NEW YORK:
IT'S A TOUGH time for genuine, pure, old-fashioned, honest-to-goodness brewers. Non-beers are blowing some of the froth off their business and traditional beer companies themselves are starting to look for new 'malternatives'.

US brewers are fighting a market war on two fronts. On the one hand, their traditional beers are trying to fend off alternative flavoured malt drinks. And now, they are starting to take on the non-beers with their own new concoctions.

Industry watchers are eager to see how the big players are able to position their core drinks against beverages such as Diageo's Smirnoff Ice and, at the same time, bring their own alternative drinks to the market.

The 'malternatives' are luring consumers away from premium light beers, the mainstays at the three top brewers -Anheuser-Busch Cos, Philip Morris Cos's Miller Brewing Co and Adolph Coors Co.

Anheuser's Bud Light, the top-selling beer in the US, did a better job dealing with the onslaught of flavoured alcoholic beverages in '01 than either Coors' or Miller's light beers did, said ABN Amro analyst Mark Swartzberg.

Mr Swartzberg said that Miller and Coors are both "still trying to connect. They're still trying to bring new excitement to those very important brands, Miller Lite and Coors Light." Still, Miller has two malternative deals in the works and Coors is readying for a global expansion through Carling.

Anheuser-Busch is partnering with Bacardi USA on a drink called Bacardi Silver, while Miller is linking up with the makers of the premium Skyy vodka for SKYY Blue as well as teaming up with Allied Domecq on other spirits-branded beverages.

The drinks are all expected to hit the market in the coming months. Allied Domecq spoke with all major US brewing companies - including Anheuser and Coors - before making the decision to partner with Miller, its chief executive Philip Bowman said.

Bowman called Miller 'the optimum partner' for such a project, which will bring malt drinks flavoured with concentrate from Allied's Stolichnaya vodka and Sauza tequila to American consumers this spring.

The companies will also look at adding drinks based on such spirits as gin and American whiskey. Bacardi Silver is expected to go through Anheuser-Busch's distribution system, a huge opportunity for a new drink.

"Thirty per cent of all malt beverages consumed in the US are sold by wholesalers who sell only Bud products," Mr Swartzberg said. The new malternatives coming to market are likely to be priced at a premium. Miller said SKYY Blue will cost more than most other alternative malts, while the Allied Domecq/Miller drinks are likely to fit somewhere between Smirnoff Ice and the pricier SKYY Blue, Bowman told Reuters.

Coors, the No 3 US brewer behind Anheuser-Busch and Miller, has been rumoured to be working on a new malternative as well, but the company has made no formal announcements.

The main news coming out of Coors in recent weeks is its plan to buy Interbrew's Carling assets, marking its first major move abroad. Coors is likely to be the most vulnerable in the battle against cannibalization from malternatives since it is the most dependent of the top three companies on premium light beer. And, as of right now, it is the only one of the top three that has no official plans to launch a malternative of its own.

Sales of alcohol typically climb during economic downturns as people look to escape from their troubles, but domestic beer shipments have not been all that stellar.

"I think it's fair to say that for all of them, at least from a volume perspective, '01 probably didn't deliver the growth they had hoped for at the beginning of the year," Swartzberg said.

"I think the real issue in '02 will continue to be who builds share and who doesn't.

" UBS Warburg analyst Caroline Levy said she believes that imports were partly to blame for a drop in domestic brewer shipments in '01. According to Levy, imports commanded an 11 per cent share of the market in '01, up from a 4 per cent share in 1991.

She also cited malternatives as a factor. Levy said that "in spite of the growing 20-something population, shipment trends have failed to markedly improve.

" The companies' shares, meanwhile, have often been a safe haven for investors looking to cushion themselves from the choppy waters of more volatile sectors, such as technology.