Boozy Topo Chico arrives, but Coke’s alcohol strategy remains a secret

It has been 37 years since Coca-Cola

KO
sold an alcoholic drink in the United States, but that will change in 2021 when the soda giant enters a market crowded with hard seltzer thanks to its Topo Chico brand.

News of Coke’s foray into the alcohol business swept on social media yesterday afternoon after CNBC confirmed what company planned to sell an alcoholic version of Topo Chico in the United States after a first try in Latin America over the next few months.

When it begins offering the new product in the United States, Coke will face two established players – Mark Anthony Brands (White Claw) and Boston Beer Company.

SAT
(Really) – which together hold about 85% of the category.

After White Claw and Truly, there are hundreds of other brands competing for the remaining slice of the market, including several SKUs from Anheuser-Busch, Molson Coors,

TAP
Constellation marks

STZ
and dozens of craft beer companies.

According to data from Bump Williams Consulting reported by the the Wall Street newspaperAmericans spent about $ 3 billion on hard seltzer in the 52-week period ending July 11, 2020. During that time, sales of alcoholic sparkling water increased 241%.

however, recent data by market research firm Nielsen

NLSN
indicates that the scorching hard seltzer sales are starting to calm down. Between March and May, hard seltzer sales rose 312%, a trend that has since slowed to 180% in the past two months.

Nevertheless, Coke’s 2021 Topo Chico play comes at a time when consumer interest in hard seltzer is at an all time high and the most dominant players are invest in additional production capacity to answer the question.

But questions about Coke’s long-term goals in alcohol and its distribution strategy remain.

How is Coke going to bring Topo Chico to the market? Will he try to convince a national network of DSD wholesalers to obtain alcohol distribution licenses, or does he plan to work through an already established three-tier system of beer distributors?

Additionally, does Coke’s surge into the alcohol business indicate an increased appetite to compete for additional occasions, perhaps through a ready-to-drink version of the classic “Jack and Coke”?

It’s something of a sports journalist and beverage investor Darren Rovell thinks it could be a possibility.

“If Disney and ESPN can get into gaming, companies like Coke and Pepsi can get into alcohol,” he said, noting that he felt the Coca-Cola surge in the alcohol was “late”.

“But is this the right decision?” He asked. “In a way, it’s because it’s with a brand – at least in Texas and the South – that has ridiculous love, adoption, and loyalty.”

Beer Business Daily Publisher Harry Schuhmacher, who lives in Texas and has watched bar fans order “Topo and Tito’s (vodka)” for years, agreed.

“In Texas and the Southwest, Topo Chico almost has a legendary sequel,” he said. “I’ve seen so many people with Topo Chico tattoos. He has a very strong brand image. “

Both Rovell and Schuhmacher thinks Coke might have some additional line extensions, but the company might also just try to ride the hard seltzer wave while it’s hot.

“Coke has always been reluctant to engage in the alcohol business in the United States, and in particular to put alcohol in their trucks as a traditionally conservative business,” said Schuhmacher. “But times have changed, and I think it’s a good way to test the alcohol business without giving them too much visibility.”

Indeed, Coke’s entry into the American alcohol space won’t be as simple as making a hard seltzer, slapping the Topo Chico logo on the cans and sending them to about 70 independent bottlers across the country for placement on retail shelves.

If existing Coca-Cola distributors who don’t already sell alcoholic products want to sell Topo Chico hard seltzer, they will need to go through federal and state licensing. process. It’s a procedure he may not be interested in, Schuhmacher noted.

“It’s more complex than people think,” he said. “There are more laws in the alcoholic beverage industry in the United States than there are in insurance or any other business, and Coke bottlers just aren’t used to it. that.

In parts of the country, however, Coke has relationships with companies like Reyes Beverage Group, a beer wholesaler. Schuhmacher believes Coke could initially target markets where Reyes sells alcoholic and non-alcoholic products – such as California and Chicago – for preliminary tests.

But if Coke is to roll out the product in its main market in Texas, the local bottler will need to get a license or Coke will need to work through beer wholesalers, Schuhmacher said.

“If they do business with beer wholesalers, they risk upsetting their bottlers,” he added.

Regardless of the route to the market, Coke seems to bet on the followers of the Topo Chico cult in the southwest.

“I’ve never seen a beverage brand with more equity here than this brand, to the point where Coke distributes it in Texas on separate trucks,” Schuhmacher said. “It’s one of those unique regional brands that’s everywhere.”

But nationally, Topo Chico could have a much harder time stealing market share from White Claw and Truly.

“It is possible that they are impenetrable,” Rovell noted.

For his part, Coke kept most of his cards close to the waistcoat. It is not known how the product will be formulated, where it will be manufactured and who will bring it to market.

But if the fervor from yesterday’s announcement is an indication, it could be a home run.



About Mary Moser

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