The Treasury's Alcohol and Tobacco Tax and Trade Bureau said its move was prompted by the popularity of products such as Smirnoff Ice, Mike's Hard Lemonade and Ice Tea, and Zima. The bureau said it it wanted to take a new look at whether these drinks are really beers or liquor. Under proposed new guidelines, out of 114 flavored malt beverages, 110 would be reclassified as liquor.
$70 million in advertising
Almost $70 million is spent annually on advertising for these flavored malt beverages, though the category seems to have peaked well-short of the double-digit percentage of beer sales malt marketers were expecting.
The products, which get some of their alcohol from beer but their flavor and other alcohol from distilled spirits, have been classified as beers. The Treasury Department has now proposed that if more than 10% of the product's alcohol or 0.5 % of flavoring comes from distilled spirits, the products should be re-classified as distilled spirits.
The Treasury Department said only four out of the 114 malt alternatives would meet the new standard. The remaining brands would be subjected to higher taxes and also effectively be barred from advertising on TV networks (which have refused ads for distilled spirits products). Marketers would also have a major distribution problem on their hands because state laws differ on how beer and distilled spirits can be distributed and where they can be sold.
The Treasury Department also proposed some new limits on the use of liquor terms such as "whiskey" and "rum" in ads.
Perhaps because the proposal is so jarring, the department did not say when the rules would be implemented. It suggested that another possibility would be to simply require 51% of alcohol for the products come from malt.
Diageo's Smirnoff Ice remains the biggest product in the segment, followed by Mike's Hard Lemonade.