeine of one cup of coffee hidden inside.)

Red Bull became an enormous success—they hold half of a U.S. energy drink market worth over $4 billion—by adding caffeine and taurine (along with a barrage of guerrilla marketing) to the sugars and flavor of drinks like Gatorade. Drinkers, bartenders, and spirits companies were quick to add a shot of booze. Red Bull with vodka and the Jägerbomb (a shot of Jägermeister liqueur in a glass of Red Bull) quickly became the hot tonics for the party-all-night crowd.

The energy beers have put the stimulant cocktail in a can, making for one less step in the mixing process, always a plus behind the bar or at a fast-moving house party. It’s also an easy package to pick up at the store. Volume has been relatively small—Sparks sold about 350,000 barrels last year, less than 1 percent of Miller’s total—but, like energy drinks, energy beers sell for a premium: more than $2 a can on most retail shelves, about twice as much as a mainstream beer.

What makes these prepackaged buzz bombs even more attractive to producers and retailers is that they’re still cheaper than spirits-based cocktails because they’re beer based. For arcane policy reasons, beer is taxed at a significantly lower federal rate than wine or spirits, and usually at a lower state rate as well. Drinks like Smirnoff Ice and Bacardi Silver are beer based, despite their liquor-brand nameplates, because of that tax differential.

That’s one of the things that put energy beers on the hit list of antialcohol groups like the Center for Science in the Public Interest, which recently announced its intent to sue A.B. and Miller over the drinks, charging that they are aimed at underage drinkers and contain more alcohol than standard beers. Similar organizations have agitated for taxing the drinks at the higher liquor rate and for banning any use of caffeine in alcohol beverages. Last year 29 state attorneys general sent a letter to A.B. that sharply criticized the company’s energy beers, including a 12 percent alcohol product called Spykes—packaged in 2-ounce bottles—that has since been withdrawn.

Even though caffeine-overdose deaths are very rare, assertions are being made that alcohol energy drinks suppress the effects of intoxication, leading young people to drink more than they would otherwise. These new drinks are deemed different and dangerous, because, they note, they’re “marketed to underage drinkers.”

I don’t think much of these drinks as beers, per se. As a category, they’re overly sweet, goopy with fruit flavors, and not much for pairing with food. Yet I also don’t see them as very different from Red Bull cocktails, coffee liqueurs, and Paul’s Old Grand-Dad and coffee. Still, at some point the question will come up whether the profits from this niche are worth the negative publicity they generate. Judging from the past, once these groups start beating the drums on a topic, they don’t give up.

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