Coolers heat the market

VICTOR DWYER March 21 1988

Coolers heat the market

VICTOR DWYER March 21 1988

Coolers heat the market


They are light and fizzy, sweet and fruity and they come in such cutely named flavors as “berry berry” and “frosty peach.” And in the seven years since coolers first entered the North American market, sales of the bubbly blends of wine, beer, spirits, fruit flavors and carbonated water have grown faster than any other kind of alcoholic beverage. As the spritzy cocktails exploded in popularity, they reshaped the industry and fuelled a cutthroat market-share battle. But cooler sales are now levelling off, and some industry insiders question whether or not there are still significant profits to be made in that oncemushrooming sector. Said Peter Knox, marketing manager for T. G. Bright and Co. Ltd. of Niagara Falls, Ont.: “The big guys are spending tremendously. Whoever can afford to shout the loudest will get the biggest market share.”

When wine coolers first appeared in California in 1981, both U.S. and Canadian wine sales were sluggish, and, for health reasons, there was a general trend away from alcohol of all kinds. In fact, alcohol consumption has dropped by almost 25 per cent in Canada over the past five years. Indeed, consumption of hard liquor has declined at the same time as the cooler market has boomed. Wine-based cooler sales more than doubled each year since 1981, and in 1987 the sale of wine-, beerand spirit-based coolers exceeded $2 billion in North America. As a result, most major vintners, brewers and distillers on the continent have entered the compe-

tition. Distilling giant The Seagram Co. Ltd. of Montreal spent more than $50 million on advertising to become the industry pace-setter with sales of $350 million in 1987. And some analysts say that competition is so intense that some cooler producers are forgoing profits now in an attempt to hold onto to their market share.

Coolers were invented by two California surfing friends, one a frustrated beer salesman, the other a commodities trader. In 1981 Michael Crete and Stuart Bewley began bottling a

home-made citrus-andwine concoction that Crete had developed in college during the 1970s. Their drink was so popular among their friends that they formed a company to distribute it. And in just three years their California Coolernamed to convey lightness and refreshmentgenerated sales of $100 million.

Crete and Bewley’s invention was timely, especially because of the continent’s ebbing alcohol sales. As well, the Canadian wine industry’s problems were compounded by high federal taxes and competition from cheap European wines. In 1983 the profits of such major vintners as Bright’s and Andrés Wines Ltd. of Winona, Ont., fell by 10 per cent and 13 per cent, respectively, while across the country sales of all domestic wine dropped by 14 per cent. As a result, some concerned Canadian vintners carefully watched the launch and success of California Cooler, and in 1984 Mississauga, Ont.-based Ridout Wines Ltd. decided to cash in with what company officials named Canada Cooler. It was an immediate hit and is still the most popular wine-based cooler in Canada, with sales of more than $3 million in 1987. Since 1984 the trade in wine-, beerand spirit-based coolers in Canada has grown to include 16 companies—10 vintners, three distillers and three breweries—marketing 50 different cooler brands.

In the United States, where the sector’s growth was even more spectacular, there has been a dramatic consolidation. Five companies now sell 75 per cent of all coolers, and Seagram and the giant Gallo Wine Co. of California generate 50 per cent of all sales.

Many analysts say that they believe the cooler market in Canada and the United States has now peaked, and that a fierce struggle for market share is taking place. In fact, in the United States, cooler sales increased by 12 per cent in 1987 after jumping by 66 per cent in the previous year. And in Canada, industry spokesmen are predicting that sales will level off by 1989. As a result, only those firms with strong financial and marketing muscle will be able to hold their own or increase their market shares. In

fact, cooler manufacturers are now spending four times as much on advertising a case of coolers as they do on a case of wine, and they are spending seven times as much on cooler advertising as on beer promotions. According to Impact, an industry marketing magazine based in New York City, U.S. cooler-makers spent almost $200 million advertising their products last year, with Gallo and Seagram spending between $50 million and $65 million each.

Seagram has led the pack in North America. Its Canadian sales of all coolers —both wineand spiritbased—reached $15.5 million last year, giving the firm a commanding 27 per cent of the $57.4-million national market. And its operations in the United States have 24 per cent of that country’s $2-billion cooler mar-

ket. As well, the cooler revolution has offset declining sales in some of Seagram’s hard-liquor brands. Sales of its once-popular 7 Crown rye whisky dropped by almost 10 per cent in 1986, while six of its top 10 brands of spirits slipped by an average of 36 per cent over the past decade.

Coolers also play another key role in Seagram’s long-term strategy. Last week the huge company agreed to purchase Tropicana Products Inc., one of the largest fruit-juice companies in the United States, for $1.5 billion. Company officials in Toronto say that the coolers have become so popular

that curious consumers actually go on to sample Seagram’s more traditional product line. Said Rudi Tomiczek, project manager for Seagram in Toronto: “Our coolers can provide a direct spinoff to our hard spirits. Drinkers start with a Seagram’s cooler, but in a few years they may be drinking V.O. or Captain’s Rum.”

As well, coolers, especially spiritbased coolers, get a break from the high taxes and the strict advertising regulations that apply to the Canadian alcohol industry. In 1987 the Canadian Radio-television and Telecommunications Commission ruled that spirit-based coolers could be advertised on television because their alcoholic content is less than six per cent, compared to hard liquor’s 40 per cent. Meanwhile, taxes on the premixed coolers are about one-third as high as

the routine 120 per cent on spirits.

Seagram’s success in the United States and Canada reveals as much about the volatile and trend-driven cooler market as it does about Seagram’s aggressive marketing strategy. According to Patricia Clarke, managing editor of the Ontario-based trade publication Beverage Alcohol Reporter, Seagram’s decision to promote different coolers in diverse markets reflects the company’s willingness to promote whatever will most appeal to young, trend-seeking consumers. Added Clarke: “Seagram’s has been concerned with one thing only: who is ahead of them and how to get past that player.”

At the same time, Seagram’s introduction of new cooler flavors, including wild berry and peach, has become popular with consumers who had become bored with the original citrusflavored wine-based coolers. In fact, in Ontario, Seagram’s Wildberry Vodka Cooler accounts for 30 per cent of all coolers in the province.

Other firms in the industry quickly reacted to Seagram’s advances. To keep pace, last year Hiram Walker & Sons Ltd. of Windsor, Ont., purchased sixth-ranked Calvin Cooler, and last December Corby Distilleries Ltd. of Montreal countered by purchasing McGuinness Distillers Ltd. of Toronto, including its line of coolers, for $45 million. Said Corby vice-president Jacques Langevin: “With the market the way it is, we are delighted to get coolers into our portfolio.”

Despite the cost of getting into the already-crowded cooler market, two of the continent’s major brewers recently decided to involve themselves. Milwaukee-based Miller Brewing Co., the world’s second-largest brewer, spent $53 million last September to launch its Matilda Bay cooler. For its part, Montreal-based Molson Breweries of Canada Ltd. introduced Durango, a malt-based cooler, into Canada last fall. So far, the brewers’ coolers have not sold well, but officials at Miller Brewing remain optimistic. Said company spokesman Beverly Jurkowski: “Sure, some people are saying we got in too late but they are wrong, and we’ll prove they are wrong this summer.”

Despite that optimism, some industry experts are questioning the wisdom of such late entries. Said Seagram’s Tomiczek: “In Canada, at least, our studies have shown that all the companies are in. If you are not in by now, don’t bother trying to get in.” Still, with so much at stake, many companies appear to be willing to take the risks involved in getting in on the hot new cooler war.